WORLD BANK TECHNICAL PAPER NO. 386 W TP3 8G Work in progress -for public discussion Water Pricing Experiences An International Perspective Adit(d/ b)' Arje/t' I)i,iarz ,1 1ty >irD. zozniz RECENT WORLD BANK TECHNICAL PAPERS No. 304 Foley, Photovoltaic Applications in Rural Areas of the Developing World No. 305 Johnson, Education and Training of Accountants in Sub-Saharan Anglophone Africa No. 306 Muir and Saba, Improving State Enterprise Performance: The Role of Internal and External Incentives No. 307 Narayan, Toward Participatory Research No. 308 Adamson and others, Energy Use, Air Pollution, and Environmental Policy in Krakow: Can Economic Incentives Really Help? 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Copyright © 1997 The Intemnational Bank for Reconstruction and Development/THE WORLD BANK, 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing October 1997 Technical Papers are published to communicate the results of the Bankes work to the developmnent comnmunity with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the proce- dures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they.represent. 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The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which con- tains an alphabetical title list with full ordering information. The latest edition is available free of charge from the Dis- tributiont Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or fr-om Publications, The World Bank, 66, avenue d'Iena, 75116 Paris, France. ISSN: 0253-7494 Ariel Dinar is senior economidst in the World Bank's Rural Development Departmnent. Ashok Subramanian is a water institutions development specialist in the Rural Development and Environtmental Group of the World Bank's Mfiddle East and North Africa Region. Library of Congress Cataloging-in-Publication Data Dinar, Ariel, 1947- Water pricing experiences: an intemnational perspective /Ariel Dinar, Ashok Subramanian. p. cm. - (World Bank technical paper; no. 386) Includes bibliographical references (p.) ISBN 0-8213-406-3 1. Water-supply-Rates-Case studies. I. Subramanian, Ashok, 1950- . II. Title. HI. Series. TD360.1D55 1997 338.4'336361-dc2l 97-37010 CIP CONTENTS FOREWORD .................... vi ABSTRACT .................... vii ACKNOWLEDGEMENTS .................... viii 1 WATER PRICING EXPERIENCES: AN INTERNATIONAL PERSPECTIVE .1 2 ALGERIA ..13 3 AUSTRALIA ..17 4 BOTSWANA ..24 5 BRAZIL . .32 6 CANADA . .37 7 FRANCE . .46 8 INI)IA ................ 54 9 ISRAEL . .61 10...ALY.64 11 MADAGASCAR ....69 12 NAMIBIA ..78 13 NEW ZEALAND ......85 14 PAKISTAN ..92 15 PORTUGAL ..99 1i5 SPAIN ..104 15 SUDAN ..112 18 TAIWAN (CHINA) ..115 19 TANZANIA ..120 20 T U N . . ..ISIA. 125 21 UGANDA ..134 22 UNITED KINGDOM ........ .139 23 UNITED STATES ..144 24 CAPITAL COST RECOVERY: WORLD BANK EXPERIENCE IN IRHIGATION PROJECTS ....................................................------------------------------------------149 25 WATER USER ORGANIZATIONS AND IRRIGATION OPERATION AND MAINTENANCE: FINANCIAL ASPECTS ........................................ 154 AUTHORS' INFORMATION ..................................................................... 162 ANNEXES 4.Al Proportion of water consumed through standpipes versus private connections, selected locations ..................................................................... 31 25.A1 Water services categories and costs in Haryana, India ...................................................... 160 iii TABLES 1.1 Increases in water prices in 15 industrial countries, July 1994- July 1995 .......................... 2 1.2 Price ranges for various sectors and countries in the analysis ............................................... 7 1.3 Relationship between pricing reforms and selected country characteristics .. 10 2.1 Drinking water prices ................................................................. 15 2.2 Irrigation water prices, 1985-1995 ................................................................. 15 2.3 Exchange rates 1985-95 ................................................................. 15 3.1 Bulk water tariff structure in the Barwon region of New South Wales . . 19 3.2 Typical household water use and charges for major Australian urban areas,1993-94 ..... 20 4.1 Water consumption by sector, 1990 ................................................................. 25 4.2 Tariff schedule, 1990 ................................................................. 26 4.3 Tariff schedule, 1993 ................................................................. 26 4.4 Revenue compared with costs ................................................................. 26 4.5 Tariff schedule 1991 contrasted with tariff schedule 1993 . ................................................... 27 4.6 Utility prices as percentage of total cost, 1995 .................................................................. 29 5.1 Irrigation water tariffs in public irrigation projects, 1995 . .................................................. 34 6.1 Frequency of municipal water rate structures by province and rate type, 1991 ... 41 6.2 Average price for municipal water service, by province and class of service, 1991 ... 42 6.3 Unit prices and marginal prices for municipal water service by province 1991 .. 43 7.1 Water resources, withdrawals, and consumption by sector, 1990 . . 46 7.2 The resource tax from Rh6ne-Mediterranee-Corse Water Agency (covering Rhone Valley, Mediterranean and Corsican water basins) ........................................................... A8 7.3 Urban water prices ........................................................... 50 7.4 Drinking water price according to the management, 1994 . .................................................. 50 7.5 Irrigation water charges by type of water management ....................................................... 51 7.6 Water charges collected by water agencies, 1995 ......................................... 52 8.1 Canal water rates for irrigation in major states of India, 1989-90 . . 56 8.2 Domestic and industrial water rates in Delhi, Madras, and Hyderabad . . 57 9.1 Salt content and rate of substitution between brackish and high-quality water ... 63 10.1 Water consumption by sector, 1971 and 1989 ........................................................... 64 10.2 Average water tariffs to farmers ........................................................... 65 10.3 Concession fees, 1994 ........................................................... 66 10.4 Economic performance of irrigation consortia ........................................... 67 10.5 Water tariffs in municipality A ........................................................... 67 10.6 Water tariffs in municipality B ........................................................... 67 11.1 Water supply in Madagascar, 1993 ........................................................... 69 11.2 Water tariffs of Jiro Sy Rano Malagasy, July 1991-January 1996 . . 74 12.1 Water supply and demand by sector, 1995 ............................................................................. 78 12.2 Income and expenditures for state-supplied potable water . . 81 12.3 Examples of consumer tariffs in Namibia .. 82 12.4 Block tariffs for urban water supply .. 82 13.1 Summary of urban residential water charges, 1995-96 . . 87 13.2 Water consumption, costs, and revenues in Christchurch, 1994-1995 . .88 13.3 Metering and its costs: Christchurch City ..88 14.1 Water rates for major crops, 1924 and 1934 ..93 14.2 Increases in water rates, 1959 ..95 14.3 Provincial periodic increases in water rates since 1959 ..95 iv 14.4 Historical operation and maintenance expenditures and revenues per acre ....................... 96 14.5 Water rates for unmetered households .................................................................. 96 14.6 Water rates for metered supplies: households and industries .............................................. 97 15.1 Water use by sector .................................................................. 99 15.2 Lisbon average water prices, 1994 .................................................................. 100 15.3 Lisbon water prices, 1996 .................................................................. 101 15.4 Lisbon monthly water fees, 1996 .................................................................. 101 15.5 Fundao water prices, 1996 .................................................................. 101 15.6 Fundao monthly water fees, 1996 .................................................................. 102 15.7 Prices paid by various sectors for bulk water from public water systems, 1991 .............. 102 16.1 Water resources and demand in various basins .................................................................. 104 16.2 Average tariffs for different categories of users .................................................................. 106 16.3 Sample charges to different categories of users .................................................................. 106 16.4 Average price of municipal water in Spain .................................................................. 107 17.1 Domestic water supply charges in the Khartoum area, 1992-96 ....................................... 113 17.2 Water charges for metered residences and industries, January 1996 ............................... 113 17.3 Irrigation water charges, 1991-96 .................................................................. 113 17.4 Finances of the National Water Corporation for 1989-95 .................................................. 114 18.1 Per hectare cost of producing rice in Taiwan, 1993 ............................................................. 116 18.2 Taiwan Water Supply Corporation supply and consumption, 1990-94 ............................ 117 18.3 Various block water rates of Taiwan Water Supply Corporation, 1975-94 ...................... 117 18.4 Unit costs of supplying water and charges of Taiwan Water Supply Corporation .......... 118 19.1 National Urban Water Authority's tariff structure for Dar es Salaam, 1996 .................... 122 19.2 Urban water tariffs, 1992 .................................................................. 123 19.3 Water user fees under the amended legislation, 1994 .............................................................. 124 20.1 Nominal and real irrigation water prices, 1983-1994 .......................................................... 129 20.2 Operation and maintenance costs and water charges, 1990-1994 ..................................... 130 20.3 Nominal and real prices for urban and industrial water ................................................... 131 20.4 Prices of secondary treated wastewater for irrigation ....................................... ................ 132 21.1 Increases in water tariff increases since 1989 .................................................................. 135 21.2 Tariff schedule, 1989-94 .................................................................. 136 23.1 Rates and surcharges for irrigation water attributable to the Central Valley Project Improvement Act .................................................................. 147 FIGURES 1.1 Water availability: Water scarce countries, 1955-2050 ..........................................................5 7.1 Irrigation water handling in France .................................................................. 51 10.1 Average water prices for various consumption bands, 1992 ................................................ 66 13.1 Water marketing system .................................................................. 86 25.1 Indicative mix of government and user contributions to operation and maintenance ..... 156 BOXES 1.1 Gujarat plans water cess for industrial houses ................................................................... 4 v FOREWORD With water availability declining in many countries, it is becoming increasingly important to allocate and use this important resource efficiently. Improved water allocation and conservation can be achieved by implementation of appropriate water pricing mechanisms. The World Bank Water Resources Man- agement Policy Paper of 1993 emphasizes the role of water pricing as a policy tool. This comparative report, a result of a two-year effort of the staff of the Agriculture and Natural Re- sources Department and country contributors, presents detailed and timely information on water pricing experiences from 22 countries around the world. We hope that the reader will benefit from comparing the past and present water pricing experiences of many countries. Alexander F. McCalla Director Rural Development Department vi ABSTRACT Water pricing is an important way of improving water allocation and encouraging users to conserve scarce water resources. Prices which accurately reflects water's economic, or scarcity value give infor- mation to users, which they use to make choices regarding water consumption and use. Thus water pric- ing can affect water use efficiency, at both the individual and social levels. In practice water pricing schemes may be designed to meet many objectives: policymakers may wish to discriminate among dif- ferent categories of users or use water charges to raise revenues for general purposes. Because different levels of decisionmakers may interpret such pricing policies differently, this can lead to undesirable out- comes and, sometimes, to disputes. This work presents water pricing experiences across 22 countries in various sectors and over time. Country case studies are presented in a structured form allowing easy comparison of results. The infor- mation shows that countries have different reasons for charging for water, including cost recovery, redis- tribution of income, improvement of water allocation, and water conservation. Pricing schemes often comprise both fixed and variable components. Fixed prices vary greatly across countries, reflecting countries' various objectives in charging for water. However, volumetric charges for urban and agricul- tural water are relatively similar across countries. But per meter charges for industrial water vary more widely across countries, reflecting the different use of subsidies and the inclusion of pollution taxes that vary by industry. For urban and agricultural water, all developing countries, and some developed countries, set charges on the basis of average rather than marginal cost of supply. Countries do not generally adjust charges by region even though the costs of supplying water may vary greatly across regions. Agricultural water users generally pay something for the operations and maintenance costs of irrigation systems, ranging between 20-75 percent of total costs. Few countries attempt to recover capital costs from users. The willingness of countries to undertake water pricing reforms and successfully implement them cannot be solely explained by their water scarcity levels nor by the size of their budget deficits. How- ever, high income countries are relatively more open to reforming water pricing policies. Almost all country reports discuss the need for volumetric pricing, metering, moving away from uniform tariffs, and abolishing minimum prices. Many specify the need to significantly increase water charges to all users. Several country reports discuss the use or the need to use of measures, such as pol- lution taxes, to protect the environment. Several countries recognize the need to provide incentives to water suppliers and consumers. vii ACKNOWLEDGEMENTS This publication benefited mainly from the goodwill of the authors who contributed chapters on their country's experiences with water pricing. The work associated with the compilation of this publication was partially funded by the Agriculture and Natural Resources Department of the World Bank, and the Dinar trust fund. The chapters on Algeria and Madagascar were translated from French by Arthur Den- ner. Wendy Ayres was responsible for technical editing and document design. The work of Patricia Noel, Lisa Barczak, Grace Aguilar and Michele Rigaud in typing, scanning, copying, handling and caring is highly appreciated. Various chapters benefitted from useful and constructive comments by Masood Ahmad, Solomon Alemu, David Grey, Stephen Mink, Letitia Obeng, Claudia Sadoff, Kutlu Somel, Mathew Verghis, Michael Whitbread, and Andreas Wildt. This report includes information that was reported between 1995 and 1996. With rapid development in the water sector in many of the participating countries, some new water-related initiatrives may not have been fully addressed in this publication. Marielle Montginoul is grateful to Patricia Coudray, Emile Lorre, Yves Merillon, Yves Retkowsky, Pierre Strosser and Sophie Thoyer for help and guidance. Thanks are also due Olivier Alexandre, Claude Gleizes, Blandine Pillet and Thierry Rieu for their suggestions and criticisms. R. Maria Saleth is grateful to Michael Whitbread for his comments and suggestions. Geoffrey Spencer and Ashok Subramanian wish to thank Sofia Valencia, World Bank summer intern, for the background work. The authors are grateful for the office support from Maggie Wu and Kaye Henry at various stages of the work leading to this chapter. viii 1 WATER PRICING EXPERIENCES: AN INTERNATIONAL PERSPECTIVE Ariel Dinar and Ashok Subramanian Introduction In countries in all parts of the world people vey of urban water utility prices in 15 industrial are demanding ever larger quantities of water. countries shows that changes in prices between Yet developing new water supplies is becoming July 1994-July 1995 varied considerably, fal- increasingly costly. To meet demand at reason- ling 18 percent in one country but rising 21 per- able costs policymakers are exploring ap- cent in another. In most places prices rose more proaches that better allocate existing water sup- than the rate of inflation (Table 1.1). plies and encourage users to conserve water. Both the Ernst and Young 1995 survey of This is in contrast to the past when governments 100 water utilities and the Duke and Montoya met new demand primarily by searching for af- 1993 survey of 159 water utilities serving major fordable technologies that could augment water cities in the United States find that residential supplies. water prices increased 9.7 percent above the rate Water pricing is a key way to improve wa- of inflation between 1988 and 1994. Charges in ter allocation and encourage conservation. all regions increased at similar rates. In 1994 Prices which accurately reflects water's eco- the water charge in the west, south, midwest, nomic, or scarcity, value gives information to and northwest water scarce regions of the United users, which they use to make choices. Thus States was about US$13.5 per 1,000 cubic feet water pricing can affect water use efficiency, at ($0.0038 per cubic meter). About 37 percent of both the individual and social levels. The lit- the utilities charged uniform prices regardless of erature provides many examples of the influence quantity consumed, 22 percent used rising block water charges can have on water use efficiency. rates, and 38 percent used declining block rates. However, if prices do not reflect the value of the The remaining 3 percent used a mixture of resource, but are determined to meet other ob- schemes. Ernst and Young find that many utili- jectives they will not send the right signals to ties are charging higher prices than in the past to users. In practice water pricing schemes may be encourage consumers to use water more effi- designed to meet many objectives besides better ciently - thereby delaying the need to develop water allocation and water use efficiency. Poli- new water supplies. They find that, increas- cymakers may wish to discriminate among dif- ingly, utilities are becoming financially self- ferent categories of users or use water charges to sufficient, funding their operations with cus- raise revenues for general purposes. Because tomer charges. They also find that utilities are different levels of decisionmakers may interpret sending bills more often to their customers, such pricing policies differently, this can lead to commonly moving from quarterly to monthly undesirable outcomes and, sometimes, to dis- billing as rates increase. putes. We are not aware of any studies which Several studies exist which explore the role have tried to compare changes in water prices of water price policies in theory and in practice with changes in policies across countries. Such (Sampath 1992, Tsur and Dinar 1997). Some a study could provide an understanding of why surveys concentrate on a particular sector various water pricing policies are adopted. This (National Utility Service 1995) or a particular study aims to document water pricing experi- country (Duke and Montoya 1993, Ernst and ences across countries in various sectors over Young 1994). The National Utility Service sur- time. 1 Table 1.1 Increases in water prices in 15 industrial countries, July 1994- July 1995 (percent) Rate of change in prices Rate of inflation per cubic meter Australia -18.04 4.5 Belgium 20.84 1.3 Canada 6.22 2.9 Finland 0.00 1.9 France 16.45 2.4 Germany 7.06 2.3 Ireland 5.97 2.8 Italy 8.04 5.8 Netherlands 4.40 1.8 Norway 1.98 2.7 South Africa 7.45 10.0 Spain 2.92 4.3 Sweden 0.00 2.9 United Kingdom 3.70 3.5 United States -0.45 2.8 Source: National Utility Service 1995. Country case studies have occurred over time (past and present prac- tices, and future perspectives). Experts from 25 Here we present the findings from a review of the 40 countries responded: some produced of 22 country case studies. Table 1.2 1ists the the reports, others provided the names of an- countries and provides indicative water pnces. other expert who could. For the most part Methodology authors structured their reports in accordance with the suggested outline. This will help the Initially 40 countries were selected to par- reader follow and compare the case studies. ticipate in the survey. Countries were chosen to Only 22 country studies are included in this vol- represent a wide range of natural, climatic, and ume; three of the 25 reports were not returned economic conditions. The following were key after the final round of review. Since the coun- criteria: tries represented here were not selected through * The degree of water scarcity, either in the any particular sampling procedure, the results country as a whole, or in important agri- should not be interpreted as reflecting the status cultural regions or population centers; and of water pricing worldwide. However a com- * Availability of information on past attempts parative reading of the country reports reveals to implement water pricing schemes in patterns and suggests several lessons and impli- more than one sector. cations. A structured outline was prepared as the basis for the country reports, and was sent to key Findings people in the water sector in 40 countries. The outline asked for multisectoral information on Figure 1.1 depicts the "water availability pricing and changes in pricing policies which index," as defined by Falkenmark in 1989, for 2 the countries in the review. One common fea- supply in the years prior to World War II. Al- ture of the water situation is the decline of the though it sounds unbelievable, farmers in India "water availability index." The index is calcu- and Pakistan paid fully for their water supply. lated by dividing available water resources in a However, during the 1950s many countries em- country (assumed to be constant over time) by barked on huge irrigation investment programs population. It should be noted that other meth- intended to bring down the costs of food pro- ods for calculating water availability exist, duction. The investments created a financial which may result in different findings and burden that farmers could not afford to meet. grouping of countries. For example, such meth- And because governments in pursuit of food ods may take into account the level of water security wanted to control their investments, regulation in a country. Figure 1.1 presents the they willingly subsidized the investments. water availability index for 1955, 1990, 2025, However trends have now reversed, and users and 2050 divided into four group levels of water are again being asked to choose and pay for the availability per person, based on the 2025 water services they desire. availability index results. Group A contains countries with water availability index values of Comparing water charges less than 1,000; group B covers countries with index values of 1,000-2,000; group C contains Table 1.2 presents current water prices as countries with index values of 2,000-4,000; and reported in the country case studies. Water group D covers countries with index values prices are reported for the agricultural, domestic, above 4,000. and industrial sectors in 1996 United States Two interesting patterns emerge from the dollars. For most countries there is a range of figures. First, the three countries in the Middle prices presented, representing the high and low East and North Africa have much less water values reported in the case studies. Local prices available per capita than other countries in the were converted into constant United States dol- review, and the amount of water available per lars by using the exchange rate of the noted person is declining rapidly. These countries had year, then applying United States dollar defla- between 2,750-1,000 cubic meters of water tors using information from the International available per person in 1955, but by 2050 they Monetary Fund (1997). It should be noted that will have only 100-500 cubic meter per person. the prices presented in Table 1.2 do not repre- Second, the other countries in the survey either sent national average water prices, and are in- had relatively abundant water supplies in 1955 dicative only. and high rates of population growth (most of the Values for each sector include fixed and countries in group B), or moderate water sup- variable prices. The fixed term for the various plies and little or negative population growth countries may have different denominators (most of the countries in group C). Later we (crop, unit of area, year, season, month, water will explore the influence of water scarcity on entitlement, water velocity), which makes them policy decisions. difficult to compare. The huge variation of the Countries have different reasons for fixed element of pricing schemes between sec- charging for water. Some wish to recover costs, tors and countries reflects the varying objectives some want to transfer income between sectors of countries for their pricing schemes (cost re- through cross-su.bsidization, and others use covery, income distribution, others). charges to improve water allocation and water The variable water prices are expressed in conservation. A recent example of water pricing 1996 United States dollars per cubic meter and is the water cess (tax) planned by the govern- are easy to compare. Hereafter our discussion ment of the state of Gujarat in India, for indus- of water prices refers strictly to prices per cubic tries (Box 1.1). meter. Prices per cubic meter for the agricul- As reported in various country chapters, in tural and domestic sectors are relatively similar many countries users paid the full costs of water across countries. Prices for industrial water vary 3 more widely across countries, probably because some countries the quantity of water to which some countries view industry as an easy source the lowest price applies is so large that few users of revenue, capable of subsidizing consumption face the higher charges associated with larger in other sectors. In addition some countries in- consumption levels. This diminishes the impact clude pollution taxes in industrial water prices. of this pricing structure on consumption pat- Although we did not conduct a statistical analy- terns. Most industrial countries in the survey sis, it appears that water prices across countries use increasing block rate schemes, although are not related to relative water availability. Canada uses flat rates. For urban and agriculture water, all devel- Basis of charges oping countries and some industrial countries in the survey set charges on the basis of average For urban water supply, the surveyed rather than marginal costs of supply. For agri- countries are for the most part replacing flat fees culture, authorities generally calculate charges with tariff schemes consisting of two parts, a by dividing the average cost of service by area fixed charge and a variable charge. The fixed irrigated, often adjusting the results by season, charge gives the service provider a reliable type of crop, or type of technology used (for stream of revenue to cover overhead expenses, example, gravity versus pumping). Charges are and the variable charge provides consumers with not generally adjusted by region even though incentives to use water efficiently. The feasibil- regional variations in water availability may be ity of charging for water by volume used de- responsible for differential costs of supplying pends on the practicality of using meters. water and for technology used, as in Botswana There is considerable variation among and Israel. countries in the design of block rates. Eight Among industrial countries, France sets countries use increasing block rates, while a urban water prices on the basis of the long-term couple use decreasing block rates. Taiwan uses incremental costs of supplying water to account increasing rates for the first four consumption for future resource development costs. blocks but decreasing rates for the last three. In Box 1.1 Gujarat plans water cess for industrial houses "The Gujarat government has planned to levy special cess on the water to be supplied to the in- dustrial houses to partly finance its project to supply drinking water to the villages and semiurban centers from the Narmada dam, the Water Resources Minister, Mr. Raghavji Patel, said here today. "Talking to newsmen, Mr. Patel said the State Government's plan to supply drinking water to over 8,200 villages and about 130 urban and semi-urban areas, mostly in the arid Kutch-Saurashtra region, was estimated to cost 4,700 crores [Rs. 470 billion.] "He said the government would also raise funds from its internal resources, assistance from the Central Government and loan from the Asian Development Bank. He said the details of the pro- posed water cess had not yet been worked out...." Source: The Hindu 1997. 4 Cubic meters Cubic meten I~~ ~~~ I- I- I I I 31o 0o0~ 0i 0 0N 00 0D 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C 4 0 4 Q C 0 0 0 0 0D D0CD0 United . . ,* . ...... u s te . ... . ... .... .... .................. ... - .-. 5 ...... .i a:v: :.: - ., v q~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. . . ...... . . .. . .. .. ..... .. .. .. .. .. .. KingdomnE='X_ _ _ F ., i. i . j . , . , i s i . .v . I B. g~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I. .... .. Sudan_ India c _ _ _ = ... . ... . .................................... = .... .......... * > > z~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.. . .. . .. .. .. .. .. .. . .. .. . . . . . .. .. 9~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ . . .. . ... .=7 ........ W n ,; -,,,,,,,,,,, ,, . ,,, Ag:......,....:...,...... . ..... ...... ....... .............. ........... .. i11 -l . ... ....................... T - , l_|_E= =.g= .@~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~...... . ... Pakisn - ........ .............. ........ l-~ Uganda~~~~~~~~~~~~~~~ Taiwan =ladagascar adagasca _ Figure 1.1 Water availability, 1955-2050 (cont.) Ic 45,000 40,000 0 1955 35,000 i 1990 02025 30,000 ~os 25,000 ijI!j1! 20,000-- 15,000 - - 10,000 - 5,000 0 Botswana Italy Spain France Namibia Water per capita ld 200,000 - 180,000 - - 031955 160,000 - - a 1990 140,000 U 2025 S 120,000 - 2050 100,000 i 80,000 60,000 40,000 20,0100 0 Canada Brazil New Australia Portugal United Zealand States Water per capita Source: Except for Taiwan water data are from Population Action International 1995. Taiwan data from Ching- kai Hsiao (personal communication, 1997. 6 Table 1.2 Price ranges for various sectors and countries in the analysis (in 1996 US$) Agriculture Domestic Industy Fixed Variable Fixed Variable Fixed Variable (per hectare (per cubic (per (per cubic (per plant (per cubic per year or meter) household meter) per year or nectr) season) per year or month) month) Algeria 3.79-7.59' 0.019-0.22 0.057-0272 4.64 Australiab 0.75-2.273 0.0195 9-162 0.23-0.54 7.82 Botswanae 0.28-1.48 Brazild 3.50 0.0042-0.0324 0.40 Canadae 6.62-36.65 0.0017-0.0019 0.34-1.36 0.17-1.52 Francer 0.11-0.39 0.36-2.58 0.36-2.16 India3 0.164-27.474 0.824' 0.0095-0.0S22 5.495 0.136-0.290l Israel' 0.16-0.26 0.36 0.26 Italy' 20.98-78.16 0.14-0.822 Madagascai 6.25-11.2514 0.075-0.25 0.39216 0.325-1.2517 0.9-1.75"s Namibia". 53.14 0.0038-0.028 1.54-4.28 0.22-0.45 n.a. 0.33-1.38 New Zealand' 6.77-16.63 16-164 .31-.69 Pakistanm 1.49-5.807 0.25-1.63' 0.06-0.109 0.38-0.97 Portugal' 0.0095-0.0193 4.46-1937 .1526-.5293 8.86-2,705 1.19 Spain' .96-164.48 0.0001-0.028 0.0004-0.0046 0.0004-0.0046 SudanP 4.72-11.22Io 1.67-3.33" 0.08-0.10 1.67-3.33" 0.08-0.10 Taiwanq 23.30-213.64 0.25-0.42 Tanzania' 0.260-0.39812 0.062-0.24112 0.261-0.3981" Tunisia' 0.020-0.07812 0.096-0.5292 0.583 Uganda' 2 7 0.38-0.59 1 0.72-1.35 United Statese 0.0124-0.0438 United Kingdomr 152-171 0.0095-0.0248 7 Table 1.2 (cont.) I Per liter per second per hectare. 10 Depending on crop and irrigation scheme. 2 Depending on consumption tier. I Depending on dwelling size. 3 Per unit of water entitlement. 12 Depending on location. 4 Depending on state and crop. 13 Depending on industry and location. 5 Fixed minimum rate. 14 Depending on scale of irrigation perimeter. 6 Domestic includes rural areas (first line) and urban areas 15 There are many pricing schedules for unmetered standpipes and (second line). unmetered domestic pipes. 7 No fLxed charges were reported. 16 For house connections, > 10 cubic meters per month 8 Depending on crop and province. 17 For standpipes 9 Depending on monthly rental value per dwelling. 18 For vendors Exchange rates, one US$ equals: a DAS0 in 1995. i 1,628.9 Italian lire in 1995. p R$ 0.96 in 1995. b 1.30 Australian $ in 1996. j 4,000 FMG in first half of 1996. q 27.5 NTS in 1994. c P2.82 in 1995. k 3.62 Nanibian $ in 1995. r 606 Tanzania shillings in 1996. d R$ 0.96 in 1995. I 1.54 NZ$ in 1995. s I Tunisian dinar in 1994. e 1.20 Canadian $ in 1991. m 34.60 Pakistan rupees in 1995. t 1,050 Uganda shillings in June 1996. f 5.55 French francs in 1994. n 150 PTE in 1996. u USS 1994. g 34.54 India rupees in 1995. o 120 Pts in 1993. v 0.62£ in 1995. h 3.22 Israeli shekels in fall 1995. Source: Exchange rate data from International Monetary Fund 1997. Operation and maintenance costs versus capital recover the smallest proportion of costs from costs consumers. Few countries attempt to recover capital For social and political reasons water serv- costs from users. Indeed countries rarely in- ices have long been treated as public goods and clude asset replacement or depreciation costs in financed by general public revenues. Policy- calculations of operations and maintenance costs makers are gradually recognizing however that (see Spencer and Subramanian in this volume). charging users for water results in more sustain- However governments of both industrial and able operation and maintenance of urban and developing countries are rethinking this policy, rural water systems. Yet governments often en- and some are starting to recover at least a por- counter resistance when they attempt to imple- tion of capital costs from users, as in Australia ment new charging schemes intended to recover and Brazil. costs from users. Countries' experiences with recovering Nonprice measures to encourage water use effi- operation and maintenance costs has been ciency mixed. In the developing countries irrigation operation and maintenance cost recovery ranges In some countries implementing water from a low of 20-30 per cent in India and Paki- pricing reforms is very difficult: rural or urban stan to a high of about 75 per cent in Madagas- dwellers may resist paying for water and apply car. In India and Pakistan the state remains political pressure, or technical and managerial heavily involved in operating irrigation systems. capacity may be inadequate to assess and en- By contrast Madagascar has developed an inno- force charges. Where this is true, governments vative approach to financing the operation and may use non-price measures to encourage con- maintenance of irrigation systems. Among the sumers to use water more efficiently, including industrial countries surveyed, Italy and Canada transferring management responsibilities to user 8 groups or promoting the development of water somewhat subjective, were based on two crite- rights and water markets. ria: current pricing practices, and current mode of funding. We placed a country in the "high" Transferring management responsibilities for category if it employed some economic pricing operations and maintenance to user groups methods or, at the very least, recovered full op- eration and maintenance costs and a portion of Madagascar provides a good illustration of capital costs from users. We placed a country in the potential benefits that might arise by trans- the "low" category if it financed water systems ferring management responsibility to users. primarily with government resources. Through a series of pilot projects with the in- We also identified three characteristics that volvement of nongovernmental organizations, could influence policy reform: the level of de- the government has organized users of rural velopment (gross national product per capita), public standpipe and irrigation systems into user available water per capita, and the size of the groups, and has transferred responsibility for budget deficit relative to gross domestic prod- operation and maintenance to them. The user uct.' Table 1.3 presents the results of the classi- groups collect water charges and maintain the fications. The following inferences can be physical facilities. Tunisia and Pakistan are now drawn. planning similar responsibility transfers. Indeed Gross national product. High income this approach has become the favored way of countries are relatively open to reforming pric- improving the financial sustainability of irriga- ing policies. Australia and New Zealand, which tion systems (Gorriz, Subramanian, and Simas introduced water charging systems only in the 1995). early 1990s, has adopted some quite radical and advanced policies. Canada is the one high in- Promoting water rights and markets come country that is moving only very slowly to reform water pricing schemes. Botswana and Economists argue that active trading in Namibia, two middle-income countries, are water rights promotes water use efficiency as making good progress in reforming charging markets allocate water to its highest valued use. schemes. The city of Windhoek in Namibia, The potential for water markets to improve re- with its progressive pricing policies, may ac- source use is great, particularly in water-scarce count for the country's relatively high national regions. Allowing the transfer of water from performance with regard to pricing. Madagas- agriculture to other users can help meet rising car, a low-income country, has also instituted demand without the costly expansion of water important reforms in water pricing. supply networks. Interbasin transfers can also Water availability. We hypothesized that help improve water allocation. In the United countries with relatively little available water States and Australia there is already some form would be more aggressive in reforming pricing of water trading taking place. Israel is develop- schemes than those with relatively more water, ing a market to facilitate future trading in water since improving water allocation and water use rights. No other countries in the survey are efficiency is especially important to them. planning water markets at this time. However this relationship does not always hold. For example most countries with low water Progress in reforming water prices: A high- availability have made changes only very medium-low classification Data on the three variables are from the following sources. We have developed a "water pricing prog- Gross national product data are from the World Bank (1995), and ress index" (WPPI) and classified the 20 coun- refer to 1992 estimates. Except for Taiwan, water data are from tries with full data sets of the 22 in the survey Population Action Inteamational (1995), and refer to 1990 data. tries with full ~~~~~~~~Taiwan water data have been provided by Ching-kai Hsiao. into one of three categories of progress: high, Budget data are from the International Monetary Fund (1997), and medium, and low. Our assessments, which are represent an average of 1989-95 estimates. 9 slowly. By contrast Canada, a water-abundant' Budget deficits. We expected that countries country, has made little progress on reform, but with budget deficits would be more likely to im- Botswana, also with abundant water supplies, plement pricing reforns. However our data do has made significant reforms. Like Botswana, not provide strong evidence that this is the case. Australia and New Zealand have substantial Australia, Spain, and the United States have in- water resources at the national level and have troduced or strengthened water charge systems implemented pricing reforms. Both countries in response to budgetary pressures. However have serious regional shortages, such as in the Canada, India, Pakistan, and Tanzania, all Murray Darling basin of Australia, so perhaps countries with high budget deficits, have not. pricing reforms began at a regional level and were later scaled up. Table 1.3 Relationship between pricing reforms and selected country characteristics High Medium Low Gross National Product High Australia, France, New Botswana, Namibia Zealand, Spain, WPPI United States Medium Israel, Italy, Brazil, Portugal, Madagascar United Kingdom Tunisia Low Canada India, Pakistan, Tanzania, Uganda Water Availability High Australia, Botswana, France, Namibia, WPPI New Zealand Spain, United States Medium Brazil Italy, Portugal, United Israel, Tunisia Kingdom, Madagascar Low Canada India, Pakistan, Tanzania, Uganda Budget Deficit High Australia, France, Brazil Botswana, New Namibia, Spain, Zealand WPPI United States Medium Israel, Italy, Portugal, United Kingdom Tunisia, Madagascar Low Canada, India, Pakistan Tanzania, Uganda Source: Authors estimates. 10 Summary: Pricing issues in the surveyed goals. Although the countries in our study re- countries flect a wide range of physical, economic, and institutional conditions, the case studies show The country case studies in this volume that countries are implementing water pricing provide a perspective of present and future wa- schemes to achieve short-term and long-term ter pricing and water management issues. Most policy goals to recover costs, encourage water countries are now gradually turning over man- conservation, and protect the environment. Al- agement responsibilities of water supplies to though the implementation problems facing private enterprises and nongovernmental organi- countries are different, it appears that efforts to zations. Some countries are developing legal implement water pricing mechanisms are un- frameworks to decentralize water management, derway with modest success. and encouraging the private sector to become involved through incentives. Still their water References supply authorities have the power to set and ad- just water rates. A large majority of the coun- Duke, E. M., and A. C. Montoya. 1993. tries are implementing prices schemes to recover "Trends in Water Pricing: Results of Ernst operation and maintenance costs from users, and and Young's National Rate Surveys." some are also recovering at least a portion of American Water Works Association Journal capital costs. Almost all country reports discuss 85 (5): 14-23. the need for volumetric pricing, metering, mov- Engelman, Robert, and Pamela LeRoy. 1995. ing away from uniform tariffs, and abolishing "Sustaining Water: An Update." Population minimum prices. Many specify the need to sig- Action International, Population and Envi- nificantly increase water charges to all users. ronment Program, Washington, D.C. The country reports identify the develop- Ernst and Young. 1994. "National Water and ment of formal transferable water rights and Wastewater Rate Survey." New York, New water markets as crucial issues to consider for York, August. managing water resources in the future. The Falkenmark, Malin. 1989. Fresh Waters as a reports also recognize the need to provide in- Factor in Strategic Policy and Action. centives to water suppliers and consumers. Population and Resources in a Changing These include both performance related incen- World. Stanford University: Morrison In- tives for water suppliers to reduce the costs of stitute. water supply, and incentives to consumers to use Gandhinagar. 1997. "Gujarat Plans Water Cess water more efficiently. Some reports also dis- for Industrial Houses." The Hindu, January cuss the use of measures to protect the environ- 28, page 15. ment, such as pollution taxes. Gorriz, Cecilia, Ashok Subramanian, and Jos6 Several countries are exploring unique Simas. 1995. Irrigation Management pricing-related issues, worthy of mention. Israel Transfer in Mexico: Process and Progress. is considering charging different prices for irri- World Bank Technical Paper Number 292, gation water of different quality (saline water, Washington, D.C. wastewater, fresh water), adjusting prices to re- International Monetary Fund. 1997. Interna- flect water supply reliability, and implementing tional Financial Statistics L (2) February, a resource depletion charge. Several countries Washington, D.C. are considering adjusting charges to reflect re- National Utility Service. 1995. "International gional differences in water supply costs. A few Water Price Survey, July 1994-July 1995." countries have addressed the need to charge the Paris: National Utility Service Press. end-user for safer drinking water by including Sampath, R. K. 1992. "Issues in Irrigation treatment costs in the water tariff. Pricing in Developing Countries." World We have not evaluated the impact of water Development 20 (7): 967-977. pricing schemes on the attainment of policy 11 Tsur Y., and Ariel Dinar. 1997. "Efficiency of World Bank, 1995. Workers in an Integrating Alternative Methods for Pricing Irrigation World: World Development Report 1995, Water and their Implementation." World Washington, D.C. Bank Economic Review 11 (2): 243-62. 12 2 ALGERIA Abderrahmane Salem Introduction Consumers use a total of about 950 millions tribution Company, since they had tradition- cubic meters water in Algeria each year. Urban ally managed water supply. consumers use about 600 million cubic meters As a result, responsibility for providing (63 percent), agriculture uses 280 million cubic drinking water was divided into two segments: meters (30 percent), and industry uses 70 mil- the National Water Distribution Company re- lion cubic meters (7 percent). Overall con- tained responsibility for water production, but sumption of water in Algeria has fallen dramati- local water utilities and agencies took responsi- cally over the past few years, due to the severe bility for distribution. The restructuring, which drought in North Africa. commenced in 1983 and was completed in 1987, also redistributed functions between the central Drinking water government and local bodies. There is now a hierarchy of organizational bodies involved with Huge investments have been made in urban water management and supply, comprising: water systems since 1962, and especially since * 9 regional concerns (under the jurisdiction of 1970 when a government ministry responsible the Ministere de l'Equipement); for water policy was created. However, fre- * 26 departmental concerns (under the juris- quent restructuring of water institutions has diction of the wali'); and made it difficult to establish efficient organiza- * 1,000 local utilities or local government mo- tions and pricing systems. nopolies (under municipal jurisdiction). Before 1970, many different enterprises - These three groups of institutions distribute some in operation since the colonial period - 54 percent, 28 percent, and 18 percent of water supplied drinking water without intervention supplies respectively. from the state. Among these were local water utilities, local government monopolies, intermu- Irrigation water nicipal companies, and private foreign enter- prises. However, many of the companies were Until 1985, the central government man- not financially sound or capable of managing the aged irrigation districts through specialized sub- water supply infrastructure. In 1970 the state divisions, and placed water revenues into spe- established the National Water Distribution cial, supplemental irrigation budgets.3 However Company (Societe Nationale de Distribution des in 1985, management of irrigation systems was Eaux), and gave it responsibility for producing taken over by four district irrigation agencies and distributing water nationwide. The utility (office des perimetres irrigues) in large districts was expected to operate without state subsidies, and eight local agencies in small districts. These recovering its costs from water users. agencies, responsible for operating and main- However, throughout its existence from taining the irrigation and drainage systems, are 1970-1983, the National Water Distribution financed through water sales and state subsidies. Company was unable to meet this objective. There were a number of reasons: * Prices remained too low to give the utility financial autonomy Localities, through the 2 Equivalent to a prefect or governor. Ministry of the Interior, challenged the mo- 3 A subdivision is a style of organization for the management nopoly position of the National Water Dis- of hydraulic systems. 13 Present water pricing practices Irrigation water Drinking water Pricing structures for irrigation water lag behind those for drinking water. Before 1985 Until the mid- 1980s water charges to users charges for irrigation water were very low. For were well below costs of supply. For example, example, between 1979 and 1985 prices ranged in 1974 the average price of water was DAO.25 between DAO.08 and DA0.10 per cubic meter, per cubic meter (US$0.05 per cubic meter). and revenues did not cover costs. At the same However each locality had its own pricing time subsidies from the supplemental irrigation scheme. Thus price varied by region, village, budget were used mostly to construct new irri- and type of user, ranging from DAO.10-DAO.60 gation projects, rather than to maintain existing cubic meter (US$0.02-US$0.12 per cubic me- ones. When the irrigation district agencies took ter). Prices did not reflect differences in the responsibility for the irrigation systems, the costs of supply. Furthermore, local accounting technical and financial problems became very systems did not distinguish between the costs of apparent. This stimulated interest in revising the water production and the costs of water distri- water pricing policy. bution. The irrigation water pricing structure now The 1985 Water Code law (Code des Eaux) involves a two-part tariff, with one part a fixed was designed to increase the level of cost recov- charge based on amount of water used per hec- ery for water systems.4 The tariff system now tare (expressed as DA per liter per second per discriminates among four types of users: do- hectare), and the other a volumetric charge. Ir- mestic, institutions, service enterprises, and the rigation water prices are expected to rise further tourism sector. Water tariffs for domestic users to ensure the financial viability of irrigation depend on consumption block, of which there water suppliers.5 Table 2.2 presents irrigation are four. Water tariffs to other users are set in water prices 1985-95. Table 2.3 shows the pre- relation to a base rate, which equals the charge vailing exchange rates of the period. for the first consumption block for domestic us- Irrigation water charges are meant to reflect ers. Table 2.1 presents water prices for 1985- full costs of service.6 However, the government 95. pays many of the costs, particularly for capital Algeria depends on surface water sources equipment. Furthermore tariffs are not adjusted for most of its supplies. Abstracting and treating in line with changes in costs. For example in surface water requires large investments in 1992, among the nine regional enterprises re- dams, water transport infrastructure, and water sponsible for nearly 60 percent of urban water treatment facilities, and has resulted in relatively supplies, it cost DA4.10 ($0.18) per cubic meter high operating costs. However, tariffs have not to supply water, but revenue amounted to only increased as quickly as costs, and water dis- DA3.16 ($0.14) per cubic meter. Revenues thus tributors have been operating at losses. The covered only 77 percent of costs. The govern- situation has worsened since 1990. This is for ment gave the water enterprises DA300 million two reasons: the drought has resulted in much (about US$14 million) to cover the deficit. smaller water production and thus water sales than normal, and the local currency has been devalued, leading to higher investment and op- erating costs (most water treatment products, hydraulic materials, and other equipment and 5 The marginal cost of irrigation water was estimated in 1996 supplies are imported in foreign currency, so around DA18-20 per cubic meter, and it is likely to be an underes- surplies hare iortsed s ltimation. their prices have risen sharply). 6 While the OPI are autonomous, the price of water they sell is set by the government without any measure to compensare them. The new water code is expected to rectify some of these 4 Decret 85-287, October 29, 1985. problems. 14 Table 2.1 Drinking water prices (US$ per cubic meter) Domestic Institutions Service Tourism Consumption band (cubic meters per year) Enterprises 11-100 101-220 221-330 > 330 1985 0.20 0.20 0.35 0.50 0.40 0.50 0.60 1986 0.20 0.20 0.35 0.50 0.40 0.50 0.60 1987 0.17 0.17 0.29 0.83 0.33 0.83 0.50 1988 0.14 0.14 0.25 0.36 0.28 0.36 0.43 1989 0.12 0.12 0.22 0.31 0.25 0.31 0.37 1990 0.11 0.11 0.19 0.27 0.21 0.27 0.32 1991 0.06 0.06 0.17 0.24 0.23 0.24 0.29 1992 0.07 0.07 0.12 0.17 0.16 0.17 0.21 1993 0.07 0.17 0.29 0.34 0.24 0.29 0.34 1994 0.06 0.14 0.24 0.29 0.20 0.24 0.29 1995 0.06 0.15 0.25 0.29 0.20 0.25 0.29 Note: Between 1985 and 1992, there were three consumption bands. The first band was from 1-220 cubic meters per year. Table 2.2 Irrigation water prices, 1985-1995 Fixed charge Volumetric charge (per liter per second per hectare) (per cubic meter) DA US$ DA US$ 1985 150-200 30-40 0.12-0.17 0.02-0.03 1988 150-200 21-29 0.12-0.17 0.02-0.03 1989 150-300 19-38 0.35 0.04 1994 150-300 4-8 0.35 0.04 1995 200-400 4-8 1.00-1.25 0.02-0.03 Note: Both fixed charges and volumetric charges vary by water district. Table 2.3 Exchange rates 1985-95 (DAIUS$) Year 1985-86 1987 1988 1989 1990 1991 1992 1993 1994 1995 Exchange rate 5 6 7 8 9.3 16 22 24 38 50 15 Current debates and future prospects References In 1990 Algeria embarked on large scale Algeria. 1985 (a). D6cret 85-260 Concerning economic reform, moving from a centrally- Approval of a List of Fees for Management planned economy to a market-based one. Insti- Concessions with respect to their Activities tutional reforms are underway to increase man- in the Operation and Maintenance of Hy- agement efficiency and improve service. Of draulic Equipment in the Irrigation Districts, particular importance for water institutions are October 29, 1995. the following: . 1985 (b). Decret 85-261 Speci- * The Water Code law is currently being re- fying Personnel Status of Irrigation District vised to allow private enterprises and non- Employees, October 29, 1995. governmental organizations to manage wa- . 1985 (c). Decret 85-266 Con- ter supply systems through leasing contracts cerning the Concession of Public Drinking and concessions.7 Water Suppliers and Water Treatment. * The administration, is currently considering . 1985 (d). D6cret 85-267 Defin- implementing tariffs which vary by region, ing the Modalities of Industrial, Agricultural reflecting regional cost differences. and Drinking Water Prices and of Water * To raise revenues for the maintenance and Treatment. expansion of facilities, distribution entities Programme di Nations Unies pour will be permitted to include management l'Developpement/Organisation Mondial de fees in water prices starting in 1996. ia Saute 1976. "Etude Sectorielle * In 1995 the National Drinking Water Fund d'Approvisionnement en Eau Potable et (Fonds National de l'Eau Potable) was es- d'Assainissement." Rapport C Volume 1. tablished to manage funds to expand and Rapport de Synthese. renovate drinking water systems and pro- Salem, A. 1995. "Projet de Tarification Re- vide subsidies to disadvantaged regions. gionale de l'Eau Potable et Industrielle." Ministere de l'Hydraulique. 7 The new Water Code has been published in the official Gazette (June 15, 1996). 16 3 AUSTRALIA Warren F. Musgrave Introduction Although Australia is a relatively dry coun- Past experiences try, its institutional arrangements for supplying water are more appropriate to a water-abundant Irrigation country.8 Prices for irrigation water have been low and entitlements to it poorly specified. In the past, irrigation water pricing has Most urban consumers have not paid for water been determined mainly by social and develop- in accordance with use, and cross-subsidies have mental considerations rather than by commercial been common. Regulation, rather than price, principles. Users have rarely paid the full costs has played the major role in allocating water of supplying water, particularly capital costs. among competing uses. Tariff systems have Rates of return on irrigation assets have been been designed more to raise revenue than to negative. For example, in 1988-89 real rates of promote the efficient allocation of a scarce re- return on irrigation and drainage assets varied source. between -0.9 and -5.2 percent (Australian Water There is now widespread agreement that Resources Council 1991). such arrangements are not appropriate today. In 1992 the Industry Commission a federal Indeed, reform of the Australian water industry government body charged with assessing indus- has been under way for about a decade. A num- try performance, reported that charges to users ber of government inquiries have been held, would have to increase significantly if returns on public water utilities have been commercialized, irrigation assets were to become positive corporatized or privatized, and the attenuation of (Industry Commission 1992). In New South property rights reduced. And prices have been Wales a policy requiring a non-negative return rationalized, subsidies reduced, and water mar- on capital would require a 50 percent increase in kets developed. charges to users (Industry Commission 1992). Australia has six states and two territories. In the southern Murray-Darling Basin the aver- All have been reforming their water policies to age charge for irrigation water delivered to the some degree. A detailed discussion of the situa- farm would need to rise by 80 percent over tion in each state and territory is not possible 1991-92 levels in order to meet full operations, here. Much of the discussion which follows will maintenance, administration and depreciation be general, and apply to the country as a whole. costs (Collins 1996). The Industry Commission Specific examples will be taken mainly from estimated that charges would have to rise by New South Wales - one of Australia's most about 250 percent if irrigators were to pay the important states. The focus of the discussion is full cost of the system (including capital re- on water supply. Other aspects of water man- placement costs) and provide a 5 percent return agement, such as drainage, are largely ignored. on assets. Similar situations prevailed in other states. Institutional issues. In Australia the state owns the water. Abstractions are made under N Opinions expressed in this paper are those of the author and are a s a not necessarily of the New South Wales Govermnent nor of the New South Wales Independent Pricing and Regulatory Tribunal. flows for environmental and riparian purposes. 17 Typically, the state agency responsible for allo- flows or which are highly committed may rarely cating water provides both wholesale services receive their full allocations. Over and above by supplying water to distributors, and retail their entitlements, abstractors may be granted services by supplying water to irrigators. Until access to surplus or off-allocation flows at times the 1980s licenses to abstract water for irrigation of high flows. were attached to specific parcels of land. Dur- While licensing has proved to be a robust ing the 1980s this arrangement was modified in institution for the allocation of water in envi- most jurisdictions and transferable entitlements ronments with highly variable flows, rights of were introduced. However, a variety of restric- abstractors are attenuated in a number of ways. tions were put into place that limited the ability Irrigators, in particular, are dissatisfied and seek of markets to rationalize the use of water. Ini- better specification of rights, including improved tially only temporary transfers were permitted. security of tenure and specification of more reli- Transfers were allowed only among irrigators able access to water. and could take place only within defined geo- License holders on regulated streams in graphical boundaries. Bureaucrats supervised New South Wales pay a combination of license transfers closely, prohibiting those potentially fees (covering less than the costs of administra- harmful to third parties. Experience with the tion), metering charges where meters are in- new system has led to a relaxation of some of stalled (costs of metering are fully recovered), these constraints. In particular permanent trans- and volumetric charges where the quantity of fers and transfers across spatial boundaries (and water extracted is regulated and can be meas- thus interbasin transfers) are gradually being ured (New South Wales Government Pricing allowed. Tribunal 1995).' On the principle that others In New South Wales individuals or entities benefit, extractive users pay for only about 70 must have a license to use water from regulated percent of the costs of supplying water from the streams. License holders are entitled to a speci- rivers. Users pay for only a portion of operating fied quantity of water, depending on needs.9 costs and no capital costs for dams and weirs. Some large water users, such as towns and cer- Depreciation costs of the government-owned tain horticulturists, receive secure entitlements, irrigation infrastructure is, however, included in allowing them full specified allocations except the cost calculations. Holders of secure licenses during the most severe droughts. Other users, pay an additional charge. All users pay a mini- such as ranchers and farmers of annual crops, mum charge for access to water which is inde- receive their full allocations only when stream pendent of the license and metering charges. A flows and water in storage are sufficiently high. new "water management charge" has been in- Fees for licenses for secure allocations are troduced recently to cover the costs of resource higher than fees for other types of licenses. One management, as distinct from irrigation operat- type of license can be converted into the other ing and supply costs. The volumetric pricing by means of valley-specific conversion factors. structure for bulk or wholesale water in the Holders of licenses to streams with variable Barwon Region of New South Wales is shown in Table 3.1. 9 Discussion here is restricted to allocation policies on regu- 10 Volumetric charges were introduced gradually starting in lated streams (streams whose flows are controlled by people using the late 1960s. Their introduction was an important step, without storage facilities). This covers most water used in the state, par- which subsequent reforms to promote more efficient water use ticularly for irrigation. would not have been possible. 18 Table 3.1 Bulk water tariff structure in the Barwon region of New South Wales Volumetric charge (Aus$ per megaliter) Delivery service charge 2.02 Metering charge 0.50 Total 2.52 Minimnum annual charge (Aus$ per year) Low security (2.95 x entitlement ML) x 0.33 High security, irrigation (3.50 x entitlement ML) x 0.33 High security, other (3.50 x entitlement ML) Note: In March 1996 IUS$ = Aus$1.30. Source: New South Wales, Government Pricing Tribunal 1995. Holders of licenses for use of water from part of government programs of welfare. For unregulated streams pay license fees and, where example, they may be required to charge uni- in use, charges for meters. They do not pay form rates for service, although the costs of pro- volumetric charges. Groundwater users pay li- viding the service vary. Or they may be re- cense fees. Unregulated stream and groundwater quired to provide low or no cost service to low- users pay management fees intended to cover income households. Utilities rarely receive di- the costs of resource management services (New rect government contributions for these services, South Wales Government Pricing Tribunal and fnance them by charging higher prices to 1995). their other customers. Urban consumers typically pay a flat fee Urban sector for water, based on property value or meter size, and receive a base or free allowance of water. In Australia the supply of water for urban For consumption above this allowance they pay use has nearly always been a public responsibil- by volume used. The volumetric charge may be ity. Consumers have paid operating, mainte- constant or may rise with rising consumption nance and administration costs, interest expense (rising block pricing). In 45 percent of jurisdic- and, to varying degrees, depreciation or the tions in New South Wales, households receive costs of asset refurbishment (Industry Commis- between 350 and 500 kiloliters of water as part sion 1992). The Industry Commission reports of their base allowance (1 kiloliter = 1 cubic that during 1988-89 all major metropolitan wa- meter). In 60 percent of jurisdictions consumers ter supply authorities had sufficient revenues to pay between US$0.23 and US$0.54 per kiloliter service debt and pay a return on capital. Water for water used above this level. In about 9 per- utilities are increasingly relying on assets they cent of jurisdictions households pay two-part receive from developers, who are required to tariffs with no free water allowance (New South provide water and sewerage services to their Wales Government Pricing Tribunal 1993). developments and to transfer the assets to the Where water fees are based on property relevant water authority without charge at the values, owners of relatively expensive proper- time of sale (Industry Commission 1992). ties, such commercial establishments, pay a Water authorities are often required to pro- relatively high average price for their water. vide services at low or no cost to households as According to the Industry Commission (1992), 19 in 1990-91 the average household paid US$0.51 mainly through exhortation and education rather per kiloliter of water, but the average commer- than through price changes. Table 3.2 shows cial establishment paid US$7.82 per kiloliter, 15 typical household water and sewerage bills in times more. Demand management was achieved the major urban areas in Australia in 1993-94. Table 3.2 Typical household water use and charges for major Australian urban areas, 1993-94 (Aus $) Major urban Average Access charges Usage Environmental Total water and authorities annual water charge levy sewerage bill use (kiloliter) water sewerage Adelaide 300 120 216 144 24 504 Brisbanea n.a. 311 167 n.a. 24 502 Brisbaneb 430 150 167 161 24 502 Darwin 700 n.a. 257 287 n.a. 544 Hobart unmetered 175 189 n.a. n.a. 364 Melbourne 270 11 311 136 n.a. 458 Newcastle 220 81 126 293 74 574 Perth 330 118 345 111 n.a. 574 Sydney 250 89 252 109 40 490 Other Gosford 245 210 448 29 n.a. 687 Wyong 230 176 445 18 n.a. 639 a Brisbane charges for property tax based tariff. b Brisbane charges for properties electing to pay metered charges. Note: n.a. means not applicable. Water use is assumed constant throughout the financial year. Source: New South Wales Govermment Pricing Tribunal 1993. Present water pricing practices and service provision which the people truly demand. Finally, such charging systems distort Concern over traditional pricing practices the production and consumption decisions of has arisen because of their failure to encourage water users (Industry Commission 1992, New efficient allocation of water, and because of the South Wales Government Pricing Tribunal inequities generated by providing subsidies to 1993). some users at the expense of others. More re- There have been significant reforms of both cently, people have become concerned about the urban and irrigation water charging practices. In financial condition of water utilities and their the case of urban water systems, charges based ability to maintain, renew, and extend their sys- on property values are being replaced with two- tems and pay dividends to government. Fur- part tariffs, comprising connection fees and thermore, charging systems which are not re- charges per unit consumed. Free allowances are lated to demand make it difficult for water sup- being abolished. Although charges under the ply authorities to determine levels of investment new tariff system are often insufficient to fully 20 cover costs, they improve water allocation by of transferable entitlements believed they would providing consumers with incentives to conserve lead to overall reform of the industry. However, and by eliminating the cross-subsidy which was because of restrictions, trading in entitlements part of the traditional system. The Hunter Dis- has not been as active as expected, and reform trict Water Board pioneered these reforms in of the industry has been slow. There is increas- 1982. It reports, "Substantial expenditures on ing acceptance of the usefulness of tradeable water storage and distribution infrastructure permits to improve the allocation of water, par- have been postponed. In addition reductions in ticularly in areas where the reliability of water out-of-doors use and peak summer consumption supply is low (Pigram, et al. 1992). In the future postponed the supplementation of the existing while central control may remain high, transfers distribution infrastructure." (New South Wales are likely to occur across greater distances, be- Government Pricing Tribunal 1993). tween catchments, jurisdictions and sectors and For irrigation, the reforms have entailed for greater periods of time. The success of mainly higher prices - thus higher levels of tradeable permits has encouraged policymakers cost recovery and improved incentives to con- to consider developing markets for a variety of serve water - and the introduction of transfer- scarce water resources, such as storage space, ability of water entitlements. The price in- groundwater, and the pollution dilution capacity creases have been implemented despite the ob- of streams (Agricultural and Resource Manage- jections of irrigators. ment Council of Australia and New Zealand In Victoria revenues are sufficient to cover 1994). nearly all operation and maintenance costs. In New South Wales charges for water are still Current debates and future prospects well below those of its neighbors. In 1995 the New South Wales Minister for Land and Water Reform of the Australian water industry is Conservation reported "the current charge in proceeding on a broad front. Changes in tariff New South Wales on the Victorian border is structures and the development of water markets US$1.20 per megaliter compared to US$4.36 are two aspects of the process. In New South across the border in Victoria. The current Wales the Government Pricing Tribunal (now charge in New South Wales on the Queensland the Independent Pricing and Regulatory Tribu- border is US$1.94 compared to US$7.39 (across nal) is increasingly contributing to the debate on the border) in Queensland" (New South Wales both urban and irrigation pricing issues. Other Government Pricing Tribunal 1995). states are planning to establish similar bodies. The weighted average charge for irrigation The Tribunal has already concluded a major re- water delivered to the farm in the southern Mur- view of pricing practices in major urban areas ray-Darling Basin during 1991-92 was (New South Wales Government Pricing Tribu- US$10.16 per megaliter. It is estimated that nal 1993). Local authorities (mainly rural urban charges would have to increase by about 80 per- entities) and the Ministerial Corporation which cent to cover all costs and by more to provide a regulates streams and provides irrigation water return on assets. Since 1992 real charges have services have both been referred to it for review. risen by 11 percent. Simultaneously, water sup- A central government body, the Council of pliers have reduced their costs, narrowing the Australian Governments has promulgated a gap further between revenues and expenditures Water Policy Agreement which provides a stra- (Collins 1996). tegic framework for the industry. The frame- Transferable entitlements and the estab- work targets the following: lishment of water markets were introduced to improve the allocation of water while protecting * Pricing reform, including full cost recovery farmers who had benefited under the old system. and the removal of cross-subsidies Water would flow from lower to higher valued * Asset refurbishment uses through the market mechanism. Promoters * Clarification of property rights to water 21 * Allocation of water to the environment prival values, but some have expressed dissatis- * Adoption of trading arrangements in water faction with the approach, mainly on the basis of rights the circularity involved in its deternination * Institutional and organizational reform (Wells 1995). The issue has not yet been set- * Community consultation and education pro- tled. grams. For irrigation water pricing issues, the up- coming work of the Ministerial Corporation to The implications of this agreement are sub- the New South Wales Independent Pricing and stantial. The Council has agreed to an imple- Regulatory Tribunal is particularly important. mentation timetable. However not all states em- The Tribunal will make recommendations on the brace the Agreement and there may be scope for following issues: interpretation of its provisions. The history of cooperative federalism in Australia and the * Costs that should be recovered and who power of the federal government (compliance should pay with Council of Australian Governments princi- * The defnition of relevant capital costs ples is a condition for states to receive payments * The appropriate degree of attenuation of from the federal government resulting from a property rights, particularly with regard to wider program of competition reform) suggest the security of supply that the prospects for the implementation of the * The extent to which transferability of enti- Agreement are good (Pigram et al. 1994). tlements should be liberalized Council of Australian Governments has * The appropriate way of adjudicating the formed an expert group to establish methodolo- tradeoffs between consumptive use and the gies for asset valuation and determination of environment costs to be recovered. Ultimately, these meth- * The rate of return the government should odologies may be used by water utilities to set receive on its rural water assets charges and report on performance. However, * The impact of alternative price regimes on defining and measuring costs is not straightfor- financial and environmental sustainability ward. Two central questions are: To what ex- * The recovery of costs of managing common tent should charges be set to cover the typically property catchments large capital costs involved in water storage and * The appropriate nexus between price and reticulation? And, how should the charging sys- regulation in determining water quality stan- tems be devised? Some people argue that equity dards requires charges to cover at least a portion of the * Whether or not compensation should be paid capital costs. Others argue that, for efficiency, to losers under the reforms prices should reflect only non-zero opportunity * The regulation and pricing of groundwater costs. If the latter view prevails, then charges use per unit of water would be very low - the ex- * The optimal way of allocating water re- isting capital assets effectively have zero op- sources, which are stochastic in supply and portunity costs, particularly if they are not to be demand expanded or replaced. * The treatment ofjoint costs The expert group also considered a number * The appropriate relationships of government of alternatives for valuing assets, including his- agencies responsible for management, op- torical cost, net present value of earnings, de- eration and regulation of the water resource prival values and variants of renewals account- system ing." The group recommended the use of de- * The replacement of assets and their funding * The appropriate structure of fixed and vari- " The deprival value is the value to the entity of the future able charges economic benefits that the entity wold forego if deprived of the asset (Steering Committee on National Performance Monitoring of * The use of differential prices and cross- Government Trading Enterprises 1994). subsidies 22 * The valuation and pricing of non-extractive Government Pricing Tribunal of New South water. Wales. 1995. Principles for Bulk Water Pricing in New South Wales. Sydney, New Clearly the task facing the Tribunal is South Wales. complex and will involve a comprehensive Industry Commission. 1992. Water Resources review of water resource economics. Its report and Waste Water Disposal. Australian is anticipated with great interest. Government Publishing Service, Report No. 26. Canberra. Conclusion Johnstone, D.J., and M.J.R. Gaffikin. 1995. Review of the Asset Valuation Guidelines of In Australia water charge systems have not the Steering Committee on National Per- been devised either to provide incentives for the formance Monitoring of GTE's. Paper pre- efficient allocation of water resources or to re- sented at the Conference on Regulation of cover costs. Reforms are now underway, but Public Monopolies, October 16. Sydney, much remains to be done. The development of New South Wales. socially-optimal water charging systems is not Pigram, J.J., R.J. Delforce, M.L. Coelli, V. Nor- easy because of conceptual and measurement ris, G. Antony, R. L. Anderson, and Warren problems that remain to be resolved. Australia's F. Musgrave. 1992. Transferable Water progress in attacking these problems should be Entitlements in Australia. Center for Water of interest to more than a local audience. Policy Research, University of New Eng- land. References Pigram, J.J., Warren F. Musgrave, B. P. Hooper, N.J. Dudley, and M.J. Bryant. 1994. Agricultural and Resource Management Council "Cooperative Federalism and Water Re- of Australia and New Zealand. 1994. form." Water 24 (4): 21-25. Property Rights in Water and Water Related Scoccimarrow, M., D. Young, and D. Collins. Other Related Resources. Financial Corpo- 1994. "Management issues for Irrigation in rate Management Committee, Occasional the Southern Murray-Darling Basin." Natu- Paper, Canberra. ral Resources. Proceedings of the National Australian Water Resources Council. 1991. Agricultural and Resources Outlook Confer- Interagency Performance Review, Canberra. ence 1994. Australian Bureau of Agricul- Collins, D. 1996. "Water Reforms and Farm tural and Resource Economics. Canberra. Incomes in the Southern Murray-Darling Steering Committee on National Performance Basin." In: Commodity Markets and Re- Monitoring of Government Trading source Management, Proceedings of the Enterprises. 1994. Guidelines on Accounting National Agricultural and Resources Out- Policyfor Valuation of Assets of Government look Conference 1996. Australian Bureau Trading Enterprises: Using Current of Agricultural and Resource Economics, Valuation Methods. Industry Commission. Canberra. Melbourne. Government Pricing Tribunal Of New South Wales. 1993. Inquiry into Water and Re- lated Services Sydney, New South Wales. 23 4 BOTSWANA Jane M Thema Introduction In Botswana the Ministry of Mineral water rights from the Water Apportiomnent Resources and Water Affairs is responsible for Board, which are free of charge. Table 4.1 shows national water policy. There are two water supply the water demands by sector in 1990. Newer authorities under the ministry, the Department of figures are being computed to use for national Water Affairs and the Water Utilities development plan 8. Corporation, which are responsible for managing the country's water supply systems. The district Past experiences councils, under the Ministry of Local Government Lands and Housing, are also water Urban water supply authorities. The water supply authorities provide water to residences, industries, The Water Utilities Corporation was commercial enterprises, and institutions. established by an act of Parliament in 1971 to The Department of Water Affairs is supply water to the urban areas. From its responsible for supplying water to the 17 major inception, the Corporation set water charges to villages in Botswana, defined as villages with cover its costs and generate a reasonable return on district administrative headquarters or more than its assets so that it could finance new capital 5,000 people in 1975. The Water Utilities investments. Corporation is responsible for supplying water to all urban and mining centers except Orapa, which Rural water receives water from the mining company. The district councils are responsible for supplying In the early 1970s the government initiated a water to rural villages, defined as settlements with rural water supply program, with assistance from more than 500 people (250 people if it is a remote the Swedish International Development area settlement). Authority. By 1982 most major rural villages had The Ministry of Agriculture is responsible replaced their traditional sources of supply - for supplying water to farmers and herders. The boreholes, rainwater catchment, hand dug wells, ministry constructs small dams in farming areas and rivers and streams - with piped water used for livestock and assists syndicates (user systems. Village households were charged a flat groups). Until 1993 the ministry supplied water tariff of P212 per year for water from standpipe to farmers at no charge. Farmers had supplies. The tariff was intended to instill a sense responsibility for operating and maintaining the of ownership among villagers. However, few dams, which mainly involved building and villagers actually paid the tariff; indeed the maintaining fencing around the dams and keeping administrative costs of collection exceeded the the spillways in good repair. In 1993 the ministry revenue collected. The tariff was abolished in changed its policy and asked farmers to 1979. Still policymakers hoped, because contribute 15 percent of dam construction costs. standpipes were relatively rare and allowed users The ministry also gives grants to syndicates to finance a portion of the costs of sinking boreholes for livestock watering. Syndicates 12 "P" stands for PULA, the local currency, introduced in operate and maintain the boreholes, but pay 1976. When the rural water tariff was introduced, Botswana was nothing for the water. They are required to obtain still using the South African RAND for currency: I PUJLA = I RAND. 24 to save time while providing better quality water, villagers would value and maintain them. Table 4.1 Water consumption by sector, 1990 Consumption Percent (million cubic meters) Settlements 33.8 28.9 Urban 19.6 16.8 Major villages 7.4 6.3 Rural villages 6.8 5.8 Agriculture 54.2 46.4 Livestock 35.3 30.2 Irrigation 18.8 16.1 Forests 0.1 0.1 Mining 20.7 17.7 Wildlife 6.0 5.1 Energy 2.2 1.9 Total 116.9 100.0 Note: Industrial and commercial other than mining account for 3.5 percent of total demand. Source: Ministry of Finance and Development Planning 1991. In 1975 households were allowed to obtain Present water pricing practices private connections, for which they paid a flat rate of P0.30 per month. The tariff was intended to Rural water limit the burden on the government budget and, by increasing it periodically, encourage water The current pricing policy is based on the conservation. The tariff was to be reviewed principles of equity, efficiency, and cost recovery. annually and adjusted to reflect changes in costs Equity requires that no one be denied access to and inflation. However the government never safe water because of inability to pay. Financial actually carried out the review, and tariffs were sustainability requires that revenues equal the not adjusted for the next fifteen years. Once the costs of supplying water. Efficiency requires that rural water supply cost and tariff study was prices reflect the marginal costs of supplying completed in 1988, policymakers realized that water. government could no longer afford the massive In accordance with these principles, an in- subsidies being given to construct and maintain cremental or rising block tariff system was in- rural water supplies. In 1990 tariffs were raised troduced in 1990. While tariffs are still too low to (Table 4.2), generating sufficient revenue to cover fully cover costs, they are gradually rising. For 40 percent of operation and maintenance costs. equity, water from standpipes is supplied free of This was double the rate of recovery in 1989, charge, and households with private connections when revenues covered just 20 percent of costs. pay a concessionary rate for the first five cubic meters of water consumed. 25 The seventh national development plan of until 1993 after they had fallen in real terms by 35 1991-92 specified a target: by the end of 1996- percent. In 1993 the cabinet approved a tariff in- 97 revenue from villagers should cover all re- crease of 50 percent for 1993-94, and increases current costs for water supply. The tariffs intro- of no more than an average of 45 percent for the duced in 1990 were to be reviewed each year and next three, 1994-95, 1995-96 and 1996-97. adjusted to reflect changes in costs and inflation. Table 4.3 presents the 1993 tariff schedule. However the tariffs were not actually adjusted Table 4.2 Tariff schedule, 1990 Band Monthly consumption Tariff (cubic meters) (P per cubic meter) 1 0-5 0.30 2 6-20 0.60 3 >20 1.20 Table 4.3 Tariff schedule, 1993 Band Monthly consumption Tariff (cubic meters) (P per cubic meter) 1 0-5 0.45 2 6-20 0.90 3 21-40 1.80 4a >40 3.50 a Band 4 is applicable to periurban areas only and is equivalent to the bulk rate for urban areas. Table 4.4 Revenue compared with costs Year Operation and maintenance Revenue Percent recovered (billion P) (billion P) 1988-89 5,800 1,920 33 1989-90 7,790 2,870 37 1990-91 11,220 5,400 48 1991-92 14,760 6,220 42 1992-93 17,050 6,590 39 1993-94 23,960 8,730 36 1994-95 24,860 10,990 44 Source: Ministry of Finance and Development Planning, various years. 26 Clearly tariffs will not be sufficient to cover the major villages, set by the Department of recurrent costs as stipulated in the national devel- Water Affairs. The central government provides opment plan by 1996-97. Even if tariffs are grants to the rural villages to finance the deficit. raised as scheduled, they will cover only about 60 The national development plan proposes that percent of recurrent costs. Table 4.4 provides users pay 30 percent of costs by the end of the data on revenues compared with costs from next plan period, March 2003. 1988-89 to 1994-95. Government pays the full costs of Urban water standpipes. However, the budget burden of standpipes is declining in major villages as more The Water Utilities Corporation sets water households choose private connections. Already charges to fully recover costs, as stipulated by the in major villages 70 percent of water consumed is act. Its tariff structure involves rising block rates: through private connections, for which consumers rates are low for a specified initial consumption pay. As a result revenue collection from major level, and are higher for consumption above this villages is improving. It should be noted level. This makes water affordable to low income however, that 41 percent of water from private consumers, while en-couraging conservation connections carries the concessionary tariff among higher income users. Block tariffs were applicable to the first band of water consumed. restructured in 1992 to more closely reflect water Annex Table 4.A1 shows the proportion of water scarcity: the quantity of water eligible for the consumed through standpipes compared with lowest tariff was reduced from the first 15 cubic private connections for typical major villages. meters to the first 10 cubic meters, while the By contrast, in rural villages 85 percent of quantity subject to the highest tariff was reduced the water consumed is from standpipes. Villagers to 25 cubic meters and above from 40 cubic pay only about 15 percent of the costs of these meters and above. Table 4.5 pre-sents the 1992 services. Although the cost per capita is higher in changes in the tariff structure. the rural villages than in the major villages, the district councils use the same tariff schedule as Table 4.5 Tariff schedule 1991 contrasted with tariff schedule 1993 Band Monthly consumption Tariff (cubic meters) Gaborenel Jwaneng Francistown Selebi Phikwe Lobatse Old (March 1991) 1 0-15 0.65 0.55 0.55 0.55 2 16-40 2.60 2.10 2.20 1.28 3 >40 3.50 2.40 2.50 1.65 4 Raw water 0.82 n.a. 0.55 Special tariff New (October 1993a) 1 0-10 0.85 0.85 0.85 0.85 2 11-15 2.50 1.75 2.20 1.28 3 16-25 3.20 2.30 2.50 1.65 4 >25 4.40 2.65 3.20 2.20 5 Raw Water 3.85 n.a. 2.50 Special tariff a The revisions to the bands were implemented in October 1992. Source: Ministry of Mineral Resources and Water Affairs 1994. 27 Urban water tariffs are set by supply region: users in some areas subsidize those in others. For tariffs in the Gaborone-Lobatse area are higher example, users in both Kasane and Mahalapye than tariffs in the Jwaneng area. This reflects the pay the same tariff for water, yet Mahalapye is 45 differential costs of supply, which are higher in kilometers from its reservoir (annual fuel costs: the water-scarce Gaborone-Lobatse area than in P368,900) while Kasane is only 0.5 kilometer the Jwaneng area. Tariffs send signals to water from its water source (annual fuel costs: users on the costs of supplying water in each P4,553).13 region. Water intensive industries will factor The tariff remains too low to achieve the these costs into their location decisions, and cost recovery objective. The low tariff also choose to situate in regions with relatively abun- inflates demand, thus leading to the need to dant and cheap water, all other factors being develop new resources faster than would other- equal. wise be the case. Users with private connections can easily afford to pay double the current Successes charges for water. Institutional. The Department of Water Rural. There has been a slight improvement Affairs still processes its records manually, mak- in revenue collections relative to costs in rural ing it difficult to rapidly identify and follow up areas. Rural water users paid 44 percent of total probems or identify users who have not paid their costs in 1994/95, compared with 37 percent in bills. In addition, many of the users in default are 1989-90 (Table 4.4). other government departments. Since the water Urban. By 1995-96, 95 percent of urban institution cannot disconnect government de- households received water through private partments, it cannot enforce its water charges or connections which are metered, and pay for water raise the revenues its needs to function. according to quantity consumed. As a result, Another problem is that there is no clear pol- people treat water as a scarce commodity and icy regarding debt collection. Currently water waste very little, according to the national water suppliers do not have legal authority or in-house master plan and water use and affordability capacity to collect debts. The department can dis- studies. These studies, while failing to identify a connect consumers who have not their bills, but specific measure of elasticity of demand, found a has no legal means of recovering the debt. Con- sharp drop in water use following the real sumers know this, and sometimes request con- increase in the average price of water which nections for which they have no intention of occurred in the mid-1980s. The Water Utilities paying. Currently the costs of operating and Corporation has succeeded in operating on a maintaining the water systems are paid with gov- commercial basis. It is not however able to meet erinent allocations, so the water utility does not the rates of return specified in its charter, earning have strong incentives to collect debts or review only a small profit on sales. tariffs. Urban. Manufacturers regard charges for Difficulties utilities -water, power, and telecommunications - as too high. So policymakers are reluctant to Rural. Tariffs do not reflect the recurrent revise them in line with costs or commercial prac- costs of rural water supply, and as a result tices (tariffs were last revised in October 1993). revenues do not come close to covering costs. This has serious implications for the via-bility of For example, the cost figures shown in Table 4.4 the Water Utilities Corporation, which is now em- do not include costs of producing water or of fuel; barking on two major investment pro-grams: the these costs are combined with the department's Gaborone-Lobatse's water system upgrade pro- other fuel and transportation costs. ject and the North South Carrier Water Project. Uniform tariffs are set for all supply areas. While administratively simple, this policy masks 13 The costs are expressed in 1995/96 prices. US$1 = P2.82 differential costs of supply, meaning that water (P =US$0.35) in December 1995 (Bank of Botwana 1995). 28 Table 4.6 Utility prices as percentage of total cost, 1995 Utility Industry Water Power Telecommunications Hotel 1.11 3.43 0.81 Concrete 0.53 0.72 0.62 Bakery 0.39 1.81 0.62 Packaging 0.33 2.08 0.77 Brewery 1.80 1.20 0.60 Abattoir 1.80 1.99 0.21 Textile 0.74 4.33 0.36 Other 0.74 5.85 1.08 Source: Water Utilities Corporation 1995. Financing the latter project will require tariff in- * Urban-rural differences in the basic needs creases of about 7 percent per year until the date water band. Currently the size of the bands the system becomes operational. A recent survey differs, but the rationale for this is unclear. by an interministerial advisory committee on * Targeting of concessionary tariffs. The water tariffs shows that water tariffs constitute current tariff structure provides a con- 0.5-2 percent of total production costs for indus- cessionary rate for the first consumption band trial and commercial consumers, as shown in - for businesses and households, and for Table 4.6 (Advisory Committee on Water Tariffs high income and low-income consumers. Yet 1995). there is no clear justification for giving businesses or high income consumers the Current debates and future prospects concessionary rate. Debates Future perspectives Issues being debated include: Urban. Policymakers are currently consid- * Charges for standpipe water supplies. ering introducing a tariff for commercial and Subsidies for standpipe supplies constitute a industrial users. Compared with the current tariff, significant government burden. The national the business tariff will involve a higher tariff for water master plan and the water use and the first consumption band but lower tariffs for affordability study recommended that stand- higher consumption bands. Because this is likely pipe consumers pay a flat rate tariff. Many to benefit large consumers while penalizing small standpipe consumers are accustomed to pay- ones, decisionmakers will likely allow small ing tariffs, especially in the urban areas. business owners to elect whether or not to * Responsibility for water accounts. Currently participate. the Ministry of Finance and Development The eighth national development plan, now Planning settles government accounts. being prepared, is likely to make the water supply Therefore government departments have no authority responsible for wastewater management incentive to pa their water bills. and reuse. Although sensible, this change may make tariff adjustments even more difficult to achieve, especially in urban areas. Currently 29 sewerage charges are included in the rates levied Account 1988/89-1994/95." Gaborone, by urban councils, but the Water Utilities Corpo- Botswana: Government Printing Office. ration operates on a commercial basis, so will Ministry of Finance and Development Planning. almost certainly have to raise the rates. 1991. "National Development Plan 1991- Rural. It is expected that rural consumers 1997." Gaborone, Botswana: Government will pay an increasing proportion of the costs of Printing Office, December. supply. The eighth national development plan is Ministry of Mineral Resources and Water Affairs. likely to include increases in tariffs to generate 1992. "Botswana National Water Master sufficient revenue not only to cover operating and Plan Study. Final Report on Phase 2 maintenance costs but also a portion of capital SMEC/Knight Piesold. Gaborone, Botswana, costs. July. Ministry of Mineral Resources and Water Affairs. References "North South Carrier Water Project Pre- Implementation Consultancy. Funding Advisory Committee on Water Tariffs. 1995. Options Study Module Report." Binnie "Survey of Water Tariffs." Gaborone, Burrow Botswana Limited. Gaborone, Botswana, August. Botswana, September. Bank of Botswana. 1995. "Annual Report." Water Utilities Corporation. 1991. "Water Use Gaborone, Botswana. and Affordability Study. Final Report." Department of Water Affairs. Various years. ARUP, Gaborone, Botswana, September. "Operations and maintenance Statistics." . 1995. "Urban Water Tariff Operations and Maintenance Division. Review. Draft Final Report:' Gaborone, Gaborone, Botswana. Botswana. Ministry of Finance and Development Planning. Various years. "Annual Statements of 30 Annex Table 4.A1 Proportion of water consumed through standpipes versus private connections, selected locations Year Production Standpipes Private connection Percent private Percent (1,000 cubic (1,000 cubic (1,000 cubic connections standpipes meters) meters) meters) Tlokweng 1989 367 17 282 76.97 4.68 1990 443 1 360 81.35 3.88 1991 481 18 390 81.04 3.80 1992 706 54 546 77.41 7.68 1993 671 27 503 74.93 4.01 1994 730 14 586 80.26 1.93 Mahalapye 1989 517 77 307 59.34 14.85 1990 654 122 428 65.47 18.72 1991 588 91 363 61.72 15.54 1992 758 77 522 68.94 10.18 1993 896 74 544 60.75 8.20 1994 1,094 110 776 70.91 10.05 Kasane 1989 212 53 97 45.65 25.02 1990 292 30 117 40.13 10.41 1991 258 34 123 47.76 13.26 1992 409 34 205 50.20 8.25 1993 432 26 266 61.58 6.10 1994 455 29 263 57.71 6.28 Kanye 1989 704 142 362 51.40 20.18 1990 740 145 407 54.95 19.54 1991 766 182 386 50.36 23.72 1992 864 187 481 55.64 21.64 1993 986 205 560 56.76 20.76 1994 1,074 167 677 63.03 15.58 Source: Derived from Departnent of Water Affairs, operation and maintenance statscs. 31 5 BRAZIL Luiz Gabriel Todt deAzevedo Introduction Until recently most Brazilians viewed water establishment of water tariffs for bulk water as a free good - a gift of god. Over the past supply. Water and environmental laws in some few years however, as conflicts over water-use states also include provisions for the establish- have intensified and public resources to develop ment of pollution charges, to be estimated in water supplies have become scarcer, interest in accordance with the amount of waste contained charging users for has grown. It is believed that in effluent discharges. introducing water charges will achieve a more There is currently a strong movement in efficient allocation of water resources and gen- Brazil to develop water tariff systems at the fed- erate funds for sustainable operation and main- eral and state levels. Studies to support the es- tenance of existing infrastructure. tablishment of bulk water tariffs are being car- The Brazilian legal framework for water ried out for the Curut river in Ceara, Piracicaba resources management is based on the constitu- and Capivari rivers in Sao Paulo, Femeas river tional distinction between federal and state wa- in Bahia, and the Vacacai river in Rio Grande do ters. Federal waters are those that flow across Sul, among others. state boundaries or along the boundaries be- tween two or more states or a foreign country. Present water pricing practices State waters are situated entirely within the ter- ritory of a single state. The granting of formal Currently there are no bulk water fees for water use rights has been limited to hydroelec- the use of water for irrigation or urban water tric and public irrigation projects. The tradition supply. Hydropower producers do pay tariffs. of treating water as a public good, free to all, Farmers using public irrigation projects pay a rather than an economic good has stymied the tariff for operation and maintenance of the sys- development of a manageable water use rights tems. Urban water users pay a fee covering the system. costs of water treatment and distribution and Congress approved a new federal water law sewage collection. Thus the current practice is (law 9433) in January 1997. The law permits to charge users for the operation and mainte- the establishment of bulk water tariffs for fed- nance costs of water resources projects, but not eral waters. However, implementing the policy for investment or resource costs. still requires the passage of regulations of the law, expected no sooner than the end of 1997. Chargesfor irrigation water In the meantime, the establishment of tariffs for federal waters is supported by the country's The current water charging system for pub- Civil Code, which states that "common use of lic irrigation projects is inconsistent. Tariffs are public goods can be free or provided for a fee allocated to the sponsoring agency and distrib- according to specific legislation at the federal or uted to the irrigation districts. In 1995 tariffs for state level," and the Water Act, which states that irrigation water supply ranged from US$3 to "charges can be imposed for the common use of US$40 for 1,000 cubic meters depending on waters in accordance with laws and rules of the whether the project was public or private, and administrative region where they belong." The whether the water was supplied through gravity states of Sao Paulo, Ceara, Bahia, and Santa or pumping (Table 5.1). By contrast the net Catarina have already enacted water laws for economic benefits of 1,000 cubic meters of wa- state waters which include provisions for the ter averaged about US$20 for low-value crops 32 and between US$50-US$400 for high value grow crops one season would still be responsible crops.14 Thus the economic viability of irrigated for the fixed operation and maintenance costs. agriculture for the production of grains and The Jaiba irrigation project, under imple- other low-value crops is linked to efficient op- mentation in the state of Minas Gerais, is one of eration and maintenance of projects. Brazil's best managed public irrigation projects. The irrigation law (law 89.496, 1984) re- Water charges and receipts for the irrigation quires that water tariffs for public irrigation district are illustrative of Brazil's irrigation tariff projects be set as the sum of two coefficients, system. Since the project started operation, Ki and K2. KI reflects capital costs of the proj- nearly 29,700 water bills have been issued, of ect, and is calculated based on the assumptions which 19,600 have been paid (66 percent). The of a 50 year repayment period and a subsidized value of these bills totaled R$1.42 million, of interest rate. Per hectare values are computed which R$742,000 (52 percent) has been paid. by dividing the total value by the number of The value attributed to the KI coefficient was hectares under irrigation: in 1995 the Kl value about R$370,000 (26 percent), while the value for public irrigation projects was R$3.58 attributed to the K2 coefficient was about (US$3.69) per hectare per month. K2 is sup- R$1.05 million (74 percent). The district is un- posed to cover the operation and maintenance dertaking an effort to collect unpaid water bills. costs of the project, and is estimated as a func- In addition it is implementing a public aware- tion of the volume of water used (R$ per 1,000 ness campaign to encourage users to pay volun- cubic meters). Irrigation water is metered in tarily. Unless it is successful the project will not most public irrigation projects. The K1 tariff is have the funds it needs to operate sustainably. paid to the sponsoring federal agency, while the K(2 component is normally paid directly to the Charges for water supply and sanitation water users district. While the two-part tariff may make sense, State-run companies provide drinking water the way the federal government calculates the and sewage collection and treatment services in K1 tariff leads to many problems, including a most urban areas. Water users pay a monthly lack of clarity as to what methodology to use to fee for water, which averaged US$0.42 per cu- estimate its annual value. Furthermore charging bic meter in 1989-90. In the past revenues farmers for the water on the basis of use alone rarely covered costs. In response most state sometimes leads to a failure to cover the fixed companies have tried to reduce their expenses operation and maintenance costs of projects, by shrinking their staffs and modernizing their since revenues from this source are somewhat systems. Until recently state companies did not unpredictable. The law does allow irrigation pay bulk water fees. However in November districts to charge a fixed minimum value of 30 1996 the state of Ceara began charging water percent of the forecasted volumetric bill to cover utilities US$10 for 1,000 cubic meters of bulk fixed operation and maintenance costs. How- water. ever this is not always sufficient, particularly The ongoing federal Water Sector Mod- since farmers choosing not to grow crops in a emization Project is supporting the moderniza- season rarely have to pay K2 charges at all. tion of water supply and sanitation agencies in A revised tariff system is under considera- Santa Catarina, Bahia, and Mato Grosso. The tion for some projects, for example Jaiba. The main objectives of the project are to help the approach would involve dividing the K2 coeffi- state companies operate on a commercial basis, cient into two factors, one representing the fixed and become financially self-sufficient, autono- operation and maintenance costs, and the other mous, and accountable for their actions. Similar the variable costs. Farmers choosing not to efforts are being initiated in other states, and include privatization of urban water supply and sewage services and the establishment of tariffs 14 Brazil's currency unit is the real (R$). US$1.0 = R$0.96 which can provide for the long-term sustainabil- 33 ity of water supply and sewage systems and de- among the states and municipalities where the livery of high quality services. projects are located, the National Department of Water and Electrical Energy for its monitoring Charges for hydropower networks and safety programs, the Secretariat of Science and Technology for research, and the Brazilian hydropower producers pay fees Brazilian Institute of Environment for studies for the use of water, while foreign firms pay and water quality improvements. royalties. The fees and royalties are divided Table 5.1 Irrigation water tariffs in public irrigation projects, 1995 Project State K2 (US$ per 1,000 cubic meters) Pirapora Minas Gerais 33.84 Gorutuba Minas Gerais 4.40 Jaiba Minas Gerais 10.11 Estreito Bahia 10.62,a 19.95b Sao Desiderio Bahia 8.24 Formoso A Bahia 9.36,a 15.28b Nilo Coelho Pernambuco 3.08,' 19.36b Bebedouro Pernambuco 16.00 Mandacaru Bahia 6.20 Tourao Bahia 14.98 Manicoba Bahia 13.35 Curaca Bahia 23.80 Propria Pernambuco 9.84 Itiuba Alagoas 9.70 Cotinguiba Sergipe 8.50 Boacica Alagoas 8.86 a Gravity Systems b Pumping Systems Note: The KI coefficient is standard; in 1995 its value was US$3.69 per hectare month. Current debates and future prospects Ceara. A bulk water tariff study is under- way in Ceara to establish an initial tariff level, Bulk water supply tariffs appropriate tariff structure, and timetable for increasing tariffs. The water tariff will help pay The chief water resource management issue for new water storage and conveyance infra- in Brazil is the establishment of bulk water tar- structure. The key constraint in setting the bulk iffs. Bulk water tariffs are already being imple- water tariff is that it not exceed the user's ability mented in many states, and studies are underway to pay. Analysts studying the impact of charges in others. Some major studies are presented on the water company's financial health chose here. US$18 per 1,000 cubic meters as a realistic tar- iff: a tariff at this level would require poor urban 34 families to pay about 1 percent more of its in- factor are based on the pollution load (tons of come for water, neglecting the effect of subsi- biological oxygen demand (BOD) per day). dies. In addition it was assumed that the water Makibara (1995) has studied the use of variable company would pay US$1 per 1,000 cubic me- or seasonal tariffs to reflect differences in water ters of water released from federal reservoirs availability regionally or seasonally and differ- (currently there is no charge); water losses ences in the potential of water use to damage the would be 30 percent of the water yield from res- environment. He estimated the cost of urban ervoirs; the percent of users paying would grow water supply and wastewater treatment to be from about 30 percent the first year to 70 per- between US$l0-US$62 per 1,000 cubic meters. cent the fifth year, and stabilize at this level; the Rio Grande do Sul. Lanna (1995) con- unit price of water would increase from 60 per- ducted a study to determine bulk tariffs for flood cent of the final tariff (US$18 per 1,000 cubic irrigation of rice in the state of Rio Grande do meters) to 100 percent in the fifth year. Sul. He estimated that the marginal capital cost Under these assumptions, the water com- of building two new dams to supply additional pany's revenues would grow from zero in the water varied from US$22.5 per 1,000 cubic me- first year to US$17.7 million in the tenth year, ters (assuming an interest rate of II percent and while operation and maintenance costs would a 20-year repayment period) to US$14.5 increase from US$1.8 million in the first year to (assuming an interest rate of 8 percent and a US$6.5 million in the tenth year. After the tenth 50-year repayment period). Local rice farmers year costs and revenues would be stable. The found these values very attractive. Lanna has present value of the stream of income (which also carried out tariff studies for the states of generates a rate of return of 8 percent) is very Santa Catarina in the south and Mato Grosso in close to the present value of the US$11 0 million center west Brazil. water resources program launched in 1994, as- suming that investments are uniformly spread The use of markets to allocate water over a ten-year period. This attractive result is also predicated on the assumption that the water Policymakers are considering developing company does not pay for the past investments water markets to allocate water. Water markets of the federal government. are uncommon in Brazil, but both state and fed- Bahia. Garrido (1994) conducted the ini- eral governments are studying experiences in the tial, pioneering work for the Femeas River, as United States West, Chile, Australia, and Mex- part of a detailed bulk water tariff study for Ba- ico. Kemper, Goncalves, and Brito (1995) hia. His innovative approach used the willing- studied water markets of the Cariri region in the ness-to-pay methodology to set ranges for bulk state of Ceari, which have existed for more than water tariffs rather than the more commonly a century. This is the only documented example used marginal cost method. The study found of tradable water rights in existence in Brazil. that users willingness to pay for drinking water While the Cariri market is a small isolated sys- was relatively high (US$31 per 1,000 cubic tem, it provides indications of the value of wa- meters) while their willingness to pay for water ter, the possibilities of allocating and enforcing for irrigation or hydropower in this particular water rights in rural areas, and the willingness of basin was relatively low (US$0.51 and US$0.33 water users to pay and cooperate to assure a se- per 1,000 cubic meters respectively). cure water supply. Sdo Paulo. Investigators are considering The authors compare the prices Cariri users implementing bulk water tariffs in the Piracicaba paid in 1993 for water rights to the prices that watershed in the state of Sao Paulo. Here ana- users in the United States West and Australia lysts are calculating tariffs as the sum of the paid for water user rights in 1988 and 1989. In marginal cost of developing new supplies and 1992 users paid US$1.18 per cubic meter for the marginal cost of increasing treatment capac- permanent water rights in Colorado, and about ity to treat effluents. Estimates of the second US$0. 11 per cubic meter in Australia. The price 35 users paid in the Cariri region in 1993 corre- development, operation and maintenance of sponds to about US$0.14 per cubic meter per water resources projects. year, which is somewhat higher than in Austra- lia, but considerably less than in the United References States. Heame and William Easters (1995) show that users paid between US$0.06-S$0.51 Azevedo, L. G., and L. D. Simpson. 1995. per cubic meter for water rights in the Elqui and "Brazil: Management of Water Resources." Limay watersheds in Chile. Thus users in the Economic Notes 4, World Bank, Environ- poor and undeveloped Cariri region value water ment, Natural Resources and Rural Poverty about as highly as users in industrial economies. Division, Country Department I, Latin America and Caribbean Region. Privatization Garrido R. J. 1994. Valor Intrinseco da Agua.: Experiencia na Bahia. Secretaria de Recur- Brazil is also experimenting with privatiz- sos Hidricos, Saneamnento e Habitacao do ing water suppliers. These companies would Estado da Bahia, Superintend8ncia de Re- operate on a commercial basis, so tariffs would cursos Hidricos. have to cover all costs of supplying water and Heame, Robert R., and K. William Easter. collecting and treating wastewater - both capi- 1995. "Water Allocation and Water Mar- tal costs and operation and maintenance costs. kets: An Analysis of Gains from Trade in Some irrigation and hydropower projects have Chile." World Bank Technical Paper 315, already been privatized. Currently the state of December. Ceara is offering a ten year concession to build Kemper K, Goncalves Y., and Brito W. 1995. and operate a water plant for the city of For- Water Allocation and Trading in the Cariri taleza (500,000 people) and collect water tariffs Region. In Proceedings the Annual Confer- in exchange for an investment of US$37 million ence of the Brazilian Water Resources As- to build the plant. sociation, Recife, Brazil. Lanna, A. E. 1995. Cobran,a pelo Uso da Conclusions Agua: Reflexoes a Respeito de sua Aplica- q&o no Brasil. Instituto de Pesquisas Brazil now recognizes the potential of wa- Hidraulicas da Universidade Federal do Rio ter charges to allocate water efficiently and pro- Grande do Sul. vide water suppliers with funds to operate and Makibara, H. 1995. Estudos para a Implanta- maintain water systems sustainably. The coun- q,co da Cobran,a pelo Uso dos Recursos try is quickly moving towards establishing water Hidricos no Estado de Sdo Paulo. Working tariffs for all major users categories in the coun- Paper, Departnent of Water and Electrical try. In November 1996 the state of Ceara initi- Energy of the state of Sao Paulo. ated its program to collect bulk water supply Souza, M. P. 1995. "A Cobranca da Agua tariffs. Tariff systems are likely to be imple- como Bem Comun." Revista Brasileira de mented in the Piracicaba watershed in Sao Paulo Engenharia -Caderno de Recursos Hidri- and in selected basins in Bahia within the next cos 13 (June). two to three years. In addition, the Brazilian World Bank. 1994. "Ceara Urban Development government is interested in developing a legal and Water Resource Management Project." framework which would decentralize the man- Staff Appraisal Report 12836-BR, August agement of water resources and would provide 15. Washington, D.C. incentives for private sector participation in the 36 6 CANADA Theodore M Horbulyk Introduction History of water pricing practices Present water pricing practices Water pricing policies and management in Institutional contextfor water pricing Canada have focused on managing water sup- ply, not demand."5 Except for water used in hy- In Canada federal and provincial govern- droelectric generation, charging for water on the ments delegate most of their authority for setting basis of use has not played an important role in charges for the use of surface water to other allocating water, even where water resources are agencies. Three issues are important: the con- scarce or there is conflict over access to re- stitutional authority to set water prices; the dis- sources. Many provinces did not introduce tinction between wholesale level and retail level volumetric-charges until the 1980s (Tate and water prices; and the distinction between pricing Scharf 1996). policies as applied to surface water versus Water charges do not, in general, cover the groundwater. social marginal costs, including environmental The historical constitutional authority for costs, of supplying water or of treating waste- setting and collecting water charges rests largely water. In the past water utilities received oper- with the ten provinces. These provinces, in turn, ating support and capital grants from the federal delegate responsibility for municipal (residential and provincial governments. However, in recent and commercial) water tariffs to regional and years, government has reduced its support. As a municipal water agencies in their jurisdictions. result, many regional and municipal water agen- Provinces retain the authority to establish prices cies and utilities have failed to maintain or to for water which users acquire directly from a reinvest in the physical infrastructure necessary surface or groundwater source rather than from to continue providing water service at historical one of the regional agencies. Federal laws gov- levels. This has generated interest in charging em water use in the Yukon and Northwest Ter- consumers for water and wastewater treatment ritories. Federal laws also establish guidelines on the basis of use (Renzetti and Tate 1994). or set minimum standards for water quality and In the mid-1980s the federal government transborder flows, and regulate activities which initiated a study of water policy. In 1987 a new affect water use or water quality such as naviga- water policy was adopted. Further refinements tion and fishing. The authority to regulate and in the policy were made in 1990 (Environment to charge for wateruse by aboriginal peoples on Canada 1987, 1990a). One of the five key rec- aboriginal lands appears to be unresolved con- ommendations of the water policy is to improve stitutionally, and may constrain government water pricing practices (Karvinen and McAllis- control in some instances. ter 1994). However, many homes and apartment The specific regulations governing access buildings lack water meters, and this is a barrier to water (including water use licensing and wa- to introducing volumetric-charges. ter charges) vary considerably from province to province. Still, there are many similarities in the system of water charges. Foremost, at the pro- is This chapter was prepared while the author was Visiting vincial government level, water charges have Associate Professor in the Department of Agricultural and Re- historically been relatively insignificant for allo- source Economics at the University of New England, Armidale, Australia. Research support from the university is gratefully ac- cating access to water or as a source of revenue. knowledged. 37 Other means of allocating access continue to be Irrigation water important. Only a small fraction (2.7 percent, or about Surface water 950,000 hectares) of cultivated lands in Canada were irrigated in 1988, although irrigated area Four of Canada's ten provinces (British has been growing.'6 Most of the irrigated area is Columbia, Saskatchewan, Ontario and Nova in the western provinces. Here irrigation dis- Scotia) have two separate water pricing struc- tricts, improvement districts, and other agencies tures for the use of surface water - wholesale that fall under the provinces' jurisdiction are and retail. Wholesale rates apply to transactions responsible for supplying irrigation water. In between the provincial governments and their contrast, individuals are responsible for irriga- direct licensees (such as municipal agencies or tion in central and eastern provinces. irrigation districts). Retail rates apply to trans- Based on data from 1988 farmers pay for actions between the licensees and individual irrigation water in three of Canada's ten prov- end-users such as households and farmers. On- inces (Environrent Canada 1989)."' These are tario charges fees per unit of time rather than of British Columbia, Alberta and Saskatchewan, volume. The other three provinces charge ac- the three western and relatively arid provinces. cording to volume (Renzetti and Tate 1994). Even here, farmers do not pay the full costs of supplying the water. Charges are most often Groundwater defined as service charges. These are retail charges to consumers and are based on the costs Neither the provinces nor the federal gov- of providing water-related services, such as ernment currently charge fees for the direct ab- storing and conveying the water, and adminis- straction of groundwater. However, municipal tering the system. In other cases, water charges agencies charge retail prices for water obtained to farmers are defined as resource royalties, from groundwater sources on the same basis as levied on the use of the water resource itself. for surface water sources. In 1988 farmers paid something for about Two provinces, British Columbia and Que- 80 percent the total volume of water used for bec, have not until recently regulated access to irrigation in Canada (this water was applied to or use of groundwater (Karvinen and McAllister 72 percent of the irrigated land area). Specifi- 1994). Two provinces, British Columbia and cally, farmers paid service charges for about 61 Manitoba, and the federal govermnent are ex- percent of Canada's irrigation water, and re- ploring the possibility of developing groundwa- source royalties for another 19 percent of the ter pricing policies (see Canada 1987, 1990a, irrigation water. Farmers pay both charges for British Columbia 1993, and Manitoba Provincial about 4 percent of irrigation water (Environment Government 1993). If prices for surface water Canada 1989). rise, municipalities and agencies may increas- The rate structures employed vary consid- ingly tap groundwater supplies as a substitute. erably even within a single province. The most Thus, Canada's system of water pricing is common system involves charging a flat rate per principally one in which each province delegates hectare per year. Other systems involve charg- its authority for setting retail prices for surface ing by volume used and charging a flat rate per water supplies to municipal agencies and irriga- tion districts. The features of this system will be 16 This review of irrigation water pricing is based on Canada elaborated by considering, in turn, the pricing (1989). All prices are reported in US$ (1988) with practices that apply for water in municipal, agri- US$0.81/Canadian$. Values for British Columbia come from pp pracultice4-6; Alberta, pp. 2-3; and Saskatchewan, pp. 10-13. cultural, industrial and electric power uses. 1' There was also a charge for the agricultural use of water in the Yukon and Northwest Territories of US$0.033 per day per cubic meter in 1988, but less than 150 hectares were irrigated (Canada 1989). 38 year, regardless of area irrigated. Generally, allocation practices that are no longer entirely volumetric charges are imposed only when a satisfactory to the agencies. As in the case of pre-determined minimum level of use is ex- municipal water supplies, some jurisdictions are ceeded. In many areas, the existing pricing facing growing conflicts over access to water scheme plays no allocative role: at the prices and budget shortfalls, and this may renew inter- being charged, there is excess demand in some est in reforming water pricing practices. The or all years for irrigation water. Rather water is recent experience of Alberta, where there are apportioned according to established water growing conflicts over water use, may be in- rights, licenses or other sharing rules. structive. In this province water policy has been In British Columbia the wholesale under review since 1991. Recent legislation (marginal) price of irrigation water in 1988 was eliminates a provision in the govermment's ear- US$0.165 per cubic decameter (equivalent to lier policy proposals allowing the use of diverse 1,000 cubic meters or 1 million liters or 0.811 economic instruments, including water pricing, acre feet) for individual users and US$0.198 per to allocate water. The public also opposed the cubic decameter for users served by a local use of resource royalty charges. However, the authority. A typical (retail) flat rate charge public supported the introduction of tradable would be US$90 per hectare per year which is water entitlements, which protect the interests of equivalent to about US$11.20 per cubic deca- established water users. Under the new Water meter. Act, the government will be able to impose fees In Alberta most irrigation water is provided only for water used for electricity generation at retail rates by irrigation districts.' Some of (Alberta Legislative Assembly 1996). these districts maintain two rate schedules whereby users with permanent water rights pay Urban water a lower charge than those with terminable water rights. Retail prices charged by irrigation dis- In Canada households consume about 25 tricts in 1988 ranged from US$6.50 to US$27.00 cubic meters of water per month. Commercial per hectare per year under permanent rights, and users, such as light manufacturers or shopping from US$7.50 to US$36.00 per hectare per year and office complexes consume about 100 cubic under terminable rights. This water is typically meters water per month."8 In most cases mu- conveyed to individual irrigators in lined canals. nicipal agencies charge users for both the supply Some schemes use pumps and pipes to convey of water and the provision of sewage or waste- water. In Alberta there is no wholesale charge water services, with charges for the latter often for water nor is there a charge to individual irri- blended with the former. Accordingly, the fol- gators. lowing will review the prices charged for this In Saskatchewan there is no wholesale or bundle of water supply and collection and treat- retail charge for irrigators drawing water di- ment services, except as otherwise noted in Ta- rectly from natural water courses. Irrigators ble 6.2. receiving water from irrigation districts or drawing water from reservoirs or conveyed in canals or the like, pay according one of a dozen regional rate schedules. A typical retail price in Is This review of municipal water pricing practices draws almost entirely on Tate and Lacelle (1995). In 1991, Tate and 1988 was US$12.20 flat rate per hectare per Lacelle sent mail surveys to all Canadian municipalities witb year. Another quoted rate is US$3.90 per cubic populations above 1,000. They received replies from 1,325 of decameter. 1,523 municipalities (87 percent response rate) and obtained2,762 residential or commercial water rate schedules. These municipali- Across Canada there appears to be in- ties cover 87 percent of Canada's urban population and pump creased interest in reexamining charging sys- about 83 percent of all municipal water supplied in Canada. Of tems used for iffigation and other agricultural the responding municipalities, 93 percent have municipal water supply systems; 89 percent have sewage collectionsystems, and uses of water. Some governments and water 88 percent of these provide some level of sewage treatment (rate agencies are following decades old pricing and and Lacelle, 1995). 39 Tables 6.1, 6.2 and 6.3 present results from the water supply alone, and column (b) shows a 1991 municipal pricing survey reported by the integrated payment for water and wastewater Tate and Lacelle (1995). Table 6.1 shows that service together (sewage charges account for more than one-half of municipal agencies charge about 40 percent of the integrated charges.) The flat rates which do not depend on the volume of spatial pattern of charges reflects, in part, the water used. Indeed, nearly one-half of the range of climatic and geophysical differences of households covered by the 1991 survey lacked the country.20 Permafrost is a feature in some water meters capable of measuring the volumes parts of the Yukon and Northwest Territories, of water consumed. Moreover, even where rate which significantly raises the cost of providing schedules are not flat rate by design, they often water and sewerage services. are in effect This is because tariff structures Price increases averaged about 33 percent often contain a flat fee for a pre-determined nationwide over the five year period, 1986 level of consumption, which is often set higher through 1991, or slightly more than the overall than the average household consumption level. rate of inflation (during the same period, Can- More than 25 percent of the rate schedules ada's consumer price index rose about 27 per- apply constant unit charges per cubic meter of cent). It is likely that new and increasing sew- water supplied (Table 6.1). In some cases these age charges are responsible for a large part of rate schedules also contain a fixed charge, the price increase (Tate and Lacelle 1995). In a forming a two-part tariff. About 19 percent of number of provinces commercial water rates are the rate schedules applied decreasing block rate lower than residential rates. charges, while only 3 percent used increasing Table 6.3 shows the mean per unit price block rates (3 percent). Less than 1 percent of paid for integrated water and sewage service the rate schedules sampled are hybrids ("other") under constant unit charge rates as well as for that combine, for example, multiple sets of de- the first and last available blocks of the block clining or increasing block charges.'9 As noted rate schedules sampled in the survey. The fa- by Renzetti and Tate (1994), the rate schedules vored decreasing block rate structure dominates that are in use reflect the adoption by many mu- the block rates sampled and thus the national nicipalities of the pricing methods endorsed by averages. The constant unit charges have in- the American Water Works Association (1991), creased by an average of 63 percent over the or more recently, those of the Canadian Water period 1986 through 1991. These constant unit and Wastewater Association (1993). charges generally lie between the first and last Table 6.2 shows the average price per cubic published block rates in a given province. meter of water consumed based on representa- Table 6.3 also shows the marginal price of tive levels of monthly use for a typical residence integrated water and sewage service for residen- and a typical commercial establishment served tial water users - the price charged when by the surveyed municipalities. This price households increase their monthly consumption measure also includes charges that are not based of water by one cubic meter above the monthly on volume used (price per cubic meter is esti- allowance. Note that these values are defined mated by divided the average monthly bill by only for the sub-sample of households in each the average monthly volume used). Column (a) province that pay for water by volume used, and shows the amount of the charge that is made for use larger quantities than the base allowance. In many provinces (and nationally) the majority of '9 The number of users affected by the various rate schedules users do not pay marginal charges. employed and the charges that they face are not evident in Tables 1, 2 and 3, since these estimates are not population-weighted. Tate and Lacelle acknowledge this potential limitation of their pub- lished data. They show that for the "average monthly dollar charge per household," the effect of including such a population- weighting makes less than 1 percent difference in the national total. They show a considerable change for some provinces, how- 20 Provinces are listed geographically from west to east, and ever (Tate and Lacelle 1995). the two Arctic territories are listed last. 40 Table 6.1 Frequency of municipal water rate structures by province and rate type, 1991 Type of municipal water rate structure (percent of rate schedules offered in each jurisdiction) Flat rate Constant unit Decreasing Increasing Other charge block rate block rate (a) (b) (c) (d) (e) British Columbia 57 17 20 4 2 Alberta 20 47 25 7 2 Saskatchewan 12 52 23 11 1 Manitoba 19 16 64 0 0 Ontario 37 33 25 4 1 Quebec 71 24 3 1 0 New Brunswick 68 10 19 2 0 Nova Scotia 28 3 70 0 0 Prince Edward Island 64 36 0 0 0 Newfoundland 90 7 4 0 0 Yukon and Northwest 39 61 0 0 0 Canada (mean) 50 27 19 3 1 Source: Adapted from Tate and Lacelle 1995. Important issues to be resolved in setting Industrial water pricing tariffs for municipal water use in Canada include a chronic and perhaps worsening (capital) In five of Canada's provinces industries funding shortfall by the water utilities. Many were not charged for water used on a self-supply municipalities claim not to have the financial basis in 1988.21 Industries typically use this resources needed to maintain or to expand the water for activities such as manufacturing and water supply and associated wastewater treat- processing, for example hydraulic mining, and ment facilities that they are responsible for pro- for cooling. (The use of water for hydroelectric viding. Some agencies will want to raise reve- generation is discussed below.) In Canada's nues by charging users by quantities consumed. five other provinces and two territories indus- Those municipalities that undertake reforms in tries paid something for water. In many cases municipal water pricing will have to take re- the charges for water was identified as being for sponsibility (regulatory and financial) for as- the use of services or water infrastructure and suring that all establishments are equipped with were not considered a resource royalty. water meters. Currently, few people pay for water on the basis of time-of-use or place-of- use. However metering technology is now ca- pable of measuring both. Introducing charges based on these characteristics would lead to more efficient allocation of water. 21 This review of industrial water pricing is based on Canada (1990b). 41 Table 6.2 Average price for municipal water service, by province and class of service, 1991 Residential wa- Residential Change in (b) Commercial water supply ter supply only water supply 1986 to 1991 plus sewage plus sewage (US$ per cubic meter, (Percent) (US$ per cubic meter, as- assuming consumption of suming consumption of 25 cubic meters per month) 100 cubic meters per month) (a) (b) (c) (d) British Columbia 0.34 0.48 +35.6 0.28 Alberta 0.72 1.09 +25.8 0.83 Saskatchewan 0.61 0.89 +23.4 0.74 Manitoba 0.67 0.94 +14.9 0.85 Ontario 0.50 0.80 +38.1 0.59 Quebec 0.38 0.45 +34.0 0.22 New Brunswick 0.42 0.71 +22.3 0.36 Nova Scotia 0.59 0.69 +41.8 0.43 Prince Edward 0.35 0.65 +31.0 0.32 Newfoundland 0.37 0.50 +46.4 0.17 Yukon and Northwest 1.34 1.53 +40.2 1.49 Canada (mean) 0.48 0.69 +33.5 0.44 Note: Dollar values are 1991 US$ converted.at US$0.83/Canadian$. Source: Adapted from Tate and Lacelle 1995. Four jurisdictions used a constant unit Alberta had higher rates of US$0.018, US$0.02 charge rate structure in 1988, two used decreas- and US$0.066 per cubic meter respectively. ing block rates, and one used increasing block British Columbia had the highest rates rates. Some jurisdictions also offered a partial US$0.143 per cubic meter. (See Environment credit for clean return flows such as occur when Canada 1990b, with US$0.81/Canadian$ 1988.) water is used for cooling. The rates in effect in It appears that water charges for industries 1988 varied widely across the country and bore have not received the same degree of public no obvious relationship to the rates charged for scrutiny as for municipalities. Policy makers are municipal or agricultural uses in each jurisdic- likely to focus on this issue in the future, either tion. Consider an industry that uses about 1,500 in seeking solutions to conflicts over water ac- cubic meters per month on a self-supply basis cess or when various governments find it neces- (about 1.5 cubic decameters per month). In sary to find new sources of revenue either to 1988 Nova Scotia and Manitoba reported the develop water resources or for other purposes. lowest incremental rates, at US$0.00036 per cubic meter and US$0.0008 per cubic meter, respectively. The Territories, Saskatchewan and 42 Table 6.3 Unit prices and marginal prices for municipal water service by province 1991 (all prices expressed in Canadian dollars per cubic meter) Constant Average price Average price Marginal pricea Percentage unit charge first block last block for residential change in (a) use of 25 cubic 1986-91 meters/month (a) (b) (c) (d) (e) British Columbia 0.23 0.29 0.22 0.28 +47.4 Alberta 0.72 0.84 0.68 0.74 +53.6 Saskatchewan 0.63 0.71 0.58 0.67 +35.7 Manitoba 0.98 0.92 0.63 0.94 +51.9 Ontario 0.62 0.70 0.48 0.64 +85.0 Quebec 0.28 0.27 0.23 0.30 +37.5 New Brunswick 0.49 0.58 0.26 0.55 -53.5 Nova Scotia b 0.30 0.17 0.30 n.a.c Prince Edward Island 0.25 n.a.b n.a.b n.a.b n.a.c Newfoundland 0.15 0.17 0.08 n.a.c -71.9 Yukon and North- west Territories 1.64 n.a.b n.a.b 1.51 +71.3 Canada (mean) 0.52 0.60 0.43 0.60 +63.2 a Thirty-six observations were excluded since minimum-use levels were not met, making marginal price effectively zero. b Not available, no relevant rates. c Not available, too few observations. Note: Dollar values are 1991 US$ converted at US$0.83/Canadian$. Source: Adapted from Tate and Lacelle 1995. Pricing of waterfor electric power generation part tariffs based on some combination of in- stalled or utilized levels of water storage or There also exists in Canada a series of rate electric generation capacity. Many jurisdictions structures that apply to the use of water for the that charge for hydroelectric uses do not charge generation of electricity by hydroelectric and for thermal uses. It does not appear that any of thermal steam technologies.22 Since almost all the rates charged depends on the storage season of the water used for generation is returned to and few depend on the specific location of the water courses for the benefit of other users, few water source (Environment Canada 1990c). specific details will be reported here. In many In some cases water is added to hydroelec- cases power generators pay flat rates or multi- tric storage reservoirs at times of the year, such as late spring, when it can be used in agriculture, 22 This review of water pricing for power generation is based and released at times of the year, such as mid- on Canada (1990c). winter, when it is not useful to other users. If 43 there is growing competition for use of the same about rates being paid by those who would draw water at the same time, there may be increasing water from the same source, including municipal pressure to rationalize these uses and thus to use and industrial users, and those who store or water prices as a means to allocate water. It is draw water for electric generation. Indeed, his- also well-documrented that water storage regimes torical pricing practices that charge for hydroe- may harm fisheries and other instream uses, lectric generation but exempt thermal electric again raising interest in using water pricing to generation may face increased scrutiny, espe- allocate resources. cially from irrigators and industries whose own access has become determined by markets. Current debates and future prospects References There is little evidence so far that Canadi- ans are ready to widely implement relatively Alberta Legislative Assembly. 1996. The Wa- sophisticated forms of water charges, such as ter Act. Statues of Alberta 1996 (Chapter differential charges for time-of-use, or location- W-3.5). Edmonton, Alberta: Queen's of-use. Instead, it is likely that recent trends will Printer. continue, including the introduction and reform American Water Works Association. 1991. of wastewater charges, and the increase in the Manual of Water Supply Practices: Water use of water metering, especially as some juris- Rates. Fourth Edition. Denver, Colorado. dictions seek to move away from flat rates. At British Columbia Environment. 1993. the same time water agencies will be seeking "Groundwater Management." Background new ways to finance capital investments and Report No. 1 prepared for Stewardship of operating expenses as subsidies from the federal the Water of British Columbia. Victoria, and provincial governments decline. This will British Columbia. force them to raise a larger proportion of their Canadian Water and Wastewater Association. revenues from users. 1993. Municipal Water and Waste Water The proposed move to create transferable Rate Manual. Hull, Quebec. water entitlements, such as for irrigation users in Environment Canada. 1987. Federal Water Alberta, will for the first time allow market Policy. Ottawa: Supply and Services Can- forces to play a direct role in allocating water ada. rights in times of scarcity. Moving to market- . 1989. Water Charges to Agri- based instruments to allocate water from surface cultural Users in Canada, 1988. Water water sources, will put pressure on other aspects Planning and Management Branch, Socio- of water supply. For example, regulators and Economic Division, Ottawa. users alike will likely draw more heavily on . 1990a. Federal Water Policy: A groundwater sources, attempt to reduce convey- Progress Report. Interdepartmental Com- ance losses, and work to improve utilization of mittee on Water. Ottawa: Supply and Serv- return flows if these become the least-cost ices Canada. sources of supply under a new market-based . 1990b. Water Charges to Indus- allocation policy. Water pricing reforms are try (Excluding Hydroelectric Generation) likely to also be used to encourage industrial Canada, 1988. Water Planning and Man- users to reuse their wastewater (Renzetti and agement Branch, Socio-Economic Division, Tate 1994, Tate and Scharf 1996). Further Ottawa. pricing policy reforms may be inevitable. . 1990c. Water Charges to Power These piece-meal or sector-by-sector re- Companies in Canada, 1988. Water Plan- forms are almost certain to draw attention to the ning and Management Branch, Socio- potential to rationalize water pricing and man- Economic Division, Ottawa. agement across sectors and users. Pricing policy Karvinen, William O., and Mary Louise McAl- reforms for irrigation users may raise questions lister. 1994. Rising to the Surface: Emerg- 44 ing Groundwater Trends in Canada. King- dian Economics Association, The University ston, Ontario: Queen's University, Centre of Calgary, Calgary, Alberta, June. for Resource Studies. Tate, Donald M., and D. M. Lacelle. 1995. Manitoba Provincial Government. 1993. Municipal Water Rates in Canada: Current "Provincial Water Policies: Applying the Practices and Prices, 1991. Environment Policies for Sustainable Development of Our Canada, Canadian Wildlife Service, Water Water Resources." Manitoba Roundtable on and Habitat Conservation Branch, Social Environment and Economy, draft document Science Series No. 30, Ottawa. No. 8, Winnipeg, Manitoba. Tate, Donald M., and David N. Scharf. 1996. Renzetti, Steven, and Donald M. Tate. 1994. Water Use in Canadian Industry, 1991. So- "Water Pricing in Canada." Paper presented cial Science Series No. 31. Ottawa: Minis- at the 1994 Annual Meetings of the Cana ter of Supply and Services Canada. 45 7 FRANCE Marielle Montginoul Introduction In France water rights are public and non- consumers of water; hydroelectric power sta- tradable. Table 7.1 presents estimates of water tions use more than half of all abstracted water, abstraction and net consumption for different but return nearly all of it to the water courses. water uses. Cities and farms are the largest net Table 7.1 Water resources, withdrawals, and consumption by sector, 1990 Withdrawals Net consumption Billions Percent of Billions Percent of cubic meters total cubic meters total Urban water 6.1 16 2.5 44 Irrigation 4.9 13 2.4 42 Industries not connected to a 7 distribution system 4.4 12 0.4 Hydroelectric power stations 22.3 59 0.4 7 Total 37.7 100 5.7 100 Source: Ministere de l'Environnement. In France, river basin organizations are re- The value added tax is included in the price sponsible for managing water resources and for water, as with other goods and services. supplying water to users. River basin organiza- tions all employ the same water charging struc- Past experiences ture, which contains four main components: * A levy that theoretically reflects the eco- Historically, charges for water have been nomic value of water, determined at the level differentiated by use. Charges for the three of the river basin. main users of water are described below. * A fee for the cost of purifying water and conveying it to the end user, determined at Urban water the local level. * A pollution tax that theoretically reflects the For urban water, service charges originally cost of environmental externalities. The reflected the cost of conveying the water, and charge is based on the polluter-payer princi- nothing more. The concept of setting charges to ple, and is determined at the river basin level. reflect the economic value of water started at the * For drinking water, a value added tax was end of the nineteenth century with the estab- levied by the National Fund for the Devel- lishment of distribution companies, which me- opment of Water Conveyance with various tered water use and charged for water according adjustment and compensation objectives. to consumption. As demand for urban water steadily grew (by 1-2 percent per year over the 46 past 100 years), and new sources of clean water taxes and charges collected by the state or other became increasingly scarce, water treatment was organizations involved in managing and sup- introduced. Charges were raised to reflect the plying water. increased scarcity value of the resource and the costs of purifying water for drinking. Since Regulations 1964 water agencies have also included pollu- tion charges in water bills. In 1992 a new water Regulations have been passed to meet three ob- bill was adopted, which increased water charges jectives: to users. The National Fund for the Develop- * To comply with norms of the European Un- ment of Water Conveyance, specific to drinking ion. Since the beginning of the 1970s regu- water, has been in existence since 1954. lations for water management have been in- creasingly restrictive at the European level. Industry European Union Directives set standards for drinking water quality, river water quality Industries connected to the water distribu- used for the abstraction of drinking water, tion network pay the same charges as other us- and water quality of sensitive ecosystems. ers. The steady increases in water charges have * To price water closer to its true economic stimulated industries to reduce their water con- value. An accounting instruction of No- sumption significantly. Indeed during the 1980s vember 1992, part of a national law, re- industrial water use fell by about 20 percent. quired towns to balance the water service The drop in demand is also due to the decline of budget and not just the town's global budget water-intensive industries in France. by January 1993. The water law of January 3, 1992 forbids the use of a two-part tariff Irrigation for drinking water. T To include costs of environmental externali- Farners have paid for irrigation water ever ties in prices. The 1964 water law created since large-scale transfer and storage works basin committees and water agencies, which were first constructed. An early example is the manage water in six French hydrographic case of the Saint Julien Canal, built in 1171 and basins. They are responsible for applying extended for irrigation in 1235. Large-scale ir- the user-pays and polluter-pays principles rigation works were first constructed in the rela- by means of taxes, levies, subsidies, and the tively dry regions in the south. However, during granting of concessions. the 1970s, irrigation works were built through- Two types of taxes are used, the pollution out the entire country. As a result, water ab- tax and the resource tax. The pollution tax is set straction for irrigation grew by 43 percent dur- to reflect the concentration and nature of pollut- ing 1975-88. Resource taxes were introduced at ants in industrial and household discharges. In the same time as the creation of water agencies. theory, the tax should cover the costs of treating Farmers pay pollution taxes for water used for the contaminated water. In practice, the tax is cattle, but not for water used for crop irrigation. set to assure budget balance. The resource tax Historically, water charges were based on area (Table 7.2) is set to manage water demand and irrigated. Currently, farmers pay a two-part tar- to cover the costs of modifying waterways to iff, comprising a fixed charge per hectare and a cover the costs of infrastructure and to compen- volumetric charge. sate people who are harned as a result of the change. It is comprised of: Present water pricing practices * A catchment component, which is related to the volume abstracted. Water charges in France take different * A consumption (or net withdrawal) compo- forms, depending on local political decisions, nent -the difference between the abstracted regulations, management of the resource, and volume and the return flows. 47 * A water diversion component. This is cal- * A materials extraction component, which is culated on the basis of the length of the wa- based on the tonnage of extracted alluvial tercourse made dry as a result of the diver- materials. sion, and its importance for drainage. Table 7.2 The resource tax from Rh6ne-Mediterranee-Corse Water Agency (covering Rhone Valley, Mediterranean and Corsican water basins) (1994 US$) Urbana Urbanb Industry' Irrigationd Irrigatione Catchment 908 908 908 227 908 Consumption 280 190 13 401 401 Drinking 4,180 4,180 n.a. n.a. n.a. water' Total 5,296 5,278 922 628 1,309 (0.027 per (0.0252per (0.0047 per (0.0031 per (0.0065 per cubic meter) cubic meter) cubic meter) cubic meter) cubic meter) a Southwestern town withdrawing 200,000 cubic meters from groundwater sources. b City in water-abundant zone I withdrawing 200,000 cubic meters from groundwater sources. c Industrial establishment of Franche-Comte (zone 1) pumping 200,000 cubic meters from groundwater water sources. d Irrigators withdrawing 200,000 cubic meters in Provence to spray irrigate 50 hectares. e Irrigators diverting 200,000 cubic meters from groundwater in Provence to spray irrigate 50 hectares. f Water agencies levy a separate tax on drinking water in addition to taxes for catchment and consumption. n.a. is not applicable. Current water charges though they benefit from advantages generally reserved for state-owned enterprises (such as the Water charges vary for individual users, so access to public funds), they are private compa- it difficult to calculate average prices. Water nies required to balance their budgets. Thus, the charges vary according to use, location, mode of Canal de Provence Company, in southeast management, or tariff type (fixed-rated, propor- France, sets water charges to fully cover long- tional, two-part, and others). An example of term incremental costs. charges set by a regional development company, Canal de Provence Company differentiates which sells untreated bulk water, is discussed its rates according to category of user, distance below. from water source and pumping costs, nature of the demand (year-round or seasonal only, peak Sale of untreated water: The case of the Canal period or security only), and season of use. de Provence Company Charges for water for normal use have three components. The first consists of either an an- Regional development companies (societ6 nual tax proportional to the rate of outflow di- d'amenagement regional) were created in France verted by the consumer or an inclusive fixed rate between 1955 and 1960 under the auspices of consumption tax. The fixed rate consumption the Ministry of Agriculture to promote agricul- tax includes a water allowance of 100 cubic tural development. These companies currently meters for each cubic meter per hour subscribed sell bulk water to irrigators and others. Al- for irrigation water. The second component is a 48 volumetric charge, which is based on volume US$2.34 in the Department of Essonne. Seine- used and time of year (charges are higher for et-Marne had the largest variations charges of water used between May 15 and September 14 any department, with charges ranging from than during other times of the year). The third US$0.21 to US$4.41 per cubic meter. component is a supplementary pumping tax, Type and size of town. Water charges are covering the cost of fuel when the company is generally higher in small rural towns than in required to pump water to supply its customers. medium- and large-size cites. Nevertheless, The board of directors of the Canal de data collected in 1994 by a consumer association Provence Company reduced water rates by 50 show inconsistencies. The Conso 2000 (1995) percent in 75, and have maintained the lower survey of over 1,200 towns found that water prices. However, they may raise rates at any charges averaged US$1.57 per cubic meter in time. In 1993 consumers paid an average towns with less than 500 residents, and US$3.00 US$0.31 per cubic meter for bulk water. This per cubic meter in towns with more than was comprised of different charges for different 200,000 inhabitants. The national average was uses: US$2.22 per cubic meters. Water charges in- * Agricultural irrigation: US$0.11 per cubic creased more in large cities than other settle- meter. ments between 1990 and 1994. However, * Nonagricultural irrigation (gardens, lawns): charges grew faster in small towns between US$0.39 per cubic meter. 1992-1994. * Urban: US$0.36 per cubic meter. Type of service management. Local ad- * Industry: US$0.36 per cubic meter. ministrative bodies (the mayor or the president of union towns) are responsible for drinking Water tariffs for different uses water purification. The local body may manage this responsibility directly or may delegate it to Urban water. Charges for drinking water private enterprises. According to the French in France is comprised of different elements, national consumer council, in 1995 charges were described in Table 7.3. Average water prices 30 percent higher when water was managed by have increased rapidly since the beginning of the private companies rather than local authorities. 1990s due to the promulgation of new national This is partly because private water companies and European regulations. In constant dollars, deliver higher quality service. The Ministry of average charges (including taxes) have in- Agriculture, Food and Fisheries estimated that in creased by 65 percent from 1990 to 1995, from 1994 in rural towns (with fewer than 2,000 in- US$1.55 per cubic meter in 1990 to US$2.56 in habitants), the average charge with direct man- 1995. The rate of increase slowed in 1995. Av- agement was US$1.75 per cubic meter (with a erage charges however mask considerable standard deviation of US$0.71), and US$2.51 variation in charges to different users. (with a standard deviation of US$0.84) with Geographical disparity. Charges vary with delegated management. The results by river river basin. For example, in Rhone- basin are presented in Table 7.4. M6diterranee-Corse in 1992, the charges ranged Charges for purifying drinking water and from zero to US$4.05 per cubic meter, and aver- treating wastewater are still low. This can be aged US$ 0.93. Water charges in the country- explained by the low level of investment in these side are 8 percent less than in towns (the stan- activities. According to Boistard (1993), the dard deviation in charges is also higher in the lack of information on total costs makes it diffi- countryside). In Ile-de-France in 1992 prices cult to separate out this item from total costs. ranged from US$1.62 per cubic meter in Paris to 49 Table 7.3 Urban water prices (1995 US$) Elements US$ per cubic meter Percent Contribution to overall price increases, 1992-94 (percent) Water agency and National Fund for the 0.40 15.5 35 Development of Water Conveyance taxes Drinking water distribution service 1.17 46.0 17 Wastewater treatmnent 0.85 33.0 41 Taxes 0.14 5.5 7 Total 2.56 100 100 Source: Syndicat Professionnel des Entreprises de Services d'Eau et d'Assainissement, cited in Retowsky 1995. Table 7.4 Drinking water price according to the management, 1994 (US$ per cubic meter) River basin Direct management Delegated management Adour Garonne 1.91 2.65 Artois Picardie 1.45 2.01 Loire Bretagne 2.14 2.86 Rhin Meuse 1.29 1.88 Rhone Mediterranee Corse 1.45 2.40 Seine Normandie 1.89 2.70 Source: Ministere de l'Agriculture, de la Peche et de l'Alimentation, personal communication. Industrial water. Industries connected to For this discussion charges are estimated using the urban water distribution network pay the information on charges for other uses and data same for water as domestic consumers. But, as on irrigation such as the technology in use industry consumes more water than households (sprinkler, drip, others). Irrigation water and water pricing is regressive (decreasing block charges depend on the water management mode. pricing), industry benefits from important dis- Charges are higher for water conveyed to the counts. Industries pay less for untreated water field by a wholesaler like a regional develop- delivered by a bulk water distributor, such as a ment company or a farmer's group cultivating regional development company. They may also irrigated lands (association syndicale autorisee), supply water to themselves by pumping directly than for water delivered by water agencies. from an aquifer or river. In either case, indus- Moreover, charges are higher when collective tries are required to pay water agency taxes de- networks are used to convey water to the fields pending on the quantity of water abstracted and than when regional development companies consumed, and the quantity and type of pollut- convey water from rivers. Figure 7.1 presents ants discharged. Thus, companies pay highly water management modes. Estimates of irriga- variable water taxes. tion water charges are presented in Table 7.5. Irrigation water. Information on irrigation water charges in France is not readily available. 50 Figure 7.1 Irrigation water handling in France Ministry of Agriculture . ... .. . regional development companies (without intermediary) I i untreated water .......................................... farmers' farmer irrigation water associations sold to companies l I (drinking water) collective network resupplied river farmer farmers' farmer farmers' fanner associations associations I I farmer farmer Table 7.5 Irrigation water charges by type of water management Regional development Farmers groups Individual irrigation companies Collective Resupplied With regional Alone Wells Non- Resupplied network rivers development resupplied rivers companies rivers SCP (1993) CACG (1990) CACG (1989) Tarn (1994) Water Water Water US$0.049- US$0.022 per US$0.081 per US$0.058- agency agency agency US$0.150 per cubic meter cubic meter US$0.18 per charge charge charge cubic meter cubic meter (US$0.118 per Charente BRL (1993): cubic meter on (1997) US$0.171 per average) US$0.002 cubic meter per cubic meter SCP: Canal de Provance Company BRL: Bas-Rhone Languedoc Company CACG: Amenagement des Coteaux de Gascogne Company Water charges shown here do not include The water agency sets resource charges on pumping costs. If these were included, the per the basis of river basin and the location of user. meter cost of water from individual systems Farmers also have a choice between fixed rate would likely exceed that of water from collec- withdrawal charges or volume-based water tive systems. charges: volume-based charges are generally 51 less per cubic meter to encourage farmers to Drinking water prices are likely to increase install meters. Charges collected by water agen- slowly between 1995 and 1998. While prices cies in different regions of the country are pre- increased by 7.8 percent between 1992 and sented in Table 7.6. 1995, it is anticipated that they will increase by only 4.7 percent between 1995 and 1998. Water Current debates and future prospects charges could thus reach US$2.92 per cubic meter by 1998. These increases are required to In France charges for drinking water have pay for the increasingly stringent European increased significantly over the last five years. drinking water standards, increased costs of Yet, prices still vary considerably among users. water purification, and the need for water agen- In general, charges are set on the basis of the cies to fully cover their costs. Industrial water principles that users should pay for their serv- prices are likely to follow the same path. It is ices and polluters should pay for the costs of expected that industries will respond by adopt- wastewater treatment or environmental damage. ing measures and technologies to save and reuse But charges for irrigation water still do not fully water. Irrigation water charges are also likely to incorporate these principles: farrners still pay rise. Farmers are likely to gradually install me- less than industrial or domestic water users. It is ters and pay for water on the basis of consump- also uncertain that charges are high enough to tion. truly encourage consumers to conserve. Table 7.6 Water charges collected by water agencies, 1995 (US$ per cubic meter) Adour- Artois- Loire- Rhin-Meuse Rh6ne- Seine- Garonne Picardie Bretagne Mdditerranee- Normandie Corse Groundwater 0.0045 0.011-0.041 0.006-0.012 none 0.006-0.017 0.011 (fixed rate) Non-resupplied 0.0045 0.001-0.04 0.004-0.012 none 0.002-0.003 not known rivers Resupplied 0.0045 not known 0.006-0.012 none not known not known rivers References Nicolazo J.L. 1994. In P. Johanet et Ses Fils (eds.), Les Agences de l'Eau, 4eme edition. Boistard, P. 1993. "Qualite et Prix des Services Paris: P. Johanet and Sons.] Publics de Distribution d'Eau Potable. Ap- Paoli, D. and T. Rieu. 1992. "La Situation de proche d'un Prix de la qualite de l'Eau et de l'Eau en France." Economie et Statistique la Desserte." These de doctorat. Ecole Na- 258-259: 95-104. tionale des Ponts et Chussees, Paris. Pavard L. 1995. "Gestion Durable des Eaux Conso 2000. 1995. "Enquete Eau : Prix et Souterraines - Groupe 2." Agence de Qualitd de l'Eau." Mai, Paris. I'Eau Artois-Picardie, Ministere de l'Envi- Journal Officiel de la Republique Francaise, ronnement, Paris. 1992. Loi n° 92-3 janvier 1992 sur lteau. Pillet B. 1995. "Note sur la Tarification du JORF du 4 janvier. Bien et Service AEP: Logique et Structure." 52 Centre Regional de la Prodcuvite et des Vacher J.P. 1994. "Le prix de l'Eau pour Etudes Economiques, Montpellier. l'Usager Domestique dans le Bassin Adour- Retkowsky, Y. 1995. "Evolution du Rapport Garonne." Revue de l'Agence de l'Eau Prix de l'Eau per Services Rendus." Min- Adour-Garonne 59: 3-8. istere de l'Environnement, Paris, Novembre. 53 8 INDIA R Maria Saleth Introduction In India, water resource management is emerging technology available at the time. Instead the as one of the major issues facing the country. British decided to charge for water on the basis of Water consumption has been rising rapidly: irrigated area. They differentiated the area-based consumption was 540 cubic kilometers in 1985, rates by crop and season to account for variations and will likely to exceed 750 cubic kilometers in in water demand. 2000, and 1,050 cubic kilometers in 2025. After independence attitudes towards water However, the amount of water available from charges changed. Authorities viewed irrigation storage and groundwater is not likely to exceed projects as routes to development rather than 600 cubic kilometers by 2000 (Central Water purely commercial ventures, important to Commission 1995). In the long-run the gap augment income, generate employment, and between supply and demand must be closed by increase food security. Policymakers lowered the increasing water-use efficiency, rather than by internal rate of return to 3.9 percent in 1949, then developing new supplies. This will require substituted the benefit-cost ratio criterion for radical changes in the institutions -water policy, project selection in 1958. Because the minimum water law, and water administration- governing benefit-cost ratio for project acceptability was low water supply development, distribution, and use. - 1.0 for projects in drought-prone areas and 1.5 Water pricing policy implemented within a for projects elsewhere - water rates were also carefully designed institutional framework would low. However authorities continued using the be an effective way to achieve water use area/crop/season based method of determining efficiency. water charges. Among the criteria for setting rates were farmers' capacity to pay (as determined Past experience by yield), quantity of water used (determined indirectly by area, crop, and season), the Water charges in the form of land revenue continuity and dependability of irrigation were common before British rule in the kingdoms services, and irrigation system costs (Government of Andhra Pradesh, Karnataka, and Tamil Nadu. of India 1972). Today's water charge system is. However India's current water charge system based very closely on this post-colonial model. originated with the British colonial administration (Vani 1991; Maloney and Raju 1994). The Present water pricing practices British treated irrigation projects as commercial ventures, and set water rates on the basis of an Irrigation water charges internal rate of return commensurate with the rate prevailing in the London money market. The According to the Indian constitution, states charges were set to cover all costs and generate a and provinces have jurisdiction over water return on capital. The authorities periodically management and have the responsibility of flxing revised the internal rate of return (and water water rates. Water rates vary widely both across rates), from the 4 percent prevailing before 1919, and within states. Table 8.1 shows the overall to 5 percent during 1919-1921, and to 6 percent and crop-specific canal water rates, the benefits of after 1921 (Sangal 1991). Although water in terms of incremental yield, and working policymakers tried twice to use a volume-based expenses. All states except the seven northeastern charging system (1854 and 1917 for the Ganga states impose charges for canal water either Canal), doing so proved impractical with the directly or indirectly. 54 In West Bengal water rates vary only by are used for cooperative and state-owned lift season and in Kerala rates are based only on systems. Charges for lift irrigation are further irrigated area. In all other states the area-based refined depending on whether the owner is water rates are highly differentiated not only by private, a cooperative, or the state. In Gujarat, crop and season but also by category of project, Haryana, Punjab, and Uttar Pradesh private lift irrigation type (flow or lift), category of user rates are one-half to two-thirds cheaper than state (private parties, cooperatives, government lift lift rates, but in Goa, Himachal Pradesh, and schemes), and other factors (Sangal 1991; Maharashtra they are substantially higher (Sangal Government of India 1992). Water charges for 1991). Volumetric rates apply prinarily to sugar projects built prior to British administration in and rice cooperatives and state-owned lift Andhra Pradesh, Karnataka, and Tamil Nadu are irrigation schemes in Gujarat and Maharashtra based on assessments of land revenue, which are (Government of India 1992). Generally, rates per higher for irrigated than rainfed lands. For cubic meter of water are higher for state-owned example in Tamil Nadu assessments for wet lands lifts than for cooperative lifts. This is because range between Rs. 7.41-54.36 per hectare rates for state systems include the costs of compared with Rs. 1.24-19.77 for dry lands operation and maintenance. In Gujarat water (Government of India 1992).23 from state-owned lifts costs Rs. 0.80 for 10 cubic The variations in water rates across project meters but water from cooperative lifts costs only categories reflect the dependability and continuity Rs. 0.25. In Maharashtra, rates vary between Rs. of irrigation services. Andhra Pradesh has 0.10-Rs. 0.30 depending on the season (Maloney divided its canals into two water rate categories, and Raju 1994). Haryana into three, and Tamil Nadu five. Bihar, Orissa, and Madhya Pradesh have separate rate Other charges structures for perennial and nonperennial canals. Bihar charges different rates for long leases (Rs. Most states impose other levies on canal 74.11 per hectare), seasonal leases (Rs. 89.45 per water in addition to water charges (Central Water hectare), and a single watering (Rs. 51.15 per Commission 1988, 1991; Government of India hectare). The rates for water from nonperennial 1992). Two states impose betterment levies on systems are about one-half those for perennial irrigated land: Tamil Nadu (45 percent of land canals. Maharashtra charges range between Rs. revenue) and West Bengal (Rs. 400 per hectare). 35-90 per hectare for a single watering, Four states, Gujarat, and Maharashtra, Kerala and depending on crop and season. Notably, Tamil Nadu, add fees for irrigation cess. In Maharashtra and Madhya Pradesh also Gujarat, and Maharashtra irrigation cess equals distinguish between "demand-rates" and 20 percent of the water rates, but in Tamil Nadu "agreement-rates." Demand-rates apply to out- fees amount to 37-75 percent of water rates. of-turn single waterings and agreement-rates Interestingly Maharashtra uses the revenue it apply to regular irrigation service. Demand-rates collects to finance primary education (Rs. 40-380 are double agreement-rates (Government of India per hectare depending upon crops) and an 1992). employment guarantee scheme (Rs. 25 per Water rates also differ depending on whether hectare) (Rath and Mitra 1989). Only Madhya irrigation is flow or lift. Area-based rates apply to Pradesh has a crop cess (Rs. 20 per hectare for a private lift irrigation systems, but volumetric rates flow irrigation system and Rs. 10 for a lift irrigation system). 2 US$ = Rs. 16.65 (1989-90). This exchange rate applies to all water rates reported in the text unless otherwise specified. 55 Table 8.1 Canal water rates for irrigation in major states of India, 1989-90 State Range Crop-specific rates Water Gross receipts per hectare Year benefitsa rates last revised (Rs. per Paddy Wheat Sugar- (Rs. per Rs. As percent of As percent of hectare) cane hectare) benefits working expenses Andra Pradesh 99-222 222 na. 370 4,407 27 0.6 1.1 1986 Bihar 30-158 89 n.a. 158 714 33 4.6 12.1 1983 Gujarat 40-830 110 110 830 3,639 139 3.8 5.7 1981 Haryana 17-99 74 61 99 3,169 70 2.2 16.6 1975 Karnataka 37-556 99 n.a. 556 4,528 58 1.3 10.3 1985 Maharashtra 65-1,000 n.a. n.a. 750 1,735 90 5.2 35.1 1989 Madya Pradesh 15-297 59 76 n.a. 5,812 140 2.4 3.2 1990 Orissa 6-185 40 n.a. n.a. 1,770 66 3.7 46.2 1981 Punjab 14-81 49 29 n.a. 3,370 53 1.6 25.3 1974 Rajasthan 20-143 n.a. 74 n.a. 2,405 93 3.9 9.7 1982 Tamil Nadu 6-65 49 n.a. 62 4,364 9 0.2 2.0 1962 Utter Pradesh 7-327 143 143 237 1,555 111 7.1 10.0 1983 West Bengal 74-593 125 n.a. n.a. 2,457 7 0.3 3.6 1977 a Water benefits are computed as the incremental yield from irrigated lands compared with unirrigated lands. Source: Govermnent of India (1992) and Central Water Conmnission 1990, 1991, and 1995. Charges for nonirrigation purposes sources averaged Rs. 15 per hectare (US$ = Rs. 16.65). Canal projects also earn income by selling water to domestic and industrial users, leasing Chargesfor groundwaterfor irrigation fishing rights, selling timber, and other activities. Nonirrigation related revenue accounted for Charges for groundwater for irrigation from nearly one-third of total canal project revenue state or public tubewells are set according to the during 1989-90 (Government of India 1992). same principles as charges for canal water: Income from nonirrigation sources tripled charges must cover operation and maintenance between 1976 and 1988, rising from Rs. 30 costs. By contrast charges for water from private million (US$ = Rs. 5.45) to Rs. 99 million (US$ = wells are set through negotiations between buyers Rs. 12.97). This reflects the growing demand for and sellers, and generally reflect factors such as irrigation water from other sectors. The increase water availability, crop patterns, well capacity, in nonirrigation receipts is most pronounced in and type of pumpset (diesel or electric). Of Maharashtra (nonirrigation income rose 11 times) course the agreements may also reflect personal and Madhya Pradesh (6 times). Together these relationships and local customs. Charges for two states accounted for over 70 percent of total groundwater are usually by the hour, although nonirrigation income (Central Water Commission some contracts are by season. Groundwater 1990). During 1989-90 income from charges are lowest in Andhra Pradesh, Tamil nonirrigation-related water sales averaged Rs. 5 Nadu, and Uttar Pradesh, ranging between Rs. 3- per hectare, and income from miscellaneous 6 per hour. They are highest in Gujarat, which 56 has better organized and competitive groundwater influences the attractiveness of extracting and markets, ranging between Rs. 25-45 per hour selling groundwater. Where electricity rates are (US$ = Rs. 12.97) (Shah 1993). Seasonal low and charges are flat rate, people are eager to payments are in the form of water rent, and are sell water. However, low power rates also equivalent to 33 percent of the irrigator's crop encourages aquifer depletion, and water table output in Tamil Nadu, and 50-66 percent of decline. Eventually they lead to higher pumping output in Gujarat (Janakarajan 1993; Asopa and costs. Dholakia 1983). The price of electricity strongly Table 8.2 Domestic and industrial water rates in Delhi, Madras, and Hyderabad Delhi (1995) Madras (1990) Hyderabad (1992) Cubic meters Rs. per Cubic meters per Rs. per Cubic meters Rs. per per month cubic metere month cubic metee per month cubic meter Domestic 0-20 0.35 0-50 1.00 0-15 30.00b >20 0.70 > 50 2.00 15- 25 2.50 > 50 3.00 Nondomestic' 0-50 3.00 0-50 3.00 0- 20 100.Ob > 50 5.00 50-100 4.00 20- 50 5.00 > 100 5.00 > 50 7.00 Industrial 0-50 5.00 Per cubic meter 7.00 0- 200 200.00b 50-100 6.50 200- 500 7.50 > 100 8.00 >500 10.00 a There is a surcharge at 30 percent for Delhi and 20 percent for Madras. b Fixed minimum rates. c Includes shops, hotels, offices, household industries, hospitals, and others. Note: US$ = Rs. 16.65 (1990); Rs. 24.47 (1992); and Rs. 34.54 (1995). Domestic and industrial water charges percent of the meters in some towns do not work), and volumetric pricing seems to be more in Charges for domestic and industrial water theory than in reality. Households without met- are either subsidized or set to recover costs. The ers, as in urban slums and rural areas, pay a fixed gov-emment supplies drinking water as part of its charge for private connections. Water theft, il- basic needs program, and water to industry to legal tapping, and corruption contribute to poor support industrial development. Broadly, water revenue collection experience. Urban water sup- charges for nonirrigation purposes are differ- ply enterprises (in all major cities) or local bodies entiated according to purpose (domestic, commer- like municipalities and panchayats (in other cities cial, and industrial), income group, and region and rural areas) set water charges, which are sub- (urban and rural). Most urban water is metered, ject to approval by state governments. so users pay for what they use. However meters In Bombay, water charges are set on a bulk often do not work properly, either because they rate basis, and vary from Rs. 3 per cubic meter are defective or have been vandalized (50-80 per month for domestic users to Rs. 20-60 for 57 commercial and industrial users (US$ = Rs. but the revenue department collects the fees. In 26.19). In addition households pay a water ben- Andhra Pradesh, Karnataka, Kerala, Orissa and efit tax that comprises from 6-9 percent of the Tamil Nadu the revenue department performs ratable value of residential properties. All water both functions. Farmers do not participate in charges are also subject to a surcharge. Charges setting rates, so resist revisions either politically, for industrial water are higher than for domestic as in Gujarat and Karnataka, or through legal water and include fees for wastewater discharge channels as in Andhra Pradesh. The farmer's as required under the Water Cess Act (Prevention lobby is politically strong. Involving farmers in and Control of Pollution) of 1977. For example, the rate-setting process, and linking rate increases in Delhi, this fee equals 2 percent of water rates. to improvements in irrigation services would help Madras and Hyderabad, which have had con- to win farmers' support for rate changes. siderable external assistance to develop urban wa- The most serious problems with India's ter supply projects, have higher water charges irrigation charge system are: charges are too low, than other cities, and their water suppliers per- and it lacks incentives to encourage efficient form relatively well financially. These two cities water use in the face of escalating water scarcity. periodically review and revise their water rates to In no Indian state does the water rate structure assure that rates cover all cash-based costs. Table bear any relationship to the costs of producing 8.2 presents water rates in Delhi, Madras, and bulk water nor its scarcity value. No wonder then Hyderabad. that irrigation projects sometimes turn out to be In Madras - a coastal city with serious wa- nonviable. While land productivity and crop ter scarcity problems (the groundwater is salty prices have almost doubled since the 1960s, and and unusable for drinking) - private groups are the cost per hectare of constructing new irrigation active in supplying water especially for hotels, systems has risen almost 20 times, water rates cinemas, commercial establishments, and upper continue to remain low and outdated (Central income households. The private suppliers trans- Water Commission 1989; Government of India port water by tanker truck. They charge between 1992). Rs. 300 and Rs. 800 (US$ = Rs. 34.54) per tank In nearly all states, actual receipts fall short load (which comprises about 5-8 cubic meters) of full operation and maintenance costs. In Bihar depending on the season. Although they still and Rajasthan receipts do not cover even the supply a relatively small proportion of total water administrative cost of collection. And the supply, private water companies have been pmr- recovery rate is fast declining: it has fallen from viding an increasingly large proportion of the 64 percent in 1974-75 to 8 percent in 1988-89 city's water in recent years. (Central Water Commission 1995). Thus by 1989-90 operating losses had accumulated to Present water pricing policy: difficulties and about Rs. 20 billion (US$ = Rs. 16.65) problems (Government of India. 1992). Inadequate cost recovery also adversely affects irrigation system The area-based water charge method for performance, since funds are not available to irrigation is quite complicated to administer in undertake even routine maintenance of canal and India, since in most states the area-based rates are drainage works. Collections would need to be at differentiated by many factors. The complexity least Rs. 200-250 per hectare to cover operation of the system provides vast scope for discretion in and maintenance expenses, yet in 1989-90 assessing -water charges. Furthermore, collections amounted to just Rs. 20-70 per administration is inefficient: either different hectare (Government of India 1989). departments carry out the functions of assessment The water charge system also contains no and collection, or a department not directly linked incentives which would lead to the efficient to irrigation performs both tasks. In Haryana, allocation of water - a serious problem. Punjab, Uttar Pradesh, and West Bengal the Farmers, who pay according to area irrigated, irrigation department carries out the assessments have absolutely no reason to conserve water. 58 Indeed the rate structure provides incentives to (operation and maintenance costs plus one per- maximize water per unit of output instead of cent each of capital cost and depreciation allow- maximizing output per unit of water. In some ance), but also recommends eventually moving to places misuse and waste of canal water is raising a volume-based rate structure and a group-based the groundwater table, and waterlogging and soil distribution system for canal water. The report salinity problems have become serious threats in recommends implementing a two-part tariff com- many irrigated areas in India. prising a flat annual fee of Rs. 50 per hectare and Groundwater is used much more efficiently a volumetric charge. To reform the irrigation sec- than canal water, due in part to private sector tor, the report recommends a three phase pro- participation in developing the resources and in gram: simplification of existing rates to involve part to costs of development. Charges for just area and season; moving to volumetric pric- groundwater are far higher and more market- ing and group-based distribution; and irrigation oriented than canal water rates, and are generally system modification for better water control and sufficient to fully cover operating costs. This is distribution. Under the new scheme, user groups especially likely to be true where electricity tariffs would have a central roles in both fee collection are low and flat-rate. However groundwater and system maintenance. charges are rarely high enough to cover capital Policymakers are also considering priva- costs or resource costs. Therefore groundwater tizing canal irrigation. The Union Ministry of charges do not serve as a signal of the real value Water Resources has recently appointed a com- of the resource. Groundwater development and mittee to study the legal, economic, and technical sales are very profitable in Gujarat and Tamil questions of privatizing public irrigation projects Nadu, but this is not true everywhere in India. and to identify projects that could be given to the For example, in Uttar Pradesh the average income private sector to manage. The state of from water sales covers less than 60 percent of Maharashtra has already invited private bids to pumpset operation and maintenance costs manage 52 irrigation projects valued at Rs. 150 (Shankar 1992). billion (US$ = Rs. 34.54). The state will allot the projects -with investments between Rs. 10 mil- Current debates and future prospects lion-Rs. 35.40 billion - to private investors to build/own/manage, or to build/own/transfer to the Policymakers in India have long debated wa- irrigation department. In the latter case, the ter charge issues. Over the past twenty years ex- irrigation department will buy water at an agreed pert groups, including the Irrigation Commission price for distribution to farmers. In addition, pri- (1972), the National Commission on Agriculture vate funding is being mobilized to finance new ir- (1976), and successive Finance Commissions rigation projects, as for the Narmada project in have discussed changing both the level of ir- Gujarat and the Upper Krishna project in Kar- rigation water charges and the method of as- nataka. Both forms of private sector participation sessing them. Authorities agree that water rates are likely to lead to greater financial discipline in must be revised periodically to generate the rev- constructing and operating irnigation projects. enue needed to cover the full operation and The focus of the debate on water charges re- maintenance costs and a portion of the capital mains on recovering costs rather than promoting costs. Recently, the debate has become more foc- water use efficiency. The changes in water used due to the release of the New Economic Pol- charges currently being considered will not even icy of 1991, which advocates adopting a market- equalize the prices of canal water and ground- based approach to national economic manage- water, let alone reflect the resource value of canal ment. The Vaidyanathan Committee report, water. The higher water rates proposed by the which deals with irrigation water pricing, also Vaidyanathan Committee would still comprise contributed to the debate (Government of India, only about 6 percent of the gross value of output. 1992). This report not only emphasized the need As long as rates are lower than the marginal ben- to recover more of the costs of water supply efits of applying water, and there are no insti- 59 tutional mechanisms to limit water withdrawals' . 1989. "Report of the Working such as quotas, neither volumetric charges nor Group on Major and Medium Irrigation Pro- group-based distribution would improve in- grammes for the Eighth Plan." Planning centives enough to encourage true water use ef- Commission. New Delhi. ficiency (Saleth 1994). If a water pricing system . 1992. "Report of the Committee is to be used to encourage efficiency and still on Pricing Irrigation Water," (Chairman: A. meet equity concerns, it must be a part of an in- Vaidyanathan). Planning Commission. New stitutional framework centered on a system of wa- Delhi. ter quotas (Tsur and Dinar 1995). Irrigation sec- Janakarajan, S. 1993. "Economic and Social tor reform, increased private farmer and corporate Implications of Groundwater Irrigation: Some involvement, and the formation of more locally Evidence from South India." Indian Journal managed water rights systems would be the major ofAgricultural Economics 48 (1): 65-75. elements of the new water institution. Future wa- Maloney, C., and K. V. Raju. 1994. Managing ter resource management in India depends on Irrigation Together: Practice and Policy in how quickly and imaginatively institutional re- India. New Delhi: Sage Publications. forms are implemented to move India towards a Rath, N. and A. K. Mitra. 1989. "Economics of more market-based approach to water manage- Irrigation in Water-Scarce Regions." Artha ment. Vignani31 (1). Saleth, R. M. 1994. "Towards a New Water In- References stitution: Economics, Law, and Policy:' Economic and Political Weekly, Review of Asopa, V. N., and B. H. Dholakia. 1983. Agriculture. 29(39): A147-A155. "Performance Appraisal of Gujarat Water Sangal, S. P. 1991. "Pricing of Irrigation Water Resources Development." Vol. I, Summary in India." Economic and Political Weekly 26 and Recommendations. Centre for Manage- (46): 2645-51. ment in Agriculture. Indian Institute of Man- Shah, Tushaar. 1993. Groundwater Markets and agement. Ahmedabad. Irrigation Development. Bombay: Oxford Central Water Commission. 1988. "Rates for University Press. Surface Water in India." New Delhi. Shankar, Kripa. 1992. Dynamics of Ground- 1990. "Financial aspects of Irri- water Irrigation. New Delhi: Segment gation and Multi-purpose River Valley Books. Projects." New Delhi. Tsur, Yacov, and Ariel Dinar. 1995. "Efficiency 1991. "An Overview of Water and Equity Considerations in Pricing and Al- Rates for Surface Irrigation." New Delhi. location of Irrigation Water:' Policy 1995. "Water Related Statistics." Research Working Paper 1460. Agricultural New Delhi. and Natural Resources Department, World Government of India. 1972. "Report of the Irri- Bank, Washington, D. C. gation Commission." New Delhi. Vani, M. S. 1992. "Role of Panchayat Institu- tions in Irrigation Management:' Indian Law Institute. New Delhi. 60 9 ISRAEL Dan Yaron Introduction There are three categories of water in Is- in farming over the past thirty years, including rael: fresh water from natural sources, brackish the spread of greenhouse vegetable and flower water from natural sources, and reclaimed sew- production. The restriction on transferring water age (which has been developed in recent years). quotas from farms to other sectors has led to This chapter focuses mainly on fresh and large inefficiencies. (The water law is based on brackish water, for which the allocation and the philosophy that water be allocated to users pricing rules are clearly defined. for their own use only.) Still, despite the law, farmers have been transferring water quotas Past experiences since the mid-1980s. According to Israeli water law of 1959 the Present water pricing practices nation owns all water from natural sources and the Water Commissioner controls its use. In the Agricultural water pricing early 1960s a system of water allocations was developed. Cooperative agricultural settlements By the beginning of the 1970s pressure to (kibbutz and moshav) - responsible for about modify the traditional system of allocating water 80 percent of Israel's agricultural output - re- was growing. Tier pricing was introduced be- ceived water quotas according to number of ag- tween 1974-76, but abandoned in 1977 due to ricultural units on the settlement and the quotas farmers' political pressures. According to per unit, which varied according to type of farm Dlayahu and Avivi (1976), tier pricing reduced and the region. Noncooperative private farms water consumption by 11 percent. Tier pricing received water quotas according to area irrigated was again implemented in 1989 and continues in and the prevailing irrigation norms. However, use today. farms which had quotas before the new system For water from Mekorot farmers pay was established, were able to keep them. Cities US$0.16 per cubic meter for the first 50 percent and towns had priority in water allocations over of their water quota, US$0.19 per cubic meter farms. for the second 30 percent, and US$0.26 per cu- The Water Commissioner sets water bic meter for the final 20 percent (all prices as of charges for water delivered by the national water autumn 1995). Farmers using more water than company, Mekorot. Water charges depend on the quota provides pay much more for the ex- use: farmers pay the lowest charges, industries cess (Water Commission various years a). To pay higher charges, and households pay the avoid the punitive charges, farmers generally most. Charges do not depend on location: users obtain additional water through interfarm water in all parts of the country face the same charges, transfers (usually indirectly through water sup- regardless of the cost of supplying water. ply companies). Private and cooperative water suppliers set Thus water is allocated through a mixture prices without government interference. The of political and institutional means, and markets, government does however impose a tax on water with markets operating at the margin. It is a from low-cost sources, which it uses to subsi- system that has evolved to meet egalitarian and dize water from high-cost sources. efficiency objectives. Allocating some water This system has not changed since its es- through quotas, it is believed, prevents socially tablishment. Yet, there have been large changes undesirable outcomes that might occur if water 61 were allocated purely through markets. And the prices that municipalities may charge house- using a tiered pricing structure transfers some holds; this price is generally set high enough to rent from water suppliers to farmers.24 cover the municipality's cost of operations in Whatever its advantages, it is time to revise addition to its wholesale water costs. However, the current system of allocating water. The cur- municipalities often profit from their water sup- rent quota system has not been adjusted to ac- ply services. In 1989-1990 cities and towns count for the rising urban population or the earned on average profits 26 percent above their changes in the agricultural production technolo- costs. Some cities had even higher profit mar- gies that have taken place over the past 30 years. gins: Tel Aviv's profit margin was 44 percent, The gap between the demand for water and what Raanana's was 80 percent, Herzliyah was 135 is available through the quotas is growing ever percent, and Bat-Yam's was 169 percent. In larger. For example, between 1988-1990 cities general, the wealthier the community the higher and towns required 17-25 percent more water the profit margin (Eckstein and Rozovitz 1993). than quotas provided, while kibbutz and moshav farms needed 11-24 percent less (Water Com- Pricing of low-quality water mission various years b). Of course, quotas to farms cannot simply be canceled, since farmers Farmers and farmer organizations have de- would resist such action. veloped low-quality, brackish water sources. Water from these sources is not included in the Urban and industrial water pricing quotas, a result of the Water Commission's de- sire to encourage private investment in the de- For water from Mekorot, industries pay velopment of low-quality water sources. How- US$0.26 per cubic meter, and cities and towns ever, with the growing demand for high-quality pay US$0.35 per cubic meter. Neither industries water by towns and cities and its growing scar- nor municipalities face tiered charges. How- city, it is now important to include the low- ever, final consumers do face tiered charges, quality water in the quotas as a substitute for paying US$0.68 per cubic meter for the first high-quality water wherever possible. block (typically eight cubic meters per house- A committee appointed by the Water hold per month), US$1.00 per cubic meter for Commissioner recommended that brackish wa- the second block (seven cubic meters per house- ter be made part of the quotas depending on its hold per month), and US$1.47 per cubic meter salt content (and therefore the degree to which it for consumption above this level. Consumers could substitute for fresh water). It also recom- also pay a municipal tax for wastewater collec- mended that its price be linked to that of high tion, treatment, and disposal which varies by quality water, deflated by the rate of substitu- location. For example, consumers pay US$0.48 tion; and that charges be tiered. These recom- per cubic meter in Haifa, US$0.40 in Tel Aviv, mendations are now being implemented. US$0.20 in Rehovot, and US$0.18 in Kfar-Sava The Water Committee is now working on (Water Commission various years a). establishing rules for incorporating reclaimed The Finance Committee of the Israeli par- sewage for irrigation into quotas, and on setting liament (Kneset), with the approval of the Min- prices for reclaimed sewage water. One rule is ister of Finance and Minister of Agriculture, widely accepted: the generator of the wastewater periodically adjusts prices of water for industrial (generally municipalities) should pay the costs and domestic use. The Ministry of Interior sets of treating the sewage to acceptable standards. 24 The less-expensive sources of water are developed first, so the long-run incremental cost of supplying water is rising. For efficiency, the marginal price water should equal its marginal cost. But if all water were priced at marginal cost, water supply compa- nies would appropriate huge rents. Tier pricing gives some of the rent to farmers, without incurring additional transactions costs. 62 Table 9.1 Salt content and rate of substitution between brackish and high-quality water Salt content, parts per million chlorine" 400 500 600 700 800 1,000 1,200 1,400 Rate of substitution: brackish water/high quality water 1.02 1.04 1.07 1.10 1.13 1.19 1.26 1.34 a Roughly equivalent to 0.40 total dissolved solids. Current debates and future prospects quifer's location (water is more costly in the south than in the north). A major weakness of the current water Finally, the allocation and pricing of high- charging pricing system is that charges do not quality water supplied to agriculture is a key vary by region, although costs of supplying wa- issue (Table 9.1). Ideas for reform fall along a ter do. In addition, prices do not necessarily spectrum, with some arguing for modifying the reflect the real marginal cost of supply on a re- current system (adjusting quotas to reflect actual gional basis. use, or providing a rebate for unused quotas), New ideas for the pricing of high-quality and others maintaining that the current system water are now being debated, including the need should be scrapped completely, leaving the mar- to rationalize water prices among different users. ket to allocate water to its highest and best use. Domestic and agricultural users have different requirements for water in terms of quality, short- References and long-term reliability of supply, and the ratio between peak and average demand. Yet, most Dlayahu, E., and M. Avivi. 1976. "The Effect water plants supply both domestic users and ir- of Tier Pricing of Water for Agriculture on rigators. This means that irrigators receive its Use." Water Commission, Economic much higher quality water than they actually Department, Tel Aviv. need, at much greater cost than is necessary. Eckstein, S., and S. Rosovitz. 1996. "Water Also being discussed is the use of water Supply Services in Municipalities." Re- pricing as a means to better match supply and search Report submitted to Water Commis- demand. Policymakers recognize that prices sion, Bar-Ilan University, Romat-Gan. which fluctuate in response to changes in the Water Commission. various years (a), Economic water table in aquifers can encourage consumers Consultant Office, Tel Aviv. to conserve when levels are low. Prices should . various years (b), Department of also reflect water quality in the aquifer and ac Allocations and Permits, Tel Aviv. 63 10 ITALY Stefano Destro Introduction Italy receives about 300 billion cubic me- cubic meters of water a year are lost to evapora- ters (1,000 millimeters) of rainfall each year. tion. Italy's available water resources total However, rainfall is unevenly distributed in both about 110 billion cubic meters per year of which time and space. River flow regimes are very 35-40 billion cubic meters are available for irri- irregular, especially in southern Italy, which gation (Institito Nazionale di Statistica (ISTAT) makes rivers unsuitable as direct sources of wa- 1993). Overall water consumption is 46-50 bil- ter supply. It is estimated that some 140 billion lion cubic meters per year (Table 10.1). Table 10.1 Water consumption by sector, 1971 and 1989 1971 1989 Billion cubic meters percent Billion cubic meters percent Domestic 7 16.7 12 26 Industry 9.3 22.3 6 13 Agriculture 25.6 61 28 61 Total 41.9 100 46 100 Source: Nebbia 1993. Past experiences financed the drainage of large marshes scattered throughout Italy, which at the time were breed- The Land Reclamation Act, enacted in ing grounds for the insects carrying marshy- 1933, was a milestone for water management in fever. In the early 1960s the consortia sup- Italy, and has, until recently, been the funda- ported new agricultural development by devel- mental law on fresh water and land reclamation. oping irrigation systems. This act declared all major water sources to be The government has extensively subsidized public water, and placed restrictions on its use. land reclamation and irrigation projects, paying People or entities wishing to use the water were nearly 100 percent of the capital costs of water- required to obtain special state concessions and works, while the consortia have paid operating pay annual rents. costs. As a result, farmers and other end-users The Consortia for Integrated Land Recla- have paid only maintenance and repair costs for mation, self-governing private institutions, were waterworks and the cost of energy used to dis- responsible for implementing initiatives under tribute the water. Water tariffs were calculated the law. The initiatives were intended to be pri- on the basis of average consortia costs; farmers vate but very often they have been established paid an area-based rate. through law. The consortia played critical roles Per capita water consumption in Italy is 220 in fostering rural development in Italy. During liters per year, but there is considerable variation the 1950s and 1960s the consortia organized and among cities. People in larger cities, mainly in 64 the north, consume about 400 liters per year, sometimes of poor quality. About 35 percent of while people in most southern cities consume water users do not receive sufficient quantities less than 200 liters per year. Thus per capita of drinking water. Drinking water shortages are consumption is 40 percent higher in northern especially prevalent in southern Italy. Perhaps Italy than in southern Italy. for this reason Italians spend US$2.5 million for Nearly all households and enterprises in bottled mineral water, as compared with US$2.9 Italy have piped water supplies. However water million for public water supplies. quality is not always high because pipes are Table 10.2 Average water tariffs to farmers Average annual water 1973 1978 consumption (US$ per hectare) (US$ per hectare) (cubic meters per hectare) Rice, northern Italy 46,000 85 138 Meadows, northern Italy 10,000 39 47 Horticulture crops, southern Italy 9,700 20 33 Orange trees, southern Italy 6,000 27 149 Source: Medici 1974 and 1980. Drinking water and owns these structures. Tariffs did not in- clude the costs of depreciation. Charges for ir- Many different public and private enter- rigation water were so low that irrigation sys- prises provide drinking water. Until 1974 the tems tended to be very inefficient. In some parts Interdepartmental Committee on Price set water of Italy, excessive water use has started to tariffs, and did so without concern for the actual threaten natural systems. Increasingly the wa- costs incurred. Since 1974 provincial or local tershed authority is refusing to grant farmers Committees on Price have calculated water im- permission to drain wetlands unless they can posed by the Interdepartmental Committee on show that doing so will not threaten the natural Price. The tariff structure involves step-rates, systems, and that irrigation will improve the net with a low rate for the first consumption step income of people living in the region. (Figure 10.1). The tariff structure also requires that water prices equal the average costs of sup- Present water pricing practices plying water. In the first half of the 1980s, wa- ter prices were controlled to prevent them from Irrigation Water rising faster than the rate of inflation. But in 1985, communities were permitted to raise water Recently the government has reduced many prices. of its subsidies for water systems. However, The water pricing policy in Italy has been the Consortia for Land Reclamation and Irriga- guided by a range of social and developmental tion still receive subsidies of different types, and considerations, rather than commercial princi- farmers pay much less than any other users ples. The result is a general failure to recover (Tables 10.2, 10.3). Currently there are 199 even the operating costs of supplying water, let consortia entitled to abstract water for irrigation, alone the full costs of services. Government has covering 2.7 million hectares of which 2 million financed all major waterworks (dams, canals) are in northern Italy. Maintenance, distribution 65 (pumping), and overhead costs make up the Persons or entities given a formal concession by majority of the consortias' costs. Concession the government have to pay an annual fee. The fees amount to only 0.25 percent of total costs. fee varies depending on the sector concerned. Figure 10.1 Average water prices for various consumption bands, 1992 (1992 US$) US$ per cubic meter .85 .58 .38 .23 96 144 216 288 cubic meters per year Source: Malaman and Prosperetti 1995. Since the state owns all waterworks, consortia consortia collect enough revenue to cover their do not have provisions in their balance sheets costs: indeed most make losses. A recent update for depreciation. Consortia set water prices in of the study, completed in 1994, found that the accordance with the principle of average cost situation has not improved over the last decade pricing. All consortia use area-based charges (Table 10.4). Total payments from farmers regardless of the amount of water supplied, but cover only 60 percent of the total fixed plus vary charges according to soil quality and crop. variable costs (Vacca, Atzori, and Linoli 1994). According to a study carried out in 1990, few Table 10.3 Concession fees, 1994 Unit of measurement Concession fees (1994 US$) Domestic module 1,820 Industry module 13,330 Agriculture module 43 Hydropower nominal kilowatt 12 Note: A module is equivalent to 100 liters per second. Source: Malaman and Prosperetti 1995. 66 Table 10.4 Economic performance of irrigation consortia (US$ per hectare) Irrigated area Average cost Average receipts Average deficit (hectares) Northwest 279,000 35.15 32.67 2.48 Northeast 355,190 22.11 18.56 3.55 Center-south 134,110 82.36 53.11 29.25 Total 768,400 37.38 29.75 7.63 Source: Vacca, Atzori, and Linoli 1994. Drinking water 10.5 and 10.6 present water prices for two mu- nicipalities, illustrating the variation in tariffs Thousands of public and private enterprises characteristic of drinking water supply in Italy. supply drinking water. Because there are so This example shows how confusing the situation many different suppliers it is difficult to analyze in Italy is due to the absence of a framework law current conditions in this sector. Each supplier for drinking water. After years of debate, Par- serves an average of about 8,000 users, resulting liament finally issued a new framework law on in very low distribution efficiencies. Tables water resource management at the beginning of 1995. Table 10.5 Water tariffs in municipality A Cubic meters per year Unit price (US$ per cubic meter) < 80 .15 81-200 .30 201-500 .40 > 500 .50 Source: Bollettino Ufficiale della Regione del Veneto 1995. Table 10.6 Water tariffs in municipality B Cubic meters per year Unit price (US$ per cubic meter) < 108 .20 108-144 .28 144-216 .43 216-288 .57 > 288 .86 Source: Bollettino Ufficiale della Regione del Veneto 1995. 67 Current debates and future prospects Caia, G. 1995. "Determinazione Transitoria delle Tariffe Idriche." (Internal paper.) The Framework Law on Waters 36 dated Federgasacqua, Roma. January 5, 1995 provides guidelines on water Capria, A. 1995. "La Nuova Legge Quadro management. The law emphasizes the impor- sulle Acque." In R. Malaman (ed.), La tance of demand management to minimize the Gestione Delle Risorse Idriche. II Mulino, environmental impacts of water consumption. Bologna. The key points of the law are: Federgasacqua. 1995. "Metodo Normalizzato I. All waters are public and must be managed per la Determinazione della Tariffa di Rif- according to the principle of sustainability, erimento." (Internal Paper.) Roma. especially with reference to future genera- Gutierrez, L. 1995. "Gli Utilizzi dell'acqua in tions; Agricoltura." In R. Malaman (ed.), La II. Drinking water is top priority. Other uses are Gestione delle Risorse Idriche. Il Mulino, allowed provided they do not affect the qual- Bologna. ity or quantity of water used for drinking; Hamdy, A., and C. Lacirignola. 1993. Princi- III.Water supply services are to be integrated ples and Issues in Water Pricing Policies. with sewage services; private and public en- Medit 4. terprises should be reorganized to encourage Malaman, R., and L. Prosperetti. 1995. "I efficiency in operations. Prezzi dell'Acqua." ." In R. Malaman (ed.), IV.Local governments shall determine water La Gestione delle Risorse Idriche. II prices according to a normalized method that Mulino, Bologna. will be defined by the Ministry of Public Malaman, R. 1995. "La Gestione dei Servizi Works. Water charges must generate suffi- Idrici in Italia." In R. Malaman (ed.), La cient revenue to cover all investment and op- Gestione delle Risorse Idriche. 11 Mulino, erating costs and should reflect the quality of Bologna. water supplied. In effect, the law aims to in- Medici, G. 1974. "Per L'attuazione di un Pro- tegrate water supply and sewage services to gramma di Irrigazione in Italia. Il Dottore." define a life cycle price of water. Scienze Agrarie 10 (24): 3-26. It is expected that, when implemented, the Medici, G. 1980. "L'irrigazione in Italia, Dati E law will provide an appropriate framework for Commenti." Edagricole, Bologna. efficient water allocation and use by all water Nebbia, G. 1993. "Le Risorse Idriche in Agri- users. coltura." Genio Rurale 6: 9-20. Vacca, G., M. A. Atzori, and A. Linoli. 1994. References "L'irrigazione Pubblica in Italia: Tariffe e Copertura dei Costi. Risultati di un'indagine." Bollettino Ufficiale della Regione del Veneto. Irrigazione e Drenaggio, Parte II. 1995. No. 84, September 15. 68 11 MADAGASCAR Felix Rabemanambola Introduction The importance of water in the Malagasy's 1,500 millimeters rainfall per year. The south- (resident of Madagascar) life is apparent in the east receives about 2,500 millimeters rainfall per proverbs and sayings that, because of the phi- year, but rainfall is irregular. The south south- losophy and traditions they express, have ac- west, the country's most arid zone, receives less quired a near sacred character. One common than 600 millimeters of rain each year. saying is "Vary sy rano: an-tsaha tsy mifanary, Less than 5 percent of people in Madagas- an-trano tsy mifandao" (As rice and water keep car have running water in their homes (Table company in the rice fields, so do they in the 11.1). Overall 33.4 percent of Malagasy house- home). In other words, water is needed to grow holds get their water from public fountains, rice and to cook it as well. This proverb aptly pumps, wells or cistern trucks (Institut National captures the two principal uses of water - de Statistique 1993). Nearly 60 percent of drinking and economic production. households get their drinking water from either Rainfall in Madagascar is unevenly distrib- springs, streams and rivers. More than 75 per- uted, with annual averages ranging from about cent of urban households have access to water 380 millimeters per year at Faux Cap, Madagas- services of some kind. Rural households are car's southernmost point, to nearly 3,800 milli- much less well served: only 4.2 percent of rural meters at Maroantsetra the country's northeast- households have access to treated water (0.6 ern coast, where rainfall can reach as high as percent with running water in the home, and 3.6 5,000 millimeters per year. The southern part of percent with access to public fountains). By Madagascar's is dry: it is necessary to drill pro- contrast more than 71 percent of rural house- gressively deeper to find groundwater. In the holds draw water from springs, or rivers and east, resources are abundant, but increasingly streams. polluted. The tropical northwest receives about Table 11.1 Water supply in Madagascar, 1993 Percent of population with access to various water sources Running Public Suction Well Cistern Springs Rivers and Other Total water pump pump truck streams Urban 17.8 36.1 3.8 17.1 0.5 13.3 9.4 2.0 100.0 Rural 0.6 3.6 0.4 21.6 0.5 42.2 28.9 2.2 100.0 Total 4.6 11.2 1.2 20.5 0.5 35.5 24.3 2.2 100.0 Source: Institut National de la Statistique 1993. 69 Past experiences the principles of commercial accounting) to which it is subject.26 Starting in January 1974, Water prices in Madagascar vary according all operations and assets and liabilities of the to the context or the area (urban or rural) to colonial company were transferred to Societe which they apply. Water prices reflect the vari- Malagache de l'Eau et de l'Electricite. As part of ous ways of managing water systems and the the reorganization, Societe d'Energie de Mada- operating structures established in different pe- gascar was empowered to carry out its assigned riods. The following describes the development operations and was put in charge of the Gerance of institutions managing water and water pricing Nationale de l'Eau. As part of the reorganiza- in the country. tion, the Societe d'Interet National de l'Eau et de l'Electricite was created, and gradually took Urban charge of the electricity and water production, transport, and distribution facilities which had There have been three distinct periods of been operated as local government monopolies Madagascar's recent past which have influenced or private concessions. the development of water institutions and water Since 1974 Jiro Sy Rano Malagasy has pricing practices. The first is the late colonial been responsible for operating and maintaining period (1950-1959), when the colonial com- drinking water facilities in urban areas. this in- pany, Societe Eau et Electricitd de Madagascar, stitution is also responsible for undertaking managed water supply. The Gerance Nationale studies, new projects, and extensions of existing de l'Eau was also important during this period. services. Finally it is responsible for carrying The second is the post-colonial period, during out national objectives in the water and electric- which the Soci6te Malagache de l'Eau et de ity sectors.27 l'Electricite held the monopoly for water pro- Water rates for Jiro Sy Rano Malagasy are duction and management. The third is from set at the government council level. Along with 1974-75 until the present, when Jiro Sy Rano Jiro Sy Rano Malagasy, the Operation Alimen- Malagasy (JIRAMA) - a state-owned and op- tation en Eau dans le Sud, a public industrial and erated company formed through the merger of commercial concern created in 1986, operates in the two water companies following their nation- southern Madagascar around Ambovombe.2' alization in 1975 - has managed the production New statutes pertaining to this institution issued and distribution of water for most urban centers. in 1995 make it possible for the new company to Communities continue to manage water supply extend its operations throughout the country. in a few secondary centers - although with technical and financial difficulties. Rural water supply Ordinance 74-002, issued February 4, 1974, stipulates that the state has responsibility Pricing practices for rural water supply are for managing water supply and electricity.25 much less clear than for urban areas, because This ordinance gives the state exclusive rights to there is no single institution managing rural wa- manage all operations to produce and distribute ter supply. Three major nongovernmental or- drinking and industrial water. Within this gen- ganizations with religious affiliations have been eral framework, ordinance 74-003 (February 4, operating in rural areas for quite some time. 1974), established, the Soci&e Malagache de Fifanampiana Kristiana ho an'ny Fanmpandro- I'Eau et de l'Electricite, and defined its functions soana eto Madagascar (FIKRIFAMA), a non- and prerogatives as well as the provisions of commercial legislation (requiring it to adhere to 26 Modified by ordinance 75-032. 27 Ordinance 75-032 of October 17, 1975. 2S Subsequently modified by ordinance 90-007. 2t Decree 86-412. 70 profit organization, is one of the most active average water costs through user charges. Ordi- nongovernmental organizations in the country nance no. 74-002 (February 4, 1974) requires (Direction Generale du Plan 1980; Leroy and user charges to cover operating costs of the wa- Gatin 1994). This group operates primarily in ter company, including interest charges and de- the in the high plateaus where the country's preciation, and raise a sufficient surplus to fi- poorest and most isolated villages are situated. nance new investments. In 1990-91 it was ex- In these villages diseases from drinking con- pected that water charges would be set to tamihated water are very common. achieve these goals. However collections from FIKRIFAMA requires villages receiving its as- water users fell short of fully recovering costs. sistance to build gravity-fed water supply facili- For example, in 1990 the average cost of sup- ties. Village water committees manage the pub- plying water was FMG 289 per cubic meter, but lic fountains, and pay a small fee each year to charges (for consumption above 10 cubic meters cover the costs of minor repairs such as faucet per month) were only FMG 263, or 91 percent replacements. of average costs.29 Two other nongovernmental organizations In 1992, after a period in which the FMG with religious affiliations operate almost exclu- depreciated rapidly, it was decided to adjust sively in areas where they have built churches. water rates every six months to allow water rates These groups nearly always supply water serv- to reflect more closely the costs of supplying ices either for free or for a small symbolic water. This is a significant improvement for the charge. Since 1986 Op6ration Alimentation en water company, which can now adjust rates in Eau dans le Sud has been managing water sup- line with changes in key parameters, such as the ply for a few small centers. Op6ration Microre- exchange rate and the price of crude oil. The alisations, an organization financed by the Euro- adjustments have led to sharp increases in water pean Development Fund, was created by decree prices, to the great resentment of water users. 87-360 (September 29, 1987) as a presidential Households currently pay FMG 1,570 per cubic project. It manages federally-financed small- meter for running water (for quantities above 10 scale pump or gravity-fed systems throughout cubic meters per month). In 1996 the price of the country. one cubic meter of water was six times higher than in 1990. The AES sells water from cistern Irrigation trucks at a price of FMG 40,000 for a cistern of 6 cubic meters: users collect the water in 12-15 The Rural Engineering Office has always liter buckets. been responsible for managing irrigation water. Public standpipes. The cost of private con- The agency has also built water conveyance nections is much higher than most households systems in rural areas. Water pricing practices can afford, so most urban dwellers receive water for irrigation water will be presented below. through public standpipes or from water ven- dors. Lines at public standpipes are becoming Present water pricing practices increasingly long, and informal water selling has been growing in some neighborhoods of Anta- Urban water supply nanarivo, the nation's capital, and in other major cities. Jiro Sy Rano Malagasy tariffs are uniform In populated neighborhoods of Antanana- throughout the country. Households pay a low rivo water supply points are few. Around these tariff for their first 10 cubic meters of water, points, middlemen collect water in 220 liter bar- regarded as an essential minimum quantity. Us- rels or in 20 liter cans and deliver to customers. ers pay higher tariffs for quantities above this In return, they collect a fee for each can of water basic level of consumption. Cost recovery. During 1987-90 Jiro Sy 29 US$1 = FMG (Malagasy franc) 3,999.93 during the first Rano Malagasy recovered 65-97 percent of its half of 1996; and US$1 =FMG 330 in 1990. 71 distributed. Most customers are families with- Rural water supply out private connections or small businesses such as inexpensive restaurants. In some populated Rural water consumers do not generally neighborhoods in the capital, households with pay for water on the basis of quantity consumed. private connections sell water: prices range from However, this is not necessarily the case in FMG 10-50 per 10-15 liter bucket or FMG southern Madagascar, where users buy water, 1,300-3,300 per cubic meter. In some cases, often at very high prices. The cases discussed prices have reached FMG 5,000 per cubic meter below provide some a representative sample of (BURGEAP 1996). It is very difficult to esti- water pricing issues in rural areas. Since more mate what proportion of the city's population than 71 percent of households get their water purchases water from vendors, but it is likely to from springs or streams and rivers, the practices be significant. pertain to only about 27 percent of rural house- A study of small water vendors found that holds. vendors charge FMG 40-50 for a 10-15 liter The FIKRIFAA4 experience. The bucket of water. In certain neighborhoods, they FIKRIFAMA is an nongovernmental organiza- may charge as much as FMG 100-150 for a 20 tion which provides almost exclusively gravity- liter can of water. Thus water vendors are fed water systems principally to communities in charging FMG 3,600-7,500 per cubic meter of the high plateaus. To receive its services, com- water (US$1-US$2 per cubic meter). In the five munities must request them and agree to partici- other major provincial towns, the situation is pate in all stages of the project - from the sys- similar to that in Antananarivo. Prices vary tem's conception to its management and mainte- from city to city depending on how acute the nance. Thus work cannot begin until the com- city's water problem is. munity establishes a village water committee. In the past two years the government has Village water committees are responsible been encouraging public fountain users to par- for maintaining the water systems and ensuring ticipate in water management. Water commit- that they function properly. They are also re- tees or water supply point committees at the sponsible for making sure that members of the public fountain level have been formed in many users' associations abide by the agreed clauses, places. Monthly or quarterly dues are collected or the dina.30 Users who do not pay their share from water users for the upkeep and repair of lose their right to be part of the users' associa- public fountains. The money collected is not tion and forfeit their right to draw water from sufficient to cover the costs of supplying water, public fountains or water supply points. This but they have encouraged users to take more discipline is a strong point of FIKRIFAMA's responsibility for the management of their water program. supply, and have led to reduced water wastage Each family pays the water committee a flat and water losses. Indeed, water committees are fee of FMG 1,000 per month. The sums col- imposing discipline on water users. They im- lected by the water committees thus vary ac- pose sanctions on users who do not pay their cording to the number of families served. Some dues, do not participate in site cleanups, or dam- water committees collect as much as FMG 1 age or steal faucets. In Antsiranana households million (Leroy and Gatin 1994). From these pay quarterly dues of FMG 1,000, fines of FMG funds, water committees keep on hand a small 5,000 for failing to participate in site cleanups sum (currently around FMG 50,000) to pay for and fines of FMG 500 for stealing faucets. upkeep and minor repairs. Water committees Furthermore, to prevent Jiro Sy Rano Malagasy must deposit sums above FMG 300,000 in a from cutting off water supplies, they are taking measures to stop users from leaving taps open 30 The dina are specific conventions customary at the commu- for long periods of time. nity level which apply uniformly to all members of the com- munity. To transgress the dina is to risk incurring severe sanctions not only on oneself but also on one's entire family. 72 bank account bearing the name the water com- UNICEF and the 150 Water Supply Points mittee. According to FIKRIFAMA, users pay Project for Southern Madagascar. The 150 enough to cover about 90 percent of total costs. Water Supply Points Project, launched in March Water committees agree with users on mode of 1994 and completed in January 1995, was re- payment, which is generally in cash or in kind sponsible for drilling 150 wells and equipping (usually rice). them with India Mark II hand pumps (Bergeron The AES experience. The AES, financed 1995). To obtain a water supply point, villages by FAD, manages and operates water supply had to make a contract with the UNICEF proj- systems, including public fountains, in five ect. Under the contract, UNICEF agreed to drill small centers in the south of the country the wells and outfit them with curbs and sinks, (Isoanala, Tsivory, Andalatanosy, Beraketa, and train the water supply point committees (cornit Antanimora) as part of the Southern Water Sup- de point d'eau) and repair persons, and create a ply Project. Households pay FMG 800 per network for the sale of spare parts at fixed month for water. While this contribution is prices. The village agreed to provide an access small relative to the actual cost of supplying route between the water supply point and the water, it is high compared with average incomes village, furnish labor, and establish and maintain in the region. The local people resist paying a village fund of FMG 50,000 to maintain the because they think it is unfair that they should pump (purchasing spare parts, paying for re- have to pay while urban consumers do not, and pairs, and paying for a quarterly inspection visit because they believe that the services of AES- costing FMG 2,000 each). The water committee a public institution - should be free. is responsible for managing these tasks. Each In 1995 following an intense information, family pays a monthly contribution to the fund. education, and communication effort, the AES Thus far contributions have been sufficient to instituted a new policy. The policy makes AES meet 80-90 percent of expenses. The funds responsible for managing water supply in the now average about FMG 42,500. five centers, and the communities they serve responsible for collecting funds from water us- Agricultural water ers at their public fountains (which are metered) on the basis of volume drawn. The community The objectives of agricultural water policy pays AES FMG 2,000 per cubic meter. The are to maintain irrigation infrastructure, reduce community sets water charges at a level to meet the financial contribution of the state in irriga- this payment and any additional expenses, such tion, accelerate rural infrastructure investments, as wages for the person hired to collect water and improve the quality of life in rural areas. charges at the pump. The specific strategies of the agricultural water In the extreme south of Madagascar, along policy are to: the Amboasary-Ambovombe-Beloha-Tsihombe * Establish and support water users associa- route, AES supplies water from cistern trucks tions (associations des usagers de l'eau) in all originating in Amboasary-South (about 60 kilo- irrigation perimeters; meters from Fort-Dauphin), for FMG 40,000 per * Give responsibility for managing irrigation 6 cubic meters tank-full. In 1992 the AES systems to water users associations in accor- started serving small localities in areas with dance with their abilities; acute water problems, which traditionally have * Ensure the effective participation of water been served solely by private water vendors. users in start-up activities; The private water vendors were often charging * Mobilize resources of all subdistrict opera- exorbitant prices, up to FMG 3,000 per 220 liter tors; barrel (US$3.40 per cubic meter) for water of * Help the state disengage from its role in often questionable quality (muddy and un- managing and maintaining irrigation net- treated). AES charges much less for water than works; the private vendors (Table 11.2). 73 * Refurbish and build rural infrastructure by water conveyance in rural areas, contributing making decentralized groups responsible for to the improvement of public health. Table 11.2 Water tariffs of Jiro Sy Rano Malagasy, July 1991-January 1996 Percent increases July Oct. Jan. July March July Jan. Aug. Jan. Accum- Annual 1991 1992 1992 1993 1994 1994 1995 1995 1996 ulated average Cessions Consumption 1.10 1.04 1.21 1.21 1.33 1.58 1.77 1.77 1.77 60 11 Electric 1.10 1.04 1.21 1.21 1.33 1.58 1.77 1.77 1.77 60 11 Individuals Small consumer (100 m3) 0.65 0.67 0.71 0.78 0.86 0.74 0.74 0.74 0.74 15 3 < 10 m3/month 1.00 1.10 1.10 1.21 1.33 1.58 1.77 1.77 1.77 77 14 > 10 m3/month 1.00 1.10 1.10 1.21 1.33 1.58 1.77 1.77 1.77 77 14 Administration < 100 m3/month 1.00 1.10 1.10 1.21 1.33 1.58 1.77 1.77 1.77 77 14 > 100 m/month 1.00 1.10 1.10 1.21 1.33 1.58 1.77 1.77 1.77 77 14 Collectives (decentralized) Community services 0.65 0.67 0.71 0.78 0.86 0.74 0.74 0.74 0.74 15 3 Fountains 0.65 0.67 0.71 0.78 0.86 0.74 0.74 0.74 0.74 15 3 Other 0.65 0.67 0.71 0.78 0.86 0.74 0.74 0.74 0.74 15 3 Special uses Sale to boats 2.82 3.04 3.10 3.41 3.75 4.45 4.99 5.00 5.00 77 14 Construction 2.06 2.22 2.26 2.49 2.74 3.25 3.64 3.64 3.64 77 14 Waterbrute 1.17 110 1.29 1.28 1.32 1.67 1.77 1.77 1.77 51 10 Source: Jiro Sy Rano Malagasy 1997. The strategies now being implemented are * Distributing water to the land parcels; designed to allow users, through the water user * Determining when and where new supply associations (which function as financially points should be opened, according to statu- autonomous nonprofit corporations or independ- tory procedures and with the advice of the ent cooperatives) to take over the management appropriate department of the agriculture of irrigation infrastructure. Irrigation water ministry; pricing reflects these goals. The collectivity, in * Ensuring that members or the enterprise principle, includes "persons cultivating land properly maintain the irrigation networks and served by the hydroagricultural networks of the ensure their safety; locality and all those who use its irrigation or * Ensuring that laws are enforced (including drainage water for any other economic purpose" the dina); (ordinance 90-642 of December 19, 1990, arti- * Borrowing funds as needed; cle 2). According to article 5 of this same ordi- * Establishing and approving annual operation nance, its responsibilities include: and maintenance budgets; 74 * Managing financial resources for the benefit egy and action plan focuses on three major is- of irrigation users. sues for the future: cost recovery, incentives for The ordinance also requires water users to private connections, and decentralization. Cost pay the upkeep costs of irrigation infrastructure recovery in urban areas is an immediate objec- except by the express waiver of the operating tive. It is intended that water charges will com- structure. Annual upkeep costs are assessed on prise two components: an investment component a per hectare basis, and range between FMG (including depreciation), and an operations and 25,000 and 30,000 for small irrigation perime- maintenance component to cover recurrent ters (petits perimetres irrigues), and around costs. Since the costs of supplying water differ FMG 45,000 for large irrigation perimeters between cities, the water charges will also differ (grandperimetres irrigues). (CNEA 1995). In rural and poor periurban ar- Rates of cost recovery vary according to eas, users will pay in accordance with ability to district: they average 80-90 percent, and can pay and the level of service rendered. reach 100 percent for large irrigation perimeters. Encouraging households to take private The perimeters which have transferred responsi- connections is another major element of the bility for managing the irrigation networks to the strategy. When a large proportion of a nation's water users' associations have been the most population has private connections, cost recov- successful at covering costs. For example, the ery improves, people's quality of life is raised, large irrigation district of Dabara, in the west- and water waste declines. For urban areas, the central part of the country, where the water us- sector strategy and plan of action recommends ers' associations have taken responsibility for revising connection fees to encourage house- management, is running smoothly. holds to take private connections. For rural ar- eas, the plan calls for implementing an effective Industrial water "social connections" policy, in accordance with the principles of rational management and social Industries consume only a small proportion equity. of Madagascar's water resources. Industries Within the framework of the decentraliza- obtain water from a variety of sources, depend- tion process now under way, the plan stresses ing on where they are located. Jiro Sy Rano the key role that decentralized institutions need Malagasy supplies drinking water to industries to play in managing not only facilities and water situated in industrial zones or in urban areas works but also water resources. The decentral- where it is active. Industries outside these zones ized institutions will have much more autonomy or urban areas obtain water from rivers, foun- than in the past in administration and financial tains, and other sources, which they treat them- management.3' This will give communities selves. Jiro Sy Rano Malagasy provided indus- greater freedom to manage their own develop- tries with about 3.7 million cubic meters of wa- ment. Recently, central authorities have sug- ter between October 1994 and September 1995, gested entrusting basic village structures called which was about 7 percent of the water it sup- fokontany with the management of natural re- plied for all uses. There are no data available on sources, including ground and surface water re- the water consumption of industries obtaining sources. This would likely give thefokontany water from sources other than the water agency. influence in determining water rates. Current debates and future prospects Urban water pricing The sector strategy and action plan A study is presently underway to develop (strategie sectorielle et plan d'action) calls for recommendations for a national water pricing users to pay the full costs of water supplies in the future in order to ensure the sustainability of 31 Law no. 93-005 of 26 January 94 conceming the general water services (CNEA 1995). The sector strat- orientation of the decentralizaton policy. 75 system. It is certain that prices will need to re- References flect real operating costs. For public water sup- ply points, two management schemes are envis- Bergeron, G. 1995. "Programme aged: either the communities manage the facili- d'Hydraulique Villageoise: 150 Points d'eau ties themselves, or they hire private fountain dans le Sud de Madagascar." Bureau de keepers to manage them. Recherche Geologique et Miniere, Avril. Under the Kreditanstalt far Wiederaufbau- BURGEAP. 1996. "Etude de l'amelioration de (KFW) financed project to rehabilitate water and la Gestion des Points d'eau Collectifs sewerage systems in Mahajanga, water users d'Antananarivo," Rapport final, Fevrier. will make contributions towards the upkeep of Chaperon, P., J. Danloux, and L. Ferry. 1993. the communal water points. However, while Fleuves et Rivieres de Madagascar. individual contributions will likely be modest at ORSTOM, Paris. first, water users may still resist paying for a Comite de l'Eau et de l'Assainissement. 1995. commodity that they received for free in the Strategie Sectorielle et Pland'Action pour past. Overcoming public resistance will require l'Eau et l'Assainissement, Mai. an intensive information, education, communi- DINIKA. 1994. "Projet de Concession des cation campaign. Bornes Fontaines Etude Prealable a la Vente d'eau aux Borenes Fontaines" (Phase I), Rural water pricing Fivondronampokontany d'Antsirabe I - Entreprise d'Etude Pluridisciplinaire, Jan- The sector strategy and plan of action en- vier. dorses FIKRIFAMA's rural water supply ap- . 1991. Etude DINIKA 1990-91 proach (and that followed by UNICEF's 150 sur la Situation du Secteur de l'eau et de Water Supply Points Project), and is encourag- I'assainissement a Madagascar en 1991. ing others to replicate it. Several new projects, Direction Gen6rale du Plan. 1980. "Rapport sur such as the Water Supply Sector Project (Project le Seminaire National sur l'Eau Domes- Sectoriel d'Alimentation en Eau) now in the tique." Projet PNUD per BIT MAG/71/534, process of being prepared, involve a number of Decembre. actors, including UNICEF and the nongovern- Groupe de Recherche pour la Connaissance du mental organizations of FIKRIFAMA and Cari- Sud Tulear. 1995. "Evaluation Participa- tas Madagascar.32 This project -involving tive par les Ben6ficiaires du Projet Eau," both urban water supply and rural water supply Rapport final. is important - being the first to successfully Institut National de la Statistique. Recensement incorporate lessons from the past, while intro- G6neral de la Population et de l'Habitat ducing new pricing practices in accordance with 1993, R6sultats provisoires, Resultats au I the sector strategy and action plan. It would be per leme. best to involve the water users' associations in Japan International Cooperation Agency. 1989. the management of rural drinking water supply "Etude de l'exploitation des Eaux Souter- points (as is already the case with water convey- raines dans la Region du Sud-Ouest de la ance systems built by the Rural Engineering Of- Republique Democratique de Madagascar," fice), because this would make it possible both Septembre. to rely on existing infrastructure and benefit Jiro Sy Rano Malagasy (JIRAMA). 1991. from the experiences of the water users' asso- "Etude de l'Alimentation en Eau Potable des ciations in managing irrigation networks. Quartiers Peripheriques d'Antananarivo," Rapport Economique et Rapport Technique, Fevrier. 32 The Water Supply Sector Project (Projet Sectoriel . 1997. "Water Tariffs in Mada- d'Alimentation en Eau), is being prepared with advance funds gascar." from the IDA. 76 Leroy, Roland and Paul Gatin. 1994. World Bank. 1994. "Rapport d'6valuation: "Document de base de la Strat6gie Sectori- Deuxieme Projet de Rehabilitaiton des P- elle et Plan d'Action." Comite de l'Eau et de rimetres Irrigues," 12691-MA, 20 Juin. I'Assainissement, Avril. . 1995a. Rapport d'6valuation du Ministere d'Etat a l'Agriculture et au Develop- Projet d 'Appui au Programe de Vulgarisa- pement Rural. 1994. "Politique de tion Agricole, Avril. D6veloppement Rural," Fevrier. . 1995b. Enquete aupres des Be- neficiaires du Projet Sectoriel de l'Alimentation en Eau Decembre. 77 12 NAMIBIA Pieter Heyns Introduction Namibia is a large country of 824,300 farms, the colonists had to establish large and square kilometers and has a population of about reliable water supply schemes in areas with few 1.6 million people. With about 1.9 people per available water resources. They achieved this square kilometer, Namibia is one of the most through the development of borehole wellfields sparsely populated countries in the world. Rural and long distance water supply systems, which farming communities are sparsely distributed relied on storage dams and water transport sys- and small in number. The country is extremely tems such as tanker trucks, pipelines, or canals. arid. There are no perennial rivers in the interior Water is thus a very expensive commodity in of the country; ephemeral rivers flow during the Narnibia. rainy season. Rural communities therefore de- Central government (with local authorities pend on groundwater for their water supplies. with sufficient capacity) was responsible for Namibia became a German Protectorate in building and managing the water supply infra- 1884. The colonists soon realized that the only structure. Initially the government supplied the way to develop urban settlements and permanent water to consumers at no charge. However, de- livestock farms in the waterless interior was to mand for water grew so rapidly that the central tap the groundwater sources or the unreliable goveniment was unable to fund the increasingly ephemeral surface water sources. They started a expensive expansion from the national budget concentrated borehole drilling program in 1903 without contributions from users. Table 12.1 and created a network of water points for live- presents current water supply and consumption stock farming throughout the largely uninhab- statistics by sector in Namibia. ited interior. To develop industries, mines, and Table 12.1 Water supply and demand by sector, 1995 Water supplied (million cubic meters) Sector Government Municipalities Private Sector Total Percent of total Domestica 65 12 4 81 27 Livestock 21 n.a. 46 67 23 Mining 5 n.a. 10 15 5 Tourism 1 1 1 3 1 Irrigation 50 n.a. 79 129 44 Total 142 13 140 295 100 a Includes industrial demand. Namibia is not heavily industrialized. n.a. means not applicable. 78 Present water pricing practices Municipal and Village Board Authorities. The Second and Third Tier Authorities were respon- The evolution of water charge systems sible for distributing the water to the consumers under their authority. The local authorities In 1920 the Union of South Africa, which charged urban consumers for water, but not rural occupied German South West Africa in 1915 consumers. Instead regional authorities paid for during the First World War, became the Man- the water of rural communities. datory for the Territory and established an Ad- Between 1969 and 1971 bulk water tariffs ministration. Although the German authorities covered only a portion of operation and mainte- and the South West Africa Administration in- nance costs of the bulk water supply infrastruc- tended to develop water supplies for the good of ture, and no capital costs. By 1972 bulk water the country and supply the water at no charge to tariffs generated enough revenue to cover full consumers, the need for water charges quickly operation and maintenance costs, but still not became apparent. In 1954 the government, enough to cover capital costs. By 1977 water through the Department of Water Affairs, intro- charges generated enough revenue to pay some duced a bulk water tariff of US$0.06 per cubic capital costs. At this time policymakers decided meter (1954 dollars) which was uniform for all to charge the mining industry the full financial bulk water consumers, regardless of location or costs of supplying water. By 1979 it cost the cost of delivering water to them.3 US$0.22 per cubic meter (1979 dollars) to sup- The water distributors are responsible for ply water, but consumers still paid only US$0.15 setting tariffs to final consumers. They typically per cubic meter: thus state subsidies still made set tariffs to cover their expenditures for bulk up 32 percent of the total costs. water (or the costs of operating their own water In 1990 Namibia became independent and schemes), plus the costs of distributing the wa- the Department of Water Affairs was ter. Consumer tariffs normally involve a fixed incorporated into the Ministry of Agriculture charge plus a volumetric charge. However since Water and Rural Development. Neither bulk 1994 some municipalities have used block tar- water charges nor final consumer charges iffs, charging a low tariff for a minimum changed. However in 1993 the Namibian (lifeline) quantity of water and much higher Government approved a Water Supply and rates for larger quantities; those using larger Sanitation Sector Policy for the country and quantities thus subsidize the consumption of the adopted an overall long-term sector policy which poor. strengthened the water tariff policy principles In 1969 the water supply institutions in already in place. This policy is based on the Namibia were reorganized and the uniform bulk recognition that the overall sustainability of the water tariff policy changed. The Division of water supply depends on the ability of suppliers Water Affairs in the Administration became a to become financially self-sufficient, and that Directorate of the Department of Water Affairs essential water supply services must be available in the Republic of South Africa. The Depart- to all Namibians at a cost which is affordable to ment of Water Affairs, which was referred to as the country as a whole. The policy thus requires a First Tier Government Authority, supplied beneficiaries receiving services in excess of basic water in bulk to the Second Tier or Communal needs to pay an increasing proportion of costs of Land Authorities and to the Third Tier local the higher value services. In 1994 the Government decided to com- 33 Currently the tariffs for state-supplied bulk water are levied mercialize some of the responsibility for water and periodically revised in accordance with Article 66 of the Wa- supply by creating a Water Corporation which ter Act, Act 54 of 1956, as applicable in Namibia, and promul- became responsible for supplying bulk water to gated by Proclamation No. 151 of 1971 in terms of Section 180(1) of the Water Act. Consumer tariffs are similarly levied and ad- municipalities, villages, mines, industrial enter- justed from time to time by the local authorities in terms of Article prises and irrigation schemes. A smaller De- 30 (1) u of the Local Authorities Act, Act 32 of 1995. partment of Water Affairs retained responsibility 79 for administering the Water Act and providing responsibilities and commitments as a condition water to disadvantaged rural communities as of government support, and state support can be part of the social responsibility of government. withdrawn if communities do not comply with the Policymakers decided to raise tariffs gradually terms of the agreements. Most communities starting in 1995 to achieve full cost recovery for currently pay operations and maintenance costs, bulk water supply schemes by 2000. Tariffs although some communities receive subsidies for rose by 30 percent in 1995/96, and 20 percent in these. Authorities assess the ability of 1996/97. They are expected to rise 20 percent in communities to pay for services before granting 1997/98, and 15 percent per year starting in subsidies. 1998/99 until tariffs reached levels allowing full With such limited water resources, Namibia cost recovery. (Real tariff increases are less must prioritize the uses of water across since inflation runs at about 10 percent per competing demands. The first priority is year.) Thus bulk and consumer water tariffs domestic water supply, including water for policies now reflect the reality that water is a livestock on both subsistence and commercial scarce commodity in Namibia. farms. The second priority is industrial, mining, The process of raising tariffs in rural areas irrigation, and recreation water supply. The state has also been accelerated. Water tariffs must determines the degree to which individual sectors cover operation and maintenance costs between and entities should receive water based on their 1995 and 1998, and rise thereafter to achieve expected contribution to the overall development full cost recovery in nine years. objectives and plans for the country. Water for human consumption in the rural The principles of water pricing areas is higher priority than water for livestock, so the costs of supplying a minimum quantity of Water tariffs in Namibia are subject to water for basic needs is subsidized by other rural annual revision and periodic adjustment. The water users. To prevent overgrazing by live- minister in charge of Water Affairs is responsible stock, farmers pay a higher tariff for water for for ensuring that tariffs comply with government livestock, which includes a natural resources policy and that any adjustments in tariffs or tariff fee. structures are warranted and reasonable. Water for mining companies. Between Regional and local councils are responsible for 1969 and 1984 the full financial cost of water approving consumer tariffs. It is considered for the mining industry was calculated by di- appropriate to bring sanctions against consumers viding amortized costs of supply by the quantity who do not pay for water; however assistance of water that mining industries estimated they should be given to those who cannot afford to would use. Unfortunately, these unit charges pay. often turned out to be too low to generate suffi- Water supply institutions are responsible for cient revenue to fully cover costs because min- establishing the appropriate consumer water ing companies generally used less water than charge policy in line with the national water they had estimated. Unit prices were not ad- supply policy. Currently urban consumers pay a justed, so the revenue shortfall became worse low tariff for a specified lifeline quantity of 10 over time as mining companies became more cubic meters per household per month. In some efficient in their water use. In 1985 this method cities consumers face increasing block rates. of calculating water charges was changed. Industries and commercial enterprises pay Mining companies now pay a monthly lump charges intended to cover the full financial costs sum which covers amortized capital costs, plus a of supplying water. Housing developers pay the volumetric charge which covers operation and costs of extending the supply network to the maintenance costs. The operation and mainte- housing development. nance costs are variable, depending on volume For rural water supply, communities and consumed and hours of operation. authorities must agree on their respective 80 Irrigation water. Farmers nornally pay the mined by amortizing the capital costs over re- full financial costs of state-supplied irrigation demption periods related to investment water. However, they may pay less depending on type-dams (amortization period 45 years), the value of the agricultural output relative to its pipelines (amortization period 30 years), and socioeconomic benefits. Commercial farmers mechanical/electrical installations (amortization who build and operate their own irrigation period 15 years). The unit cost of water supply schemes do not receive state assistance. is derived by adding together the capital costs and operation and maintenance costs, then di- Current debates and future prospects viding the total by the quantity of water sup- plied. Water tariffs The direct running costs of state-supplied water in fiscal 1994/95 was about US$15.8 mil- Namibia must invest in new water infra- lion, or about US$0.24 per cubic meter of water structure to grow and develop, which will re- supplied (irrigation water excluded). Income quire enormous resources. Maintain the existing from water sales was US$21.1, or about infrastructure will also require substantial re- US$0.32 per cubic meter. Water suppliers thus sources. Thus policymakers have taken action collected a profit of US$0.08 per cubic meter. to ensure that water users pay the full costs of Table 12.2 presents more information on costs supplying water, including capital and operation of supplying water and revenues from water and maintenance costs. sales. The deficit between running costs and Bulk water tariffs are now set separately for income has been eliminated since Namibia be- each water scheme. Capital costs are deter- came independent. Table 12.2 Income and expenditures for state-supplied potable water Expenditure and income from water sale per fiscal year 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 Potable water sold (1,000 cubic meters) 55,091 55,220 58,819 57,455 58,009 65,000 Running cost (million US$) 15.15 16.52 17.80 19.15 17.93 15.78 Unit cost (US$/cubic meter) 0.28 0.30 0.30 0.33 0.31 0.24 Income (million US$) 12.43 14.60 15.98 17.51 17.11 21.11 Unit income (US$/cubic meter) 0.23 0.26 0.27 0.31 0.30 0.32 Profit or deficit (US$/cubic meter) (0.05) (0.04) (0.03) (0.02) (0.01) 0.08 Table 12.3 presents inforrnation on con- northwestern border of the country. Rundu is sumer tariffs by location and water source. next to the perennial Okavango River, and Keetmanshoop is in the extremely arid southern Katima is next to the Zambezi River on the part of the country (rainfall of 150 millimeters northeastern border: rainfall in both places aver- per year) and gets water from a state dam. Otji- ages 600 millimeters per year). Tsumeb is a warongo is in the central northern area (rainfall mining town; water pumped from the mine is of 450 millimeters per year) and obtains water supplied to consumers. Outjo and Grootfontein from groundwater sources. Oshakati gets water supply their own water from groundwater from a huge piped water supply scheme drawing sources. Since these towns so not receive water water from the perennial Cunene River on the from the state, they do not pay bulk water tariffs. 81 Table 12.3 Examples of consumer tariffs in Namibia (US$ per cubic meter) Bulk tariff Consumer tariff Actual cost Tariff Basic charge Unit cost Capital Operating Total Keetmanshoop 0.17 0.32 0.49 0.32 2.71 0.44 Otjiwarongo 0.11 0.26 0.37 0.29 1.67 0.47 Oshakati 0.09 0.26 0.36 0.32 4.52 0.41 Rundu 0.03 0.18 0.21 0.23 2.22 0.29 Katima 0.03 0.18 0.21 0.22 2.22 0.29 Tsumeb n.a. n.a. n.a. n.a. 1.62 0.41 Outjo n.a. n.a. n.a. n.a. 2.67 0.28 Grootfontein n.a. n.a. n.a. n.a. 1.84 0.23 n.a. means not applicable. In many parts of the country the water sup- ter, and water awareness has become a regular ply authorities are already using all their water feature in schools and community development resources. Developing additional water supply programs. Water pricing, especially steep block infrastructure is getting more difficult and ex- tariffs have also been effective. Table 12.4 pro- pensive. It is therefore essential to implement vides information on consumer tariffs involving measures to dampen demand and conserve wa- increasing block tariffs. As proof of their effec- ter. Indeed some local authorities have imple- tiveness, water demand in the city of Windhoek mented effective water demand management has remained at 1990 demand levels, although strategies. The media is also playing an impor- its population has grown by 50 percent. tant role in encouraging consumers to save wa- Table 12.4 Block tariffs for urban water supply Gobabis Walvis Bay Windhoek Band Tariff Band Tariff Band Tariff (cubic meter (US$ per (cubic meter (US$ per (cubic meter (US$ per per month) cubic meter) per month) cubic meter) per month) cubic meter) 0-10 0.52 0-15 0.35 0-10 0.51 10-60 0.59 15-25 0.41 10-30 0.73 60-20 0.72 25-85 0.59 30-60 1.02 120+ 1.01 85+ 1.06 60+ 1.46 82 Block tariff bands are set in accordance ted to cut water services since water is essential with the particular circumstances of each town. to life. To enforce payment of water bills, Local councils determnine the consumption bands authorities may cut electricity supplies instead. and related unit costs, depending on local oper- Households must pay their water bills before ating costs and the responsive of consumers to they may again receive electricity. This ap- price incentives. proach is proving an effective means of enforc- Windhoek is in the central highlands and ing water charges. receives 350 millimeters rainfall per year. The Rural communities are still receiving subsi- city obtains water from an integrated water sup- dized water supplies. Some communities with ply system using groundwater, reclaimed diesel-driven borehole installations pay for fuel wastewater water, and water from state dams. and related transport costs. Very few communi- Gobabis, located in the wetter central eastern ties have yet organized waterpoint committees to part of the country (400 millimeters per year), collect fees from residents to pay the costs of obtains water from groundwater sources sup- operating and maintaining their water installa- plemented with water from a state dam. In tions. Windhoek and Gobabis the lifeline quantity is In Namibia periodic water shortages and I 0 cubic meters per household per month, based droughts make it necessary to impose water use on the assumptions that low income households restrictions. This is an acceptable approach to average eight persons and that each person managing water demand. Regional and local needs 40 liters water per day. Walvis Bay is a authorities have the power to limit industrial and coastal town in the Namib Desert where the an- agricultural water use, adjust tariffs, and impose nual rainfall is between zero and 10 millimeters penalties on people or entities that misuse water. per year. The town obtains water from the aqui- It is also their responsibility to remind their con- fer of an ephemeral desert river. The town has stituents of the need to save water to advise set the lifeline quantity at 15 cubic meters per them on ways to save water. household per month. Irrigation water. Tariffs for irrigation wa- References ter consist of a fixed levy per hectare per year used to support the irrigation boards, plus a fee Department of Water Affairs. "Directorate of per irrigated hectare, plus a unit charge which Water Affairs: 25 years of Water Supply to rises with consumption. A typical example is a South West Africa, 1954 to 1979." Gov- board levy of US$15.6 per hectare per year, plus emient of Namibia, Department of Water US$ 40.4 per hectare per year for the first Affairs SWA/Namibia, Windhoek. 15,000 cubic meters, and a unit cost of . Various years. Annual Reports of US$0.004, 0.0107, 0.0218, and US$0.0327 per the Department of Water Affairs, 1989/90 to cubic meter for consumption between 15,000 1994/95. and 20,000, 20,000 and 25,000, 25,000 and . "The Determination of Bulk Wa- 30,000, and consumption above 30,000 cubic ter Supply Costs and Tariffs for State Water meters per hectare, respectively. Schemes." Annual Cabinet Submissions 1991 to 1995, Windhoek. Conclusion . 1993. "A Digest of the Water Supply and Sanitation Sector Policy of the Inhabitants of this desert country have tra- Government of Namibia." Windhoek. ditionally viewed rainfall and water supplies as a . 1996. "Feasibility Study on the gift of God. In the past authorities have sup- Water Supply to the Central Namib Area of plied water without charge as a social good. Namibia." In Water Demand, Volume 3. People are now resisting paying for water. Poor Heyns P. 1991. "Perspective on Water Affairs households in cities often fail to pay their water in Namibia." Department of Water Affairs, bills. However, water suppliers are not permit- Windhoek, September. 83 Ministry of Agriculture, Water and Rural De- Van der Merwe B. 1994. "Water Demand velopment. 1994. WATCOM Project Phase Management in Windhoek, Namibia." City 2-Financial, Accounting and Tariff Poli- Engineer's Department, September. cies for the Bulk Water Supply Company. . 1995(a). Van der Merwe B. Ernst and Young, Washington, D.C. Water Demand Management in Urban Na- Moorsom R. 1995. Coping with Aridity. mibia. City of Windhoek, June. Drought Impacts and Preparedness in Na- . 1995(b). "Model Water Supply mibia. The Namibian Economic Policy Re- Regulations." Ministry of Local Govern- search Unit, Brandes and Apsel Verlag, ment and Housing August. Frankfurt. 84 13 NEW ZEALAND Frank Scrimgeour Introduction In New Zealand, water is generally not a prob- collected did not cover the operating costs of lem, given the country's temperate climate and these schemes, let alone the capital or resource its many rivers and lakes. Mean rainfall over costs. By way of contrast, urban water schemes much of the country ranges from 600 to 1,500 required the relevant city to fund the capital millimeters per year, although there are signifi- works associated with abstraction, but did not cant local variations (Duncan 1987). Histori- charge for them for the water rights. In many cally, the government, with minor exceptions, cases the local council was the government's has claimed ownership of water in lakes and agent responsible for allocating the rights to ab- streams34 and has been responsible for allocating stract water. The price of water to customers water to differenf users (Sharp 1991). (the retail price) was usually based on property taxes which were assessed on either the land The largest users of developed water supplies value or capital value of property other than are agriculture (1,140 billion cubic meters per land. Collecting revenues for water services this year), and urban water schemes for both and way ensured that costs were covered by local commercial consumers35 (480 billion cubic me- residential and business property owners without ters per year) and domestic consumers (280 bil- external subsidies. But this charging structure lion cubic meters per year). In addition to con- also provided no incentive to conserve water sumptive uses, New Zealand rivers are widely because there was little relationship between the used for recreation, to generate electricity and, amount of water consumed and money paid.36 to a lesser extent, to deposit wastewaters. The market for water is illustrated in Figure 13.1. Present water pricing practices37 Water is priced in two markets: wholesale Current institutional andpolicyframework and retail. At the wholesale level, the govern- ment has been the monopoly supplier of water to During the 1980s the government attempted retailers who are responsible for distributing to reform water institutions responsible for allo- water to consumers. The retailer has to pay the cating and pricing water to encourage efficiency wholesale price for the water right and the infra- and protect the environment. Two principles structure needed to harness the water and deliver guided the reforms: government generally it to the distribution system. The customers should not be involved in commercial activities; have to pay the retail price for delivered water. and policy advice should be kept separate from Historically, the government was also a retailer the delivery of services. At the national level a when it owned 53 community irrigation ministry of environment was established to pro- schemes, watering 160,000 hectares of land. vide policy advice to the government. At the For these irrigation schemes the government regional level regional councils were formed charged a nominal price for the water; revenues 36 In some cases major industrial users obtain abstraction 34 This has been contested, given that the Treaty of Waitangi rights (for their own use) independent of city water supplies. They guarantees Maori "the full exclusive and undisturbed possession of pay only for abstractions rights and infrastructure. their lands and estates, forests, fishes and other property." 37 The author is grateful for information provided by 17 local 35 This includes industrial and institutional consumers. authorities and one irrigation company. 85 and given primary responsibility for environ- apply for water rights from their regional coun- mental protection. Under this new regime coun- cils. The government sold its irrigation schemes cil-owned water schemes and privately- or to new owners, who became responsible for op- community-owned irrigation schemes must to erating them. Figure 13.1 Water marketing system River Abstraction Retailer: ,. City water services Customers Wholesale price Irrigation company Retail price Regional councils. Regional councils are economic efficiency of their water services - required to maintain accurate information on the primarily by reforming their institutional struc- water resources of their region and to manage tures and pricing policies. Most councils cre- these resources in line with the objectives of the ated separate business units or water agencies to Resource Management Act.38 They in turn re- manage the water supply functions; these may quire users to have a "resource consent" to take function as departments of councils or be set up surface water, divert or discharge surface water, separately as local authority trading enterprises impound surface water, or install or alter a bore. or companies wholly owned by the council. Regional councils charge for the processing of With regard to pricing, councils have attempted resource consent applications on a user pays to make users pay all operational and capital basis of actual and reasonable expenses. Fur- expenses necessary to maintain the water sys- thermore, once a resource consent is issued, the tem. They have not expected current users to council monitors compliance and requires hold- pay for expansion of the system or to pay a divi- ers to pay for all actual and reasonable costs of dend on funds invested. compliance monitoring. Regional councils are also active in education to promote water con- Urban water agency pricing goals servation and the protection of water resources. Urban water agencies. During the 1980s Water agencies have attempted to refor- and 1990s most councils sought to improve the mulate charging mechanisms to provide con- sumers with incentives to conserve water. Poli- 3S cymakers believe that appropriate water pricing The purpose of this legislation is to promote the sustainable edue televel ofrnetenter to management of natural and physical resources. Sustainable man- will reduce the level of investment necessary to agement is defined as managing the use development and protec- satisfy the demands of residents and so delay the tion of natural and physical resources in a way or at a rate which need for new infrastructure. They also hope that enables people and communities to provide for their social, eco- nomic, and cultural well-being the health and safety while (a) reduced pressure on natural waterways will help sustaining the potential of natural and physical resources preserve them for recreation, tourism, and other (excluding minerals) to meet the reasonably foreseeable needs of future generations; (b) safeguarding the life-supporting capacity of nonconsumptive uses. However, water agencies air, water, soil, and ecosystems; and (c) avoiding, remedying, or recognize that provision of water at reasonable mitigating any adverse effects of activities on the environment cost is important for sustaining local economies; (Resource Management Act 1991). 86 otherwise firms will find other suppliers or urban areas; the country has 20 urban areas with move. The degree of urgency agencies feel to 20,000 or more residents. Pricing data were revise pricing policies has depended on antici- obtained from 15 water agencies representing 53 pated future demand (forecasts of population percent of the urban population of New Zealand. and economic activity) and availability of water Currently consumers face a variety of pricing stocks at modest cost. The desire for reform has mechanisms. In the sample, three water agen- been mitigated to some extent by concerns about cies charge on the basis of volume; four use social equity, the desire of most cities to main- two-part tariffs, involving a fixed charge and a tain attractive gardens, and fears of voter rebel- volumetric charge; and eight use fixed charges lion against rising user charges. exclusively. Table 13.1 summarizes pricing policies for domestic water for the 15 water Current practices of urban water agencies. agencies. More than 85 percent of New Zealanders live in Table 13.1 Summary of urban residential water charges, 1995-96 Number Fixed charges Metered charges agencies (NZ$ per year) (NZ$ per cubic meter) Low Mean High Low Mean High Volumetric 3 n.a. n.a. n.a. 0.50 0.87 1.12 Fixed and volumetric 4 26 54 101 0.30 0.46 0.78 Fixed 8 65 153 266 n.a. n.a. n.a. n.a. means not available Note: All cost and price data are denominated in New Zealand dollars: US$.65 NZ$1 in November 1995. Most water agencies distinguish between example is based on a property tax to both do- residential consumers and industrial or commer- mestic and commercial and industrial users of cial consumers. Some charge more for water approximately $0.0005 per $1.00 of capital above a specified monthly amount. Several use value; commercial and industrial users receive a decreasing block charges, so that as consump- water allowance, and pay $0.27 per cubic meter tion increases the marginal price to the nonresi- for consumption above the allowance. dential consumer falls. At least one city appears to charge nonresidential users substantially more Cost for an urban water agency of using a mar- than residential consumers while another city ginal costpricing mechanism distinguishes between consumers who are rate payers and those who are not, and also adjusts The introduction of volumetric pricing re- the price according to season. Table 13.2 illus- quires investment in meters and funds for meter trates the prevalent system of charging a fixed reading and billing. Data available from Christ- fee to domestic consumers, and a fixed fee plus church city are summarized in Table 13.3. The a volumetric charge to industrial users. This annual cost of metering is $930,000 (assuming charge system provides adequate funding to op- capital costs are amortized over a period of 20 erate and maintain the system without external years at an interest rate of 10 percent), which is assistance, but it fails to match charges expen- approximately 7 percent of the total cost of pro- ditures to consumption. The fixed charge in this viding water services. The complete metering 87 of a city is important in the move to volumetric metered users due to real and perceived inequi- charges because incomplete metering generates ties. significant conflicts between unmetered and Table 13.2 Water consumption, costs, and revenues in Christchurch, 1994-1995 Consumption Costs Revenues (billion cubic meters) (NZ$ per meter) (NZ$ per meter) Residential 28.1 Operations and 6.5 Residential 4.0 maintenance a Commercial 9.1 Capitalb 7.1 Commercial 8.1 Miscellaneous 1.4 Miscellaneous 1.0 Total 38.6 Total 13.6 Total 13.1 a Includes expenditures on head works, reticulation, quality assurance, meter reading and billing. b Capital expenditure on water assets. Price determination by an urban water agency charging mechanism on consumption. Thus far, most water agencies have set prices to cover Councils are responsible for setting water current operation and maintenance costs. None prices; they must first decide on the funding tar- have set charges high enough to yield a return get, the preferred instrument, on which consum- on assets or capture any of the rents. ers the burden should fall, and the impact of the Table 13.3 Metering and its costs: Christchurch City Number of customers 114,300 Capacity per year 40 million cubic meters Capital cost of metering $6,000,000 Annual reading and billing costs $330,000 Total cost of metering per cubic meter $.023 Total cost of metering per customer $8.14 Having determined what current charges * Relying on a fixed fee provides no incentive should cover, water agencies then have to decide to adjust consumption, since the marginal whether to use fixed fees, volumetric charges, or cost is nearly zero. Yet, this method is still both.39 Councils recognize that there are fixed used in many areas where meters are not yet investment costs regardless of level of con- in use, or where it is thought that the costs of sumption and that there are also marginal costs metering would be large relative to potential of consumption. However: gains in efficiency. * Using metered charges alone provides con- 39 It is usually assumed that developers will pay levies to fund sumers with strong incentives to adjust con- the capital costs of expanding supplies due to growth. sumption. However, the revenue stream 88 which results from such a charging structure Complicatingfactors associated with volume- is less stable than that from fixed fees, and based charges can vary significantly from year to year as consumers adjust demand in the face of dif- The introduction of volume-based charges ferent climatic and economic circumstances. provides numerous challenges for the water Furthermore the introduction of volumetric agency to overcome if it is to be able to collect charges may result in consumption declining revenues and provide incentives to conserve. A by more than operating costs, creating fund- water agency must be able to locate the pipes, ing problems for water agencies. account for the water, minimize illegal behavior, * Relying on a combination of a fixed fee and and implement the regime on multiple dwelling a metered charge reduces the volume-based properties. Often, meters have to be installed. cost (and the political costs, given that his- Where pipes have been laid many years ago, or torically consumers have not paid for water where agencies have lost records, the installation on the basis of use), and reduces the variation of meters can be very costly. Accounting for the in water agency income. However, it also water in a system is more difficult than identi- reduces the incentive to conserve water. A fying consumers. Water may be unaccounted slight variation on this combination approach because meters are malfunctioning, fire services is to charge a flat fee for a annual allowance. are drawing water, mains are being flushed after Having determined the funding target and repair, people are connecting illegally, or pipes the type of charging structure, water agencies are leaking. It appears that in most New Zea- still have to decide who should bear the burden land cities at least 10 percent, and an average of and whether there should be variations from a 20 percent, of water is not accounted for. Some standard schedule of prices. Most water agen- of this is due to illegal connections to fire mains, cies distinguish between commercial and do- which are generally unmetered (because of the mestic consumers. Prices are sometimes higher expense of maintaining a meter that will rarely for commercial users (due to their perceived be used and because of the risk of a little used ability to pay) and sometimes lower (for large meter locking up in a fire). Even with legal volumes) due to the lower marginal cost of sup- connections, problems regularly occur on multi- plying large volumes. Most water agencies have ple dwelling properties which have only one debated whether to adjust charges for geo- water meter.' Unless the multiple parties can graphic or household variables. Although con- agree to a sharing arrangement, the only option sumption varies between suburbs with different for these multiple dwellings is to charge fixed soil types, all consumers need to face incentives fees. Separate reticulation is necessary to over- to adjust consumption. Pumping costs vary with come this problem, which costs several hundred the topography of suburbs but generally it is too dollars per unit. Finally, about 4 percent of bills costly to determine the different costs of sup- are never paid. plying different suburbs to be worthwhile. With respect to different households, water agencies Politicalfactors associated with pricing reform recognize that they do not have information about household composition and other charac- The introduction of volumetric charges for teristics and, even if they did, water pricing is water, as opposed to a property taxes based on not the best approach to address equity issues. capital or land value, is a significant political Having resolved all the previous issues, step for most cities. Community consultation water agencies must accurately predict the im- for such a move is standard and requires signifi- pact of pricing practice on consumption. Water cant interaction between councilors, agency agencies can obtain estimates of price elasticity staff, and the wider public. It is unusual for of demand from economists or by observing consumers' responses to new pricing mecha- 40 Separate reticulation and meters are being provided in new nisms put in place in other municipalities. multiple dwelling properties. 89 such a changes to be agreed and implemented in enough to extract some of the rents.4" As long as less than one year. Although people generally ownership lies with the crown, this is less likely sympathize with enacting water conservation to occur. However, all the existing flows of programs, many are ambivalent about the "user some river systems have already been allocated, pays" principle, and prefer that the burden falls which raises the challenge of reallocating flows on others than themselves. During the process from those who have rights to new or different of public consultation, some participants have consumers. Allocation through bureaucracies raised technical questions in large part to stop a on the basis of scientific information alone does move to volumetric pricing. Generally, the con- not ensure efficient allocation because it does stituency for change is small; yet those who will not take into account the value of water in alter- be adversely affected identify their costs and native uses. Thus, there will likely be a move actively participate in the political process. towards developing water markets and transfer- Some water agencies have introduced new poli- able permits for those wishing to abstract water. cies slowly to minimize the political repercus- This approach will help overcome the allocation sions from change while others have preferred problem, but transfers the rents to the new own- to delay decisions until after local elections. ers unless the tradable permits are initially auc- tioned off or the rents are taxed away. Irrigation companies: Current policies and Future retail decisions will evolve in re- practices sponse to experiences with volumetric pricing. Irrigation companies are likely to introduce Irrigation companies do not receive subsi- variations in their charges as they collect infor- dies from the government and must collect suf- mation on the relative costs of supplying water ficient revenues from users to at least cover op- to different customers. It is also likely that more erating costs. As most irrigation companies are flexible arrangements will develop whereby in- owned by farmers served, they do not necessar- dividual consumers can resell their rights within ily set charges high enough to collect a return on a given time period when their demand is less capital. A typical example is the Lower Waitaki than their right to consume. If nonfarmers be- Irrigation Scheme which charges $27.50 per come either part-owners or develop new hectare for border dikes, $11.00 per hectare for schemes, prices will more accurately reflect spray irrigation, and $11.00 per hectare for as- capital costs. For urban water schemes, the sessed dryland. Sixty-six per cent of the reve- challenge is to complete the metering system to nues raised cover running costs while the re- allow all schemes to price water on the basis of maining 33 percent is for emergency capital ex- volume used (with or without a fixed fee). It is penditures, such as repair of the wash out of a particularly important that water agencies pay river intake. If there is no need for emergency attention to fluctuations in water demand and expenditures during the year, funds collected for supply. A crisis developed in Auckland during this purpose are rebated at the end of the year. 1994 as the city's water reserves were nearly depleted due to unusual weather patterns. Offi- Current debates and future prospects cials responded by rationing water and con- ducting a public relations campaign to encour- Perspectives on future pricing and institutions age consumers to conserve. Encouraging con- sumers to cut water use would have been easier As the population and economy grows, if the volumetric charge for water had been water pricing policies are likely to change at raised while storage levels were low and re- both the wholesale and retail level. Future wholesale pricing decisions rest on who owns wholesale pricing decisions rest on who owns 41 Maori are the indigenous people of New Zealand who retain the surface and groundwater, and their approach significant constitutional rights on the basis of the Treaty of Wai- to charging. If Maori were to regain their water tazi signed with British settlers in 1840. Maori currently comprise rights, they would probably price water high 14 percent of the New Zealand's population. 90 duced once normal conditions returned. As References charging systems are further refined, closer at- tention will be paid to the cost of capital. Con- Canterbury Regional Council. 1994. Applying sumers will likely to resist paying the full costs for a Resource Consent. Resource Consent of major new schemes, and will instead try to Information Series, Christchurch. obtain subsidies from the city or the national Duncan, M.J. 1987. "River Hydrology and government to pay a portion of the costs. Sediment Transport." In A.B. Viner (ed.), The development of more rational pricing Inland Waters of New Zealand Wellington: policies is well underway within New Zealand, DSIR Bulletin 241. but there are still considerable institutional New Zealand Government. 1991. Resource problems to be overcome. The current alloca- Management Act 1991. Wellington. tion of rents to existing consumers is a political Scrimgeour, Frank, G. 1992. "Improving the issue which will be reviewed from time to time. Efficiency of Water Allocation to Different As the reforms consolidate there will be further Users: the New Zealand Experience." Paper gains in the efficiency of water agencies and presented at the International Conference on irrigation companies and more careful use of Water Quantity/Quality Conflicts and their water by consumers. Further steps are neces- Resolution, Washington D.C., May. sary to facilitate the transfer of water between Sharp, B.M.H. 1991. "Evolution of Water In- different users and to take account of the capital stitutions in New Zealand." Environmental costs of water infrastructure. Resources and the Market Place. Sydney: Allen and Unwin. 91 14 PAKISTAN Khalid Mohtadullah Introduction Most of Pakistan's water comes from gla- Southern zone. In this region, comprising ciers, snow melt, and rainfall outside the Indus old Sindh, Khairpur, and parts of Balochistan, Plain. Average annual inflows are about 140 landlords paid a composite levy for both abiana million acre feet. Agriculture uses 97 percent of and land revenue.42 The levy consisted of a per- the country's developed water supplies (135.7 centage of the average market prices of different million acre feet). Cities, households, and in- commodities. Charges thus varied each year dustries consume the rest. with fluctuations in agricultural prices. The levy In Pakistan government has been responsi- was separated into its two components in 1959 ble for developing and maintaining most irriga- to eliminate differences in charge systems be- tion systems. Farmers in the Indo Pakistani sub- tween the southern and northern zones. continent have been paying water charges for Northwest Frontier Province. In this re- many centuries. Initially farmers paid in the gion, the occupiers established the rates for the form of agricultural produce. But in 1854, when Kabul River, Upper Swat, and Lower Swat ca- the government created the public works de- nals in 1931 and for Paharpur canal in 1936. partment to develop and maintain irrigation The water rates in Northwest Frontier Province works and provided it with separate funds, were fixed a level similar to those in Punjab, and farmers began using money to pay their water remained in effect until 1959. Rates were es- charges. In 1873 the Northern India Canal and tablished for each canal or project to cover its Drainage Act-VIII was passed, regularizing irri- construction costs. This led to the existence of gation water charges. The history of water numerous rate schedules, including 21 schedules pricing may be divided into two periods: pre- for old Punjab, 6 for Bahawalpur, and 13 for 1959 period and post-1959 period. Northwest Frontier Province. Past experience Post-1959 Pre-1959 A new charging system was introduced in 1959. To establish the new rates, canals were Former Punjab area. The first schedule classified as barrage canals (including both year specifying irrigation charges for different crops round and seasonal canals) or non-barrage ca- was prepared for the Upper Bari Doab Canal in nals. Rates for summer (kharif) crops were the 1891. Separate schedules were prepared for same regardless of whether watered with year- other canals once they were operational (Table round or seasonal canals, but differed for winter 14.1). For canals which operated seasonally, (rabi) crops. farmers paid one-half the levy for canals oper- ating year-round. In 1934, after six years of sta- ble rates, water charges were reduced to reflect the dramatic declines in agricultural prices and 42 Abiana is local term for irrigaton water chages. The provn- farm incomes that started in 1930. In 1955 inTi- cial governments determine these charges as a fraction of average gation charges for all canals were returned to the costs of irrigation water supply, typically set to partially recover 1924 level (Water and Power Authority Devel- operation and maintenance costs. These costs are recalculated from time to time. The percentage of costs to be recovered is a political opment 1978). decision, and is based on a mix of market prices for various con- modities that changes from time to time. 92 Table 14.1 Water rates for major crops, 1924 and 1934 (per sown acre) Water rates 1924 Water rates 1934 Rupees US$ Rupees US$ Sugarcane 12 0.35 1.00 0.32 Cotton 6.25 0.18 5.50 0.16 Rice 7.5 0.22 6.50 0.19 Maize 4.5 0.13 3.75 0.11 Wheat: Year round 5.25 0.15 4.25 0.12 Summer (kharij) 5.25 0.15 4.50 0.13 Winter (rabi) 5.25 0.15 5.00 0.14 Note: US$ = 34.6 rupees Source: Government of Pakistan 1970. Table 14.2 shows the increases in water could provide incentives to encourage water charges that occurred in 1959 for various crops. conservation. Table 14.3 presents the increases that occurred Most farmers in Pakistan pay for water on periodically in different provinces between 1959 the basis of irrigation output and class of land. and 1993 (Government of Pakistan 1978, and This system is easy to understand and manage. 1990; Usman 1992). Farmers can accurately estimate their irrigation Despite the increases in water charges, water charges well in advance of harvest and farmers still paid less than the costs of operation budget for the payment, since they know the size and maintenance: between 1981/82-1991/92 and class of their landholdings. farmers paid 46 percent of operation and main- In Sindh Province a flat rate charge system tenance costs in Punjab, 31 percent in Sindh, 42 was introduced to simplify administration, percent for Northwest Frontier Province, and 15 eliminate corruption, and provide certainty to percent in Balochistan. Nationwide farmers pay landholders with regard to their obligations. Flat only about 20 percent of total operation and rates were computed as the average charge of maintenance costs of irrigation systems the previous three years (1968/69-1970/71). (Government of Pakistan 1990). Table 14.4 This amount was divided by the village culti- shows revenues, expenditures, and subsidies of vated area expressed in "produce index units." irrigation systems in Pakistan from 1980 to Total charges (or the level of taxation) equaled 1990. the produce index units. Farmers were respon- sible for the charges whether or not they actually Present water pricing practices cultivated their land. The flat rate charge system had several im- In Pakistan there are three types of water portant drawbacks. The charge system made no charges for irrigation water: volumetric charges; allowance for cropping patterns or the intensity charges which vary based on irrigation output of irrigation. This meant that farmers of high and class of land; and flat rates. Few farmers in return crops, like sugarcane, rice, and cotton, Pakistan pay for water on the basis of use, since paid the same water charges as fanners of low little water is metered. Introducing metered return crops, such as fodder. The flat-rate charges would be expensive and would require charge system also placed a greater burden on high reliability of irrigation systems. But it small landowners and those at the tail-end of 93 irrigation systems, who tended to use less water irrigation-intensity based water rates have far than other farmers and who in the past paid greater impacts on small farmers than large lower fees to reflect this. While it is possible farmers, and reduce the incomes of those least that most farmers would adjust their choice of able to afford the losses (Chaudhry, Majid, and crops in the long-run, small farmers have less Chaudhry 1993; Ilyas 1994). scope for substitution because they grow much Other problems. Farmers are not involved of their output for their own consumption. in operating and maintaining the irrigation sys- Sindh's flat rate charge system was abolished in tems, making it difficult or impossible for them April 1980. Proposals to implement it in Punjab to substitute their labor for that of hired workers were never implemented. and save money (Government of Pakistan 1994). In addition, farmers do not actively par- Urban and industrial water supply ticipate in designing and operating irrigation systems, and as a result the systems do not truly For urban and industrial users water reflect farmer demand (Government of Pakistan charges may be either fixed fees or volumetric 1994). Finally there are considerable problems charges. Residenets of dwelling units sizes with corruption and poor execution of internal 188-250 square yards pay fixed fees averaging control procedures. Corrupt government offi- US$2.46-4.19 (88-145 rupees) per month. cials often charge farmers fees which do not Households with metered supplies tend to pay appear in the budgets (Chaudhry, Majid, and more, about US$3.5-5.00 (121-173 rupees) per Chaudhry 1993; Ilyas 1994; Wolf 1986). month. Tables 14.5 and 14.6 provide informa- tion on water charges for households and indus- Extension services for water management tries. It is essential that farmers improve their Current debates and future prospects water-use efficiency, especially in the arid areas of the Indus Plains, if sufficient water is to be Difficulties and debates available in the future to meet the Pakistan's growing water needs. However, currently there Among the weaknesses of current water are no extension services to help farmers better charge system for irrigation are: crop-based rates manage and operate the irrigation works. Pro- are not based on the potential return of the crop; vincial irrigation departments have primary re- the current method of assessing water rates has sponsibility for the operation and maintenance led to fluctuations in farmer incomes; collections of irrigation system and do not deal directly with are inadequate due to inadequate enforcement of the farmers to help them improve their water-use charges; water suppliers routinely inflate their efficiency. Indeed they do not have expertise in costs and underreport their revenues; and there this field. Provincial agricultural departments has been inadequate expenditures for operation provide limited information about water re- and maintenance leading to water losses and quirements of crops as part of the package of inefficiencies (Government of Pakistan 1990). services they offer on the technology of crop- Although there are no reliable estimates of the production. The experts working with farmers extent to which irrigators inflate their costs, the under the provincial agricultural departments are experience of India with similar irrigation sys- mainly concerned with lining the watercourses tems suggests that true expenditures may half of and providing information to farmers through the amount reported in government budgets the water users' associations on proper use of (Wade 1982, Rao 1984). It also appears as if irrigation water. Farmers need much more help provincial irrigation departments are over- than this if they are to make the changes neces- staffed by up to 50 percent (Wolf 1986). Rising sary to truly improve water use. 94 Table 14.2 Increases in water rates, 1959 Increase per acre Rupees US$ Wheat 0.37 0.01 Rice 1.62 0.05 Cotton 2.43 0.07 Sugarcane 6.37 0.18 Foddera 0.56 0.02 Maizeb 0.10-0.19 0.003-0.005 Pulses same as maize same as maize Oilseeds same as maize same as maize Minor crops same as maize same as maize Gardens same as maize same as maize a Total charges were set uniformly at 3.5 rupees per acre. b This represents a slight reduction from 1959 rates in old Punjab, and slight increases in Sindh, Northwest Frontier Province, and Bahawalpur. Note: US $ = Rs. 34.60 (current US$) Source: Government of Pakistan 1970. Table 14.3 Provincial periodic increases in water rates since 1959 (percent) Percentage increases Years Punjab and Northwest Sindh Balochistan Frontier Province 1963 10 10 0 1965 10 10 10 1968 20 20 0 1969 15 15 45-56' 1977 25 25 40-41b 1980 25 25 25 1981 25 25 25 1982 0 25 0 1985 25 10 25 1991 0 0 10 1993 25 0 0 a 1970 b 1972 Source: Government of Pakistan 1978. 95 Table 14.4 Historical operation and maintenance expenditures and revenues per acre Year Cost per acrea Revenue per acreb Subsidy per acre Rupees US$ Rupees US$ Rupees US$ 1980-81 53.77 1.94 15.53 0.45 38.24 1.10 1981-82 55.45 1.60 19.68 0.57 35.77 1.03 1982-83 59.65 1.72 20.70 0.60 38.95 1.12 1983-84 73.88 2.13 24.83 0.72 49.05 1.41 1984-85 88.25 2.55 24.73 0.71 63.52 1.84 1985-86 102.48 2.96 24.75 0.71 77.73 2.25 1986-87 124.58 3.60 25.98 0.75 98.60 2.85 1987-88 131.88 3.81 28.78 0.83 103.10 2.98 1988-89 143.73 4.15 31.08 0.90 112.65 3.25 1989-90 149.63 4.33 31.08 0.90 118.55 3.43 1990-91 .158.18 4.57 31.08 0.90 127.10 3.67 a Includes operation and maintenance costs for canals, tubewells, and others. b Includes water rates, drainage, and miscellaneous receipts. Note: For the period 1989-91, operation and maintenance costs per acre have been projected to have risen by 5.3 percent in Punjab, 4.9 percent in Sindh, 5.7 in Northwest Frontier Province, and 6.5 percent in Balochistan. It is assumed that the receipts have been not changed over this period. Current US$, IUS$ = Rs. 34.60. Table 14.5 Water rates for unmetered households Average rental value Area of house Water rate per month Rupees Square yards Rupees US$ < 400 62 34 0.98 401-500 125 50 1.44 510-720 188 85 2.46 721-1,000 250 145 4.19 1,001-1,500 375 202 5.84 1,501-2,388 500 209 6.04 2,389-4,370 750 219 6.33 4,371-4,499 1,000 225 6.50 > 4,500 1,200 60 percent of average rental value Note: 1US$ = Rs. 34.60 96 Table 14.6 Water rates for metered supplies: Households and industries (rates per 1,000 gallons) Residences Industries Gallons per month Rupees US$ Rupees US$ < 5,000 7.35 0.21 13.65 0.40 5,001-20,000 11.70 0.34 24.40 0.71 > 20,001 15.00 0.43 35.30 1.02 Note: IUS$ = Rs. 34.60 Pricing and institutional reform issues The proposed reforms will involve farmers much more in the operation and maintenance of As the development of water supplies be- the irrigation systems and management of their comes increasingly costly it is essential to re- finances. The reforms should lead to more reli- cover costs from users. Pakistan's extensive able water supplies, more equitable distribution irrigation and drainage systems have been dete- of water supplies, and higher farm output and riorating because of inadequate maintenance and incomes. utilization beyond design capacities. To make The next steps will depend on experience in irrigation systems financially sustainable, there implementing the reforms. If the pilot projects is a need for new institutional approaches succeed, the units can increase the level of par- (World Bank 1994). Among the options being ticipation and extend the program to the re- considered are market-based incentives such as maining canal commands. This would be a bold volumetric charges for irrigation and drainage, decision to transform the largest irrigation sys- and at a point in the future, tradeable water tem in the world. rights. Both these approaches will require major institutional changes, including new institutions References which involve farmers in all aspects of irrigation system management. Chaudhry, Majid, and Chaudhry. 1993. "The The role of farmers organization will be Policy of Irrigation Water Pricing." In Paki- crucial for the success of the system. The gov- stan: Aims, Assessment, and Needed Redis- emnment is now taking steps to reform institu- tribution. Pakistan Development Review 32 tions. The provincial irrigation departments (4). shall be transformed into autonomous bodies- Government of Pakistan. 1970. Akhtar Hussain provincial irrigation and drainage authorities Committee Report 1, June. under statutory arrangements - with authority . 1978. "Irrigation Water Charges to collect revenues and expend funds. Finan- and Cost Recovery." Water and Power De- cially self-accounting area water boards will be velopment Authority, Provincial Irrigation created along the lines of area electricity boards, and Drainage. Islamabad, November. preferably around canal commands. Farmers . 1990. "Nation Wide Study for using common distribution networks shall be Improving Procedures for Assessment and encouraged to form water users groups on a pi- Collection of Water Charges and Drainage lot basis. It is hoped that these groups will play Cess." (main report, vol. 1 and appendices an important role in the operation and mainte- vol. 2). Produced for the Government of nance of distribution works. Based on the re- Pakistan by John Mellor and Associates. sults of the pilot projects a model will be devel- . 1993 (a). "Reducing Government oped to implement nationwide. Liabilities, Effective Performance of Irriga- 97 tion Department and use of Abiana (Water and Irrigation Water Pricing." Overseas Rates) for Increasing Farm Output. Development Institute Paper lOF. London, . 1993 (b). "Agricultural Prices England. Study (main report). Produced for the Gov- Usman, I. 1992. "Irrigation Water Charge emnment of Pakistan by John Mellor and As- Structure in Pakistan." Irrigation and Power sociates, Inc. Department, Lahore. 1994. "Institutional Reforms to Wade, Robert. 1982. "The System of Adminis- Accelerate Agriculture"(main report, vol. 1). trative and Political Corruption: Canal Irri- Produced for the Government of Pakistan by gation in South India." Journal of Devel- John Mellor and Associates. opment Studies 18 (3): 287-328. Ilyas, M. 1994. "Water Markets Plan to Harm Wolf, James. M. 1986. "Cost and Framing of small Farmers." The Daily Dawn D. Irrigation System Operation and Mainte- Mulk, Shams ul. 1993. "Water Resources nance in Pakistan," International Water and Management: Pakistan Experience." Paper Irrigation Management Institute (IIMI), presented at the First Annual International Colombo, Sri Lanka. Conference Valuing the Environment, Sep- World Bank. 1994. "Pakistan Irrigation and tember 30-October 2, 1993, Washington, Drainage: Issues and Options." Report D.C. 11884-Pak. Agriculture Operations Divi- Rao, P.K. 1984. "Introduction to Discussion on sion, South Asia Region. Washington, D.C. Water Rates, Comments On Cost Recovery 98 15 PORTUGAL Jodo Castro Caldas Introduction Public bodies or private individuals can owners of water are free to use and manage it own water resources in Portugal. Water is de- with few significant restrictions (Cunha et al. fined as public if it comes from lakes and la- 1980). goons, navigable channels, rivers and streams, Publicly-owned water can be granted to or springs on public land. Water from springs individual users through concessions for hy- on private land is also public if it flows to public draulic projects. In these cases, the state im- water sources. Traditionally, there was no poses fees to cover the costs of impounding or charge for the use of public water. However consuming water which exceed the public bene- there were restrictions on its use - including a fits from the project, and fees and penalties for prohibition against the significant discharge of the discharge of pollutants. pollutants - which if violated, subjected the In the early 1990s it was estimated that perpetrator to fines and penalties. Water is con- about 43 percent of Portugal's 16 billion cubic sidered private if it comes from most sources on meters of available water resources were being private lands, including lakes and lagoons (not utilized. Table 15.1 presents the shares of water fed by public water sources), groundwater, and use by sector (Direc9cao Geral dos Recursos springs. Public water granted in perpetuity for Naturais 1992). irrigation is also considered private. Private Table 15.1 Water use by sector (percent) Sector Share Agriculture 59 Hydroelectricity 24 Industry 11 Urban 6 Past experiences Water pricing structures for public irrigation systems illustrate some of the problems of past In the mid-1970s Portugal's public water water pricing practices. Between the late-1930s system served only 46 percent of its population. and the mid-1970s, the government built irriga- The beneficiaries paid less than the costs of op- tion systems to provide water to irrigate 75,000 erations and maintenance, with municipalities hectares of farmland. However, irrigated area paying the remaining costs using state subsidies never exceeded 60 percent of plan (it is 7 per- (Frade and Alves 1991). Industries owned most cent of total irrigated area in Portugal) of their water resources, which made it easy for (Direc9cao Geral dos Recursos Hidraulicos them to avoid viewing water as an economic 1987). Once the irrigation works were com- good. Water pollution was an issue in only in pleted, beneficiaries were expected to pay two few subsectors (Frade and Alves 1991). annual fees, set by the state and collected by farmers' associations. The first of the two fees 99 -intended to cover operation and maintenance 50 years. Interest rates to farmers varied de- costs - was distributed among individual bene- pending on soil quality: however, no farmer paid ficiaries in accordance with amount of irrigated more than the incremental increase in the value land they owned. This fee was adjusted by ap- of the land due to the investment. Until the plying a coefficient reflecting metered deliveries middle of the 1970s, revenues were sufficient to of water per hectare, the economic and social cover operation and maintenance costs, but not value of the irrigated crop, and soil quality. The to cover the capital costs (Baptista 1993). second fee was meant to reimburse the govern- ment for its capital expenditures over a period of Table 15.2 Lisbon average water prices, 1994 (Portuguese Escudo (PTE) per cubic meter) 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 41.3 40.4 40.6 40.9 35.7 37.8 40.6 42.2 48.1 55.9 61.6 64.5 68.3 Source: Adapted from Frade and Alves 1991. Present water pricing practices regulations ensured that lower-income house- holds paid less; the largest consumers paid a Urban larger share of the burden. For example, in 1996 the price of water in Lisbon was 22.9 PTE The main development in the urban sector per cubic meter for consumption below six cubic over the past twenty years has been growing meters per month and 179.2 PTE per cubic me- water use per person and an increase in the per- ters for office and commercial consumption.' centage of the population served. Between the Fixed fees also differed depending on type of mid-1970s and the mid-1990s, consumption per consumer, from 670 PTE per month for house- capita rose 14.6 percent, reaching 110 liter per holds, to 405,720 PTE per month for large users. person per day; the percentage of population The volume-based prices and service fees are served rose from 46 to 65 percent. Thus the presented in Tables 15.3 and 15.4. volume of water supplied by public systems rose Different municipalities charge different by nearly 74 percent, to 410 hecto cubic meters prices and fees, reflecting different cost recov- per year.43 This increasing demand has led state ery and revenue collection policies. Indeed, av- and municipal authorities to search for ways to erage regional prices for household users can transfer operational and investment responsibili- vary from 61-165 PTE per cubic meter, and the ties to the private sector, and encourage con- service fees from 170-670 PTE per month. Ta- sumers to conserve water and pay for it (Table bles 15.5 and 15.6 present the prices and fees of 15.2) as an economic good (Frade and Alves the city of Fundao. 1991). Developments in Lisbon illustrate the Industry changes occurring throughout Portugal. By the early l990s water users were paying enough to Most industries supply their own water, cover nearly all system costs, including opera- often from groundwater sources. However, the tion and maintenance costs and capital costs. overexploitation of groundwater aquifers re- Yet costs were not shared equally by all users: quires many industries to use water-saving tech- 43 1 hecto cubic meter = I million cubic meters I 1US$ = 150 PTE 100 nologies and practices as total water consump- tems have been relatively small and have not tion by industry increases. Frade and Alves expanded significantly recently. (1991) estimate that at the beginning of the The new common agricultural policy and 1990s, industries used about 1,000 hecto cubic GATT agreements, which created a common meters water per year, 2.4 times more water than European market for agricultural products and cities. In 1996 industries in Sines, an industrial eliminated protection of the agricultural sector, area in the south, paid 55 PTE per cubic meter has created a new framework for farm produc- for water. tion. Farmers' profits now depend on their abil- ity to compete with agricultural producers in Agriculture other countries. Irrigation water pricing policy may encourage farmers to use water more effi- Irrigation uses more water than any other ciently by encouraging farmers to grow water- sector in Portugal, consuming 60 percent of the saving crops and adopting more efficient irriga- total developed water supplies (Direc9cco Geral tion technologies. The case of Sorraia illustrates dos Recursos Naturais 1992). About 90 percent the impact of price levels and structures on of Portugal's 660,000 irrigated hectares are wa- choice of crop grown. tered by privately-owned and managed irrigation systems. Public investments in irrigation sys- Table 15.3 Lisbon water prices, 1996 (PTE per cubic meter) Level and type of consumption Price Household less than six cubic meters per 22.9 Household more than six cubic meters per 79.4 Commercial and other consumption 179.2 Table 15.4 Lisbon monthly water fees, 1996 (PTE per cubic meter) Level and type of consumption Fee Lowest household consumption 670 Highest household consumption 294,540 Lowest commercial and other consumption 1,330 Highest commercial and other consumption 405,720 Table 15.5 FundAo water prices, 1996 (PTE per cubic meter) Level of consumption (cubic meters per month) Price Less than 5 55 5-10 70 10-15 80 15-20 170 Greater than 20 300 101 Table 15.6 FundAo monthly water fees, 1996 (PTE per cubic meter) Level and type of consumption Fee Lowest consumption 170 Highest consumption 1,000 In 1991 farmers in Sorraia grew three main meter for maize, and 2.26 PTE per cubic meter crops on 13,000 hectares irrigated with a public for tomatoes. Thus, average water charges were system: rice (46 percent of irrigated area), maize lowest for the most water consumptive crop- (27 percent) and tomatoes (12 percent). About rice. 17,200 cubic meters of water per hectare were Historically, prices of irrigation water have applied for rice, 7,100 for maize, and 5,400 for not been set to encourage efficiency. Instead tomatoes. Charges for water used for rice were prices have been set to provide subsidies for the based on quantity alone, while charges for maize cultivation of particular crops or to support agri- and tomatoes were, in addition, based on area cultural prices. Charges for irrigation water cultivated and crop grown (volumetric charges have rarely covered operating and maintenance accounted for 80 percent of total water charges costs. Urban and industrial water users pay two in the case of maize and 63 percent in the case to five times more for water than farmers. Table of tomatoes). Water charges averaged 1.43 PTE 15.6 presents water prices paid by various sec- per cubic meter for rice, 1.78 PTE per cubic tors for water from public water projects. Table 15.7 Prices paid by various sectors for bulk water from public water systems, 1991 (PTE per cubic meter) Region Agriculture Urban Industrial Sorraia 1.43 n.a. 6.8 Divor 2.50 4.5 7.0 Mira 2.65 6.0 8.0 Roxo 2.90 7.7 10.0 n.a. means not available. Current debates and future prospects these goals are achieved, water supply will ex- ceed 900 hecto cubic meters per year in 2020, an Urban increase of nearly 120 percent over current lev- els. Portugal is committed to developing a water The main goal for the urban sector is to pricing structure so that prices are sufficient to increase the percentage of the population served cover all costs of the system, provide incentives by public water systems to 95 percent by 2020, to conserve, and are affordable to low-income compared with the current 65 percent. Another households. These objectives can be reached goal is to increase the supply per capita to 150 through a tiered pricing system, with low rates liters per person per day supply by 2020, an in- for a minimum monthly quantity for households crease of 36 percent over the next 25 years. If and higher rates for higher levels of consump- 102 tion (Frade and Alves 1991). The movement to pay a larger share of the costs of providing towards privatizing urban water supply services irrigation water. will help in achieving the goals. References Industry Baptista, F. 0. 1993. A Politica Agraria do Estimates suggest that industrial water de- Estado Novo. Porto, Potugal: Edig6es mand will reach nearly 5,000 hecto cubic meters Afrontamento. by 2020, an increase of 400 percent over the Cunha, L., A. Gon,alves, V. Figueiredo and M. early 1990s. This is in spite of an expected in- Lino. 1980. "A Gestao da Agua. crease in the use of water-saving technologies. Principios Fundamentais e Sua Aplicacao Water pollution will be the main problem arising em Portugal" Fundacao Calouste Gulben- from water use by industry. So far, Portuguese kian, Lisboa. industry has largely been able to avoid fully in- Direcgcao Geral dos Recursos Hidraulicos. ternalizing the costs of its pollution, but this is 1987. "Inventario dos Regadios Existentes not expected to continue. Water charges in the no Continente." Lisboa. future will certainly include the costs of treating Direcgcao Geral dos Recursos Naturais. 1992. discharges, resulting in sharply higher water "A Utiliza,co da Agua em Portugal." Lis- charges to industry (Frade and Alves 1991). boa. Frade, V. and A. Alves. 1991. "O Mercado da Agriculture Agua em Portugal." Volume I and II, Di- Irrigated area in Portugal is expected to recccao Geral dos Recursos Naturais, Lis- increase by more than 200,000 hectares over the boa. medium-term, mainly through the construction Leal, G. 1991. "Os Regadios." In Enciclopedia of new public irrigation systems and the reha- Portugal Moderno (Agricultura e Pescas). bilitation of the existing systems. Still to be re- Lisboa, Portugal: Edic6es Pomo. solved is the question of how to charge for irri- Pereira, L. S. and V. C. Paulo. 1985-1987. gation water. Decisions will depend on overall "Agricultura e Gestao da Agua." Avalia9ao agricultural policies. With the increase in urban e Previs6es de Necessidades de Agua para and industrial demand for water, it is almost Rega em Portugal. In Anais do Instituto Su- certain that some water will be reallocated from perior de Agronomia, XLII, 133-165. agriculture, and that agriculture will be required 103 16 SPAIN Josefina Maestu Introduction Water in Spain is a highly valued resource. and 14,000 million cubic meters of renewable Much of Spain's history has been linked to cop- underground water resources. ing with its water cycle - droughts, seasonal About 80 percent of the developed water variations in rainfall, and floods. Water is rela- supplies is used for irrigation, 11 percent is used tively scarce and impressive public and private for municipal purposes, and about 5 percent is effort has been devoted to assuring it is available used for industry. Groundwater sources supply when and where it is needed. Today there are about 22 percent of the water used in irrigation more than 1,000 dams in Spain covering more and 25 percent of the water used in cities. Water than 5 percent of its total surface area. Spain availability varies by region. Water scarcity is has 9,600 kilometers of irrigation channels and especially acute in southern Spain and the pipes and 5,000 kilometers of urban channels Balearic Islands: these regions have shortages and pipes. Water capacity in Spain totals about even in years of average rainfall (see Table 53,000 million cubic meters, including 40,500 16.1). million cubic meters of regulated surface water, Table 16.1 Water resources and demand in various basins (million cubic meters per year) Basin Irrigation use Other uses Total Resources Surplus or deficita Norti 548 1,531 2,079 7,526 -5,447 Galicia-Costa 405 388 793 1,580 -787 Ebro 6,820 4,631 11,451 14,364 2,913 Cuencas Intenas de Catalunya 290 1,012 1,302 1,571 269 Duero 3,508 594 4,102 8,623 4,521 Tajo 1,947 1,500 3,447 7,174 3,727 Jucar 2,402 1,145 3,547 3,582 35 Guadiana 2,231 323 2,554 3,329 775 Guadalquivir 3,097 919 4,016 3,542 -474 Segura 1,626 235 1,861 1,515 -346 Sur 827 336 1,163 1,119 -44 Baleares 275 105 380 372 -8 Canarias 267 105 372 372b 0 a There are local deficits that lead to overexploitation of aquifers of about 6,000 million cubic meters per year. b Including water from desalination. Source: National Hydrological Plan 1993. 104 A two-tier water management system jectives in mind. Subsidies ranged from 60-100 percent of the cost of waterworks; farmers were In Spain there is a distinction between re- offered loans at interest rates of 1.5 percent to source development, the transportation, purifi- cover the residual investment costs. In 1985 a cation, and distribution of water, and the collec- new law was enacted based on the principle that tion and treatment of wastewater. Water basin the people benefiting from water investments agencies, which have evolved from user organi- should pay their full costs, including capital and zations established in 1926 to develop and man- recurrent costs. Today Spain is designing a age basin resources, operate in 11 water basins system of tariffs to provide incentives to im- in Spain. The agencies are responsible for de- prove water use efficiency. veloping water resources, planning, and sup- At the same time, municipal water tariff plying water to municipalities, industries, and structures are now being designed to recover irrigation associations. The local units are, in costs and provide incentives to conserve water. turn, responsible for distributing water and Agencies now often use two-part tariffs with sanitation services to urban users, independent increasing block rates; greater transparency in industrial users, and farmers. Municipalities are water bills; and prices which differ depending responsible for collecting and treating wastewa- on class of user, such as residential, commercial, ter. However, their delivery is often contracted industrial, and public uses). In addition, tariffs out to private enterprises (Zaragoza), mixed now often fully cover operating costs and an public-private bodies (Barcelona), or public increasing share of capital costs companies (Seville). Tariffs for resource development Major problems today Water basin agencies use three types of The water deficit, currently estimated at tariffs, regulation levies, tariffs for water use, 3,000 million cubic meters, will double over the and discharge levies. Both regulation levies and next 10 years and triple over the next 20 years if tariffs for water use, are paid by beneficiaries of current water use trends continue. Two key is- water infrastructure, and are designed to cover sues facing decisionmakers today are managing the capital investment and operation and main- cyclical droughts and dealing with the increasing tenance costs of specific waterworks. These concentration of water demand along the coast tariffs are calculated independently by each wa- and during the summer due to the development ter confederation, and for each user (based on of tourism and irrigated agriculture.4" The in- the capital and operational costs of the user's creasing social, environmental, and financial infrastructure). Urban consumers and independ- costs of developing new water supplies - the ent industrial users pay by cubic meter, irriga- traditional supply-side solution - is leading tion water associations pay according to hectares policymakers to consider demand management covered, and hydroelectric producers pay ac- measures, including the development of local cording to kilowatt hours of electricity pro- water markets in places where there is signifi- duced. The discharge levy, intended to account cant competition for water. for environmental externalities, is calculated individually for industrial and municipal water Present water pricing practices systems by multiplying discharge volumes by a coefficient reflecting the concentration and Water tariffs of basin agencies were de- composition of pollutants being discharged. signed in the first half of the century to increase Table 16.2 depicts the average tariffs charged to farmers' rents with economic development ob- different categories of users.' However, inde- 45 The most recent drought ended in late 1995, lasted four years, and affected 12 million people. 46 US$1=120 pesetas, March 1993 105 pendent valuation by each basin agency means variable. Table 16.3 includes examples of the that tariffs within and between basins are highly variation in regulation levies for different users. Table 16.2 Average tariffs for different categories of users (US$ per cubic meter) Irrigation Associations Municipal supply organizations Hydroelectricity companies 0.008 0.004 0.0008 Source: Ministry of Public Works, Transport, and Enviromnent 1994. Charges for water transfers. About 300 ter for irrigation water and US$0.19 per cubic million cubic meters of water per year are trans- meter for municipal supply. This levy is com- ferred between the Tajo and the Jucar and Se- prised of an annual rental fee for the use of the gura rivers, about 150 million cubic meters are infrastructure (derived by multiplying the pres- moved from the Ebro to the north, and about 40 ent value of the initial investment costs by 4 million cubic meters are moved from the Ebro to percent) and the annual costs of operation and Catalonia. The regulation levy for the Tajo- maintenance, in accordance with 1985 water Segura water transfer is US$0.16 per cubic me- law. Table 16.3 Sample charges to different categories of users (US$) River Basin Irrigation Municipal Industrial per hectare per year per cubic metere per cubic meter per cubic meter Duero: Almar 160 0.027 0.027 0.027 Duero 20 0.003 0.003 0.003 Pisuerga 27 0.004 0.004 0.004 Arlanz6n 58 0.01 0.01 0.01 Guadiana: Montijo 25 0.004 0.02 0.01 Pefiarroya 26 0.004 0.02 0.013 Cuenca Alta 14 0.002 0.011 0.007 Vicario 26 0.004 0.02 0.013 Tajo: Alberche 0.93 0.0001 0.0004 0.0004 Entrepefnas 4 0.0006 0.002 0.002 Jerte 12 0.002 0.0015 0.0015 Arrago 64 0.01 0.045 0.045 a Volumetric price equivalent to or less base charge. Source: Ministry of Public Works, Transport, and Enviromnent 1994. 106 Municipal water charges cubic meter (Ceuta). Variations in prices are due in part to the practice of some municipalities Ninety-six percent of municipal water in of including sanitation and wastewater treatment Spain is metered. Water prices average about services in the price for water. In addition, 16 US$0.98 per cubic meter. Barcelona (US$1.75 percent of municipalities (mainly smaller cities per cubic meter) and Madrid (US$1.00 per cu- with direct municipal management) subsidize bic meter) have the highest water prices (Table water. 16.4), but there are cities with prices as low as US$0.29 cubic meter (Huesca) and US$0.12 per Table 16.4 Average price of municipal water in Spain (US$ per cubic meter) Water Supply Sanitation Wastewater treatment Total 0.56 0.25 0.16 0.98 Note: Average prices weighted by consumption in different blocks. Source: Spanish Association of Water Supply and Sanitation Survey 1994, and Segura 1995. Different industries pay different prices for Coastal cities may collect a larger proportion of water. In small- and medium-size cities, indus- revenues through fixed charges than inland cit- tries face the same tariff structure and levels as ies, in order to distribute fixed infrastructure domestic users. In bigger cities, industries typi- costs between permanent and nonpermanent cally pay a two-part tariff-a fixed charge de- residents. pending on volume contracted, and a variable Service quotas and consumption charges to charge (increasing block tariff or flat rate) de- industrial and commercial users often vary ac- pending on volume consumed. In Barcelona, cording to diameter of water meter. Charging industries pay an average of US$0.86 per cubic on the basis of water meter diameter is intended meter, commercial users pay US$1.25 per cubic to reflect the differential costs that larger users meter, and domestic users pay US$0.98 per cu- place on the design of the system. It encourages bic meter. Industries pay more for sanitation users to assess their true needs, and thereby dis- and wastewater treatment than commercial and courages building excess capacity. Wastewater domestic users, US$0.33 versus US$0.27 per charges are set according to water use and - in cubic meter. cities such as Barcelona, Valencia, and Madrid Types of municipal water pricing struc- - according to the pollution content of the dis- tures. In Spain, as in other Mediterranean charges by each industry. countries where water is pricing structures that promote conservation are well established scarce Irrigation water charges (see Aguas de Barcelona 1992 for survey re- sults). About 38 of Spain's 50 main urban cen- Water prices paid by farmers are, in most ters covered in the survey use increasing block cases, based on the area irrigated rather than on rates to encourage the largest users to conserve. volume of water used. They are designed to Many cities use seasonal rates to encourage con- cover the costs of irrigation infrastructure, servation in periods of higher water demand. maintenance and operations both of the basin The ten largest cities in Spain charge for sanita- authority and the irrigation association. How- tion and wastewater treatment, which makes up ever, farmers in traditional irrigation projects between 8 and 33 percent of the total tariff. who do not benefit from public infrastructure or 107 who use infrastructure that has already been the fixed charge and US$145.8 is the volumetric paid for, pay little or nothing for water. Farmers charge. also pay fees to irrigation associations, the pri- The San Martin de Rubiales cooperative vate costs of dams and reservoirs, pumping, and provides water pumped from the Duero river to fees to cover the resource development costs of 225 hectares. Farmers pay a fixed charge of the water basin agencies. US$129 per hectare (to cover the costs of reha- Present pricing structures for irrigation bilitating existing distribution channels to pre- water. There are three types of pricing struc- vent water losses), and US$0.05 per cubic me- tures for irrigation water: flat rates per hectare; ter. flat rates per volume (where there is metering); and two-part tariffs involving a fixed charge per Current debates and future prospects hectare irrigated and a charge per volume of water consumed. Farmers pay fees to irrigation Recent experience with water pricing in associations, the private costs of dams and res- Spain can be summarized in terms of financial ervoirs, pumping, and fees to cover the resource sustainability, efficiency, and equity. development costs of the water basin agencies. There is little information available on Problems with the present system of water tariffs prices paid by farmers to their water associa- tions. A recent study carried out in 42 irrigated * Tariff revenues of basin agencies are not suf- areas estimated that farmers pay an average of ficient to pay for the Clean Water Bill. Each US$84.7 per hectare per year, with a range from year basin agencies collect between US$140- US$8.3 to US$266 per hectare per year (Centro 152 million. This is not sufficient to cover de Estudios y Experimentaci6n do Obras Puibli- the water bill of the central government, cas 1995). The Ministry of Public Works, which amounts to about 190 million dollars Transport, and the Environment (1995) esti- (including the management costs of basin mates that water associations pay between confederation). US$0.008 per cubic meter (US$60 per hectare * The level and structure of tariffs does not per. year) and US$0.16 per cubic meter provide incentives to Spain's largest water (US$1,200 per hectare per year): the higher users-irrigation farmers-to use water effi- charges are paid by associations obtaining water ciently. Tariffs for urban water users are from groundwater sources that need pumping or more progressive and efficient. from major water transfers. However, observa- * Charges for municipal water and sanitation tions show that farmers in some associations pay services are set by regional govermments. nothing; farmers may also pay up to US$0.5 per This makes it difficult to raise tariffs or to cubic meter in times of drought or for occasional fully apply the principle that the user should or emergency water. pay. Farmers which are members of water asso- * In about 16 percent of municipalities, oper- ciations (cooperatives) in Genil-Cabra ating costs are subsidized (Spanish Associa- (Cordoba) and San Martin de Rubiales (Burgos) tion of Water Supply and Sanitation 1992). pay two-part water tariffs (Segura 1995). The Many of these are small municipalities with Genil-Cabra cooperative supplies irrigation wa- services provided by nonspecialized munici- ter pumped from the Genil river to 15,000 hec- pal officers. The movement toward provid- tares. Farmers pay a fixed rate of US$58.33 per ing services professionally and through water hectare for the resource (payable to the basin supply agencies (which charge enough to authority), US$54.1 per hectare for operating cover their costs) has enabled many munici- and maintenance costs (primarily energy), and palities to remove water services from their US$0.03 per cubic meter. The total charge av- general budgets. erages US$258 hectare, of which US$112.5 is 108 Debates and consensus tariff (as they do for electricity, telephone, gas services) because it is a public good; differences Views on how to charge for water range in water endowments should be solved through across a spectrum. Some believe that to provide interregional transfers. Others, including water incentives to conserve it is essential to move to supply agencies, argue that tariffs should reflect full economic pricing of water and to encourage the differential costs of conveying and treating the development of water markets. Others argue water and the operational costs of different that water is more than an economic resource, agencies. and that private appropriation of water has led to Some political parties argue that water the displacement of communities. prices for lower income groups should be subsi- There is a growing consensus that tariffs dized through free or low-cost provision of a should generally be increased and should be monthly minimum volume of water. Others ar- similar across sectors. Tariff increases would gue for subsidizing the consumption of the poor provide signals to farmers regarding relative through more direct instruments. water scarcity, and encourage them to take In urban areas water bills are becoming measures to conserve water and reduce water increasingly complex, with different tariffs losses. This would delay the need to develop based on household income levels, types of in- new water supplies. In addition, raising tariffs dustry, and, recently, family size. Water bills would provide basin agencies with resources to also include surcharges for water-related envi- finance maintenance and replacement of shared ronmental services. This creates confusion and infrastructure, which would also reduce water has led to some nonpayment of bills. losses. Some analysts argue that water prices Conclusion should reflect farmers' abilities to pay and should be set with consideration for their impact To finance the investments proposed in the on agricultural production, including types of Draft National Hydrological Plan (1993) and the crops grown - public authorities should con- costs of managing public water supplies requires sider the economic and social impact of reduced a new tariff system. Tariffs can also have an production and job losses in setting water tariffs important role in encouraging water conserva- (Sumpsi-Vifias 1994). tion - a major priority of government. The Others challenge the assumption that rais- Draft National Hydrological Plan proposes the ing water prices will lead to greater efficiency following: (Naredo, et al. 1994). They cite mainly empiri- * All users should pay a basic tariff, not just cal studies which show that changes in water use those who benefit from public waterworks; and allocation do not come about without tech- * Beneficiaries of public waterworks should nical and institutional prerequisites in place: pay the full costs of the water supply; pol- water-saving technology (drip irrigation, sprin- luters should pay the full external costs of klers) must be available, users know about it, their activities; and credit lines must be available to finance * Water tariffs should include correction coef- their purchase. These analysts also argue that ficients to reflect relative water scarcity and the usefulness of water prices to encourage wa- externalities. ter use efficiency and conservation depends on Other important trends in pricing include local circumstances. For example, in Almeria, more transparent water accounting and clearer the water price of US$0.16 per cubic meter cov- water bills; reduced use of cross-subsidies; and ers all resource development costs (but accounts increased practice of including wastewater col- for only 0.03 percent of total costs), but is too lection and treatment costs with water tariffs. low to encourage users to conserve water. A major institutional reform under study is Consumer associations argue that domestic the development of water markets for allocating users across Spain should pay the same water water, especially during droughts or in areas 109 where there is strong competition for water Management in Spain: The Flexibilization (Maestu 1996). A major step in this direction of the Water Permitting System" In The was included in the Draft 1996 National Irriga- Economy of Water in Spain, Argentarian tion Plan of the Ministry of Agriculture. Foundation, Madrid. Maestu, J., J.M. Gasc6, F. Aguilera, and J.M. References Naredo. 1996. "European Water Pressure Index.." Paper produced for Eurostat proj- Aguas de Barcelona. 1992. "Comparacion de la ect on Environmental Pressure Indicators. composicion del Precio del Agua en Dif- Ministry of Public Works, Transport and the erentes Ciudades Europeas," (mimeograph). Environment. 1993. Draft National Aguilera, F. 1994. "Agua, Economia y Medio Hidrological Plan. Madrid. Ambiente: Interdependencias Fisicas y la Ministry of Public Works, Transport and the Necesidad de Nuevos Conceptos." Revista Environment. 1994. Estudio Comparativo de Estudios Agrosociales 16 (Enero-Marzo). del Canon de Uso del Agua en los Paises de Ministerio de Agricultura, Pesca y Ali- la Comunidad Europea. Madrid. mentacion. Murillo J. 1993. "Consideraciones al Nuevo Centro de Estudios y Experimentaci6n do Obras Sistema Tarifario del Regimen Economico ThTblicas (CEDEX). 1995. "Influencia de Financiero." Paper presented at the Confer- los Aspectos de Organizacion y Gestion en ence on Hydrological Planning, Colegio de Ia Eficiencia de los Sistemas de Riego." Ingenieros de Caminos, Canales y Puertos, Ministry of Public Works, Transport and the Madrid, 13-16 Diciembre de 1993. Environment, Madrid. Naredo, J.M., J. Lopez-Galvez, J. Molina- Directorate General for Water Quality. 1994. Herrera. 1993. "La Gestion del Agua para Spanish Water Accounts. Regadio. El Caso de Almeria." El Boletin 9. 1994. National Plan for Sanita- Ministerio de Agricultura, Pesca y Ali- tion and Wastewater Treatment. Ministry of mentacion. Public Works, Transport and the Environ- Naredo, J.M. 1994. "Inforrnacion Tecnica y ment, Madrid. Gestion Economica del Agua en los Rega- Garcia Canton, A. 1993. "Aprovechamiento dios Espafnoles." Revista de Estudios Agro- del Agua en las Zonas Regables Espafiolas." sociales 16 (Enero-Marzo). Ministerio de Revista de Obras Publicas 3320 (140): 19- Agricultura, Pesca y Alimentacion. 33. Organisation of Economic Co-operation and Garrido, A. 1994. "Mercados de Aguas: Development. 1987. Pricing of Water LEntelequias economicistas o soluciones a Services. Paris, France. los problemas de asignacion?." Revista de Porta Vista, Fernando. 1993. "La Industria del Estudios Agrosociales 16 (Enero-Marzo). Agua." Gestion y Financiacion Ministerio de Agricultura, Pesca y Ali- (mimeograph). ECOTEC Research and mentacion. Consulting, Madrid. Losada, Villasante. 1994. "Eficiencia Tecnica Segura, Ricardo. 1995. "El Coste del Agua y el en la Utilizacion del Agua para Riego." Re- Consumo. Experiencia de Casos Reales," vista de Estudios Agrosociales 16 (Enero- (mimeograph). ECOTEC Research and Marzo). Ministerio de Agricultura, Pesca y Consulting, Madrid. Alimentacion. . 1995. "Tasas por el Maestu, Josefina. 1995. "Evolution of Water Provechamiento del Agua," (mimeograph). Tariffs in Spain and Present Debates." Pa- ECOTEC Research and Consulting, Madrid. per presented at the CIHEAM conference, Spanish Association of Water Supply and Sani- May 17-19,1995, Marrakech, Morocco. tation (AEAS). 1994. El Suministro de Maestu, Josefina. Forthcoming. "Difficulties Agua Potable en Espana. and Opportunities for Reasonable Water 110 Sumpsi-Viflas, J.M. 1994. "El Regimen 16 (Enero-Marzo). Ministerio de Agricul- Economico Financiero del Agua y la Agri- tura, Pesca y Alimentacion. cultura." Revista de Estudios Agrosociales 111 17 SUDAN Ahmed M Adam Introduction In Sudan 90 percent of developed water In some residential areas, houses have me- supplies are used for irrigation. The first modem ters and consumers pay by quantity consumed. irrigation scheme was the Gezira Scheme, built in Industries also pay for water on the basis of use. 1925. This scheme, which irrigates 920,000 hec- Charges vary according to region. Rural con- tares, started as a joint venture of the Sudan gov- sumers pay flat rates; overall charges are set to emmnent and the Sudan Plantation Syndicate. The cover maintenance and operation costs of arte- Sudan government was responsible for providing sian wells. Table 17.2 shows water prices for the water, and the Sudan Plantation Syndicate metered households and industries. was responsible for financing and managing the project. In 1956 when Sudan became independ- Present water pricing practices ent the institutional arrangements were changed, and responsibility for operating the scheme was The govemment has recently adopted a free split between the government, the Sudan Gezira market approach to water supply, significantly Board, and the main water users. The govem- cutting its subsidies and reducing its involve- ment receives a share of revenue from water ment in the sector. In July 1995 the govemment charges for its role in supplying irrigation water. created the Irrigation Water Corporation, an in- stitution independent of the Ministry of Finance. Water pricing in the past The Irrigation Water Corporation finances its activities through water user charges. In its first In the past the govemment heavily subsi- year of operation the Corporation had problems dized irrigation, municipal, and industrial water managing its cash flow since it incurs operation supply. In 1981 it imposed charges for irriga- and maintenance expenses throughout the year, tion water for the first time to recover some of yet farmers generally pay only after they receive the costs of the irrigation system. However the funds from selling their output, which happens govemment never collected more than a fraction seasonally. Farmers also resist paying the of the intended amount. Monthly charges for charges, which are now much higher than be- domestic water were set at a flat rate according fore. The Corporation needs time to convince to the size of the dwelling. People with houses farmers that the water charges are actually much over 600 square meters paid the highest rates less than under the old system, when measured (class 1); those with houses 400-600 square as a proportion of total production costs: previ- meters paid less (class 2), and people living in ously the government collected agricultural out- houses less than 400 square meters paid the least put from farmers worth 40-50 percent of total (class 3). The collection experience was far production costs, now water charges comprise better than for irrigation water since household no more than 6-7 percent of production costs. consumers were treated individually. Table 17.1 Table 17.3 shows irrigation water charges presents information on domestic water supply for the past five years for selected irrigation charges in the Khartoum area, which are based schemes. Each scheme sets its charges to cover on house size. actual operation and maintenance costs. Charges vary according to the crop irrigated. 112 Table 17.1 Domestic water supply charges in the Khartoum area, 1992-96 (Sudanese Pounds (LS) per dwelling) House July 1992 October 1993 January 1994 August 1994 May 1995 January 1996 class (US$=LS90) (US$=LS200) (US$=LS350) (US$=LS500) (US$=LS650) (US$=LS900) 1 450 800 1,000 1,500 2,250 3,000 2 275 550 750 1,000 I,500 2,000 3 175 325 500 850 1,000 1,500 Source: Director General of National Water Corporation (now Khartoum Water Corporation). Table 17.2 Water charges for metered residences and industries, January 1996 (Sudanese pounds) Volume (cubic meters) Tariff per cubic metera 0-15 100 15-40 75 >40 90 Note: IUS$ = LS900 Source: Ministry of Irrigation and Water Resources. Table 17.3 Irrigation water charges, 1991-96 (Sudanese pounds (LS) per acre) Irrigation 1991/92 1992/93 1993/94 1994/95 1995/96' scheme (US$ = LS90) (US$ = LS200) (US$ = LS350) (US$ = LS650) (US$ = LS900) cotton other' cotton otherb cotton other' cotton other' cotton other" Gezira 400 273 1,400 900 1,650 1,300 2,350 1800 7,900 6,000 Rahad 393 314 1,300 1,000 1,550 1,300 2,500 2000 9,500 7,200 North Halfa 346 258 1,200 800 1,500 1,300 2,290 1,800 5,700 4,250 Suki n.a. 334 n.a. 1,332 n.a. 1,430 2,600 2,190 10,100 7,600 a In 1995/96 government founded the Irrigation Water Corporation and reduced subsidies significantly. b Other crops are sorghum, ground nuts, wheat, and sunflowers. Source: Ministry of Irrigation and Water Resources. Current debates and future prospects farmers to pay will be based on the services they receive from the Corporation, and especially the It is almost certain that the new Irrigation extent to which the irrigation services increase Water Corporation will collect much more reve- their incomes. nue from farmers than was true in the past, since Charges for domestic and industrial water the new institution does not receive subsidies supplied outside the Khartoum area will likely from the government. Clearly the willingness of rise in the future as subsidies from Khartoum 113 state are phased out. In the past the National localities. This is no longer the case. Table 17.4 Water Corporation controlled water supply for shows total expenditures and revenues of the old the entire nation, charging uniform tariffs for all National Water Corporation from 1989-95. Table 17.4 Finances of the National Water Corporation for 1989-95 (millions of Sudanese pounds) House class 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 (US$=LS 12) (US$=LS 15) (US$=LS90) (US$=LS200) (US$=LS350) (US$=LS650) Expenditure 126 184 646 2,223 2,720 4,903 Revenue 130 369 782 1,887 1,917 4,960 Surplus (deficit) 4 185 136 (336) (803) 57 Source. Director General of National Water Corporation (now Khartoum Water Corporation). References Director General of National Water Corporation (now Khartoum Water Corporation). Various Ministry of Irrigation and Water Resources. Var- years. Various documents. Khartoum. ious years. Various documents. Khartoum. 114 18 TAIWAN (CHINA) Ching-kai Hsiao and Ching-Ruey Luo Introduction Rainfall in Taiwan (China) is ample, but it vancy Law and Rules for Irrigation Associations is not evenly distributed in space or time. About - manage most of the irrigation systems in 78 percent of rain falls between May and Octo- Taiwan. Farmers must be members of the asso- ber: high mountain regions receive about 3,000 ciations to acquire water from them. There are millimeters rainfall per year, while coastal plains 17 irrigation associations. The largest is Chi- receive about 1,500 millimeters. Some districts anan Irrigation Association which provides wa- suffer from periodic droughts during the dry ter to some 78,180 hectares; the smallest is Liu- season. kung Irfigation Association which provides wa- Consumers use a total of about 17.6 billion ter to only 295 hectares.4s Altogether the irriga- cubic meters water each year in Taiwan. Agri- tion associations provide water to about 370,900 culture uses about 77 percent of developed wa- hectares of cropland, including 252,400 hectares ter supplies, urban consumers use 14 percent, of double-cropped fields, 23,900 hectares of and industry uses 9 percent. Of water used by single-cropped fields, 83,500 hectares of rota- agriculture, irrigation is responsible for 76 per- tion-cropped field, and 11,160 hectares of up- cent; the remainder is used for aquaculture and land fields. During droughts farmers sometimes livestock. pump groundwater or purchase water to sup- Most water-intensive industries in Taiwan plement the allocations they receive from irriga- have developed their own sources of supply, and tion associations. rely on municipal water systems for only rela- Irrigation water is not metered, and farmers tively small amounts of water. Industries pay pay for it on the basis of area irrigated and vol- the costs of pumping, piping, and treatment of ume consumed by irrigation associations. In the self-supplied water. More than 70 percent of past, the most important source of revenue for municipal water is for residential use; the re- irrigation associations were membership fees, mainder is for industrial, commercial and other with revenues from construction fees for irriga- uses. Water demand for domestic use is in- tion projects and governmental subsidies pro- creasing rapidly: daily per capita consumption viding additional funds. Revenues collected has doubled over the past twenty years, from from project beneficiaries were intended to 224 liters to 450 liters. Over the same period cover the costs of operations and maintenance. water prices have nearly tripled, from NT$3.3 in The per hectare fees depended on crop variety, 1975 to NT$9.0 in 1994.4 It appears that prices yield, irrigation cost, and broadly the benefits are too low to significantly dampen consumers' farmers received from irrigation. They ranged demand in all sectors. from 20 kilograms to 300 kilograms of rice per hectare per year (farmers paid the fees in cash, Present water pricing practices based on the price of rice). Although irrigation fees represented an average of only about 2 per- Irrigation Water cent of total farm costs (with a range of 0.44- 7.66 percent), they were reduced by 30 percent Irrigation associations - corporate bodies in 1990 (Table 18.1). Government made up the organized by farmers under the Water Conser- shortfall, providing subsidies of NT$1.437 bil- 47 1994 exchange rate: IUS$=27.5NT$ 4s All figures are from 1994. 115 lion. In 1991 the fees were reduced further to ment provides NT$1.39 billion and the provin- 20 kilograms of rice per hectare per year, or cial government provides the remainder. Irriga- about NT$330 per hectare per year, assuming a tion water authorities have never used pricing rice price of NT$16.5 per kilogram (US$0.6 per strategies to deal with water shortages. Instead, kilogram). Then in 1992 the government agreed they have relied on nonpricing practices, such as to pay all irrigation fees. The subsidies amount irrigation practices and technologies. to about NT$1.87 billion; the central govem- Table 18.1 Per hectare cost of producing rice in Taiwan, 1993 (NT$) Japonica Rice India Rice First crop Second crop First crop Second crop Seed and seedlings 5,960 6,240 5,490 4,760 Fertilizer 5,330 5,480 5,460 5,660 Labor 25,650 26,610 25,460 30,820 Mechanization 30,950 28,020 30,460 25,300 Chemicals 3,750 4,540 3,790 5,200 Materials 432 348 356 370 Water 637 5,900 315 1,760 Total 72,720 77,140 71,340 73,870 Percent Percent of total costs that is water 0.88 7.66 0.44 2.39 Rice is Taiwan's staple food, and irrigation less water than continuous irrigation-replaced was developed primarily to irrigate rice. When the older practices in many places. However, irrigation systems were first being developed, policymakers acknowledge that developing and water was relatively plentiful, and no restrictions managing irrigation is no longer simply a matter were placed on them. Rice farmers generally of engineering. Conserving and reallocating used continuous irrigation. But this method was water is now becoming critical, and institutional very inefficient, watering only 330 hectares per changes are essential. cubic meter (based upon gross requirements at turnout) in most irrigation districts. In addition, Municipal water supply water was distributed very inequitably. As populations grew, so did the demand for Two agencies are involved in managing the rice and the water needed to irrigate paddy land. municipal water supply in Taiwan: the Taipei At the same time industrial and income growth Water Department, an agency of Taipei metro- increased competition for existing water re- politan government; and the Taiwan Water Sup- sources. Since developing new water resources ply Corporation, a public utility supported and was costly and took time, attempts were made to supervised by the Taiwan provincial govern- increase the efficiency of irrigation water use. ment. The Taiwan Water Supply Corporation Rotational irrigation-which uses 25-50 percent was formally established in 1974 by merging 116 128 local public water systems to consolidate poration has the capacity to supply about 2,500 water supply in twelve public water supply dis- million cubic meters water per year. Table 18.2 tricts. It serves 3.9 million households in Tai- presents figures on capacity and consumption wan Province and the Kaoshiung metropolitan from 1990-94. area. At present the Taiwan Water Supply Cor- Table 18.2 Taiwan Water Supply Corporation supply and consumption, 1990-94 (million cubic meters) 1990 1991 1992 1993 1994 Capacity 1,710 1,820 1,930 2,020 2,070 Consumption 1,340 1,420 1,470 1,570 1,630 Before the creation of the new utility, more tion implemented a uniform block pricing sys- than 60 different water rate schedules were in tem in 1975 and has adjusted the rates four times use among the original 128 public water supply since. Table 18.3 presents Taiwan Water Sup- systems; water rates could vary by as much as ply Corporation water rates. eightfold. The Taiwan Water Supply Corpora- Table 18.3 Various block water rates of Taiwan Water Supply Corporation, 1975-94 (NT$ cubic meter) 1975 1979 1982 1991 1994 Average rates 3.30 4.95 6.60 8.25 9.00 First block Monthly usage <20 <10 <10 <10 <10 Rate 2.50 3.50 5.00 7.00 7.00 Second block Monthly usage 21-30 11-30 11-30 11-30 11-30 Rate 3.5 4.50 6.50 8.00 9.00 Third block Monthly usage 31-50 31-50 31-50 31-50 31-50 Rate 4.50 6.00 8.00 9.00 11.00 Fourth block Monthly usage 51-200 51-200 51-200 >51 >51 Rate 5.50 7.50 10.00 10.50 11.50 Fifth block Monthly usage 201-2,000 201-2,000 201-2,000 n.a. n.a. Rate 4.50 6.50 8.50 n.a. n.a. Sixth block Monthly usage >2,001 >2,001 >2,001 n.a. n.a. Rate 3.50 5.00 7.00 n.a. n.a. n.a. means not applicable. 117 Taiwan Water Supply Corporation uses across space. Table 18.4 presents data on unit increasing block rates for the first four blocks costs of supplying water and water, charges. and decreasing block rates for the last two. The Water Supply Act (enacted by Taiwan Consumers pay a flat fee for the first block, re- Province) sets the rules for water pricing in gardless of quantity used, and by volume for Taiwan: the average price of water should be larger quantities. Consumers also pay fixed based on "all water services costs, Which include connection charges. capital recovery and operation and maintenance Water charges are too low to fully cover costs, summed together and divided by the total costs or to provide incentives to conserve. Fur- quantity of water expected to be sold, to gener- thermore, charges do not vary by season, al- ate a unit cost." While pricing water this way though demand and supply fluctuate enormously would provide for full cost-recovery, it would over the year. Neither volumetric charges nor not lead to the efficient allocation of water. connection charges vary by location, although costs of supplying water can vary significantly Table 18.4 Unit costs of supplying water and charges of Taiwan Water Supply Corporation (NT$ per cubic meter) Production Sales Administrative Financial Total Price Revenue cost cost cost cost cost 1988 4.43 1.16 0.25 0.57 6.41 6.28 (0.13) 1989 4.46 1.09 0.28 0.57 6.40 6.31 (0.09) 1990 4.83 0.89 0.29 0.59 6.60 6.33 (0.27) 1991 4.84 0.96 0.31 0.53 6.64 6.35 (0.29) The Taiwan Assembly is responsible for ganizations should consider many factors when regulating and approving Taiwan Water Supply establishing the level and structure of water Corporation's water charges. However, this charges, including economic efficiency, cost body has paid insufficient attention to the finan- recovery, environmental impact, and acceptabil- cial requirements of the utility; it did not allow ity to users. Rate structures should allow prices changes in rates between 1982-91, although the to vary depending on block, season, and location utility proposed them several times. of use. To assure the efficient allocation of wa- ter, pricing systems should involve marginal Current debates and future prospects cost pricing. Current water charges in Taiwan are not References high enough to fully cover the costs of supply- ing water. Irrigation associations and the Tai- Hsiao, Ching-Kai. 1995. "Management System wan Water Supply Corporation should be given of Irrigation in Taiwan." Journal of Agri- the authority to set and adjust water rates to cultural Economics 57: 85-111 (Research meet their financial needs. The Taiwan people Institute of Agricultural Economics, Na- increasingly view water as an environmental tional Chung Hsing University, Taichung). good, not just a commodity, that should be used Organisation for Economic Co-operation and in an economically and environmentally effi- Development. 1987. Pricing of Water cient manner. Water authorities and related or- Services. Paris, France. 118 Tate, D.M., and D.M. Lacelle. 1992. Wu, Chian Min. 1991. "Management of Water "Municipal Water Rates in Canada, 1989: Resources in an Island Nation: The Taiwan Current Practices and Prices." Social Sci- Experience." Water Resources Planning ence Series 27. Economics and Conserva- Commission, Ministry of Economic Af- tion Branch, Ecosystem Sciences and fairs, Taipei. Evaluation Directorate, Environment Can- ada, Ottawa. 119 19 TANZANIA Mark R Mujwahuzi Introduction Tanzania is a large country with an area of (Water Development and Irrigation Division about 937,000 square kilometers. While the 1961). country has a narrow coastal plain along its east- The government became actively involved in em boundary on the Indian Ocean, most of its constructing rural water supply systems starting territory covers the highlands of the great Africa in 1945 with the establishment of the Department plateau with elevations between 1,000-2,000 me- of Water Development. Eventually the depart- ters. Water availability varies greatly throughout ment assumed responsibility for irrigation devel- the country, depending on topography, hydro- opment, and its name was changed to Water De- logy, rainfall and evapotranspiration. velopment and Irrigation Division. Although Tanzania lies just 1.5 degrees During its first 20 years of operation, the south of the equator, it is relatively dry. Victoria, Water Development and Irrigation Division was Tanganyika, and Nyasa receive about 800 mil- involved in three types of activities. The first was limeters of rainfall each year; most of the country the development of domestic water supplies for receives much less. Rainfall in Tanzania is highly outstations and minor settlements. Financing for seasonal: water levels in lakes and rivers rise dur- these came from the central government, who ing the rainy season and recede during the dry owned them after construction was complete. season. River flows are intermittent in the central Water users paid charges set at levels high en- and northern parts of the country, where rainfall is ough to cover capital costs and operation and less than 800 millimeters per year. Perennial riv- maintenance costs. The second was development ers flow in the southern, western and northern of rural water supplies for domestic and livestock highlands, where rainfall is greater than 1,000 use. The rural local authorities were required to millimeters per year. pay operation and maintenance costs but only a Tanzania has abundant groundwater re- portion of capital costs, and set water prices sources. Groundwater is rapidly becoming a ma- accordingly. Water users paid for water when jor source of water in the country, particularly in they collected it at the kiosk (Lwegarulila 1975). the semiarid regions covering parts of Shinyanga, The third was development of water supplies un- Dodoma, Singida and Arusha. Groundwater der prepaid contracts. Clients, who were other quality is generally good. However in some parts government departments, local authorities, mis- of the country groundwater may contain high sions, and even private estates, paid the full cap- concentrations of salt and fluoride. ital costs of the water system in advance of con- struction (Warner 1970). Past experiences In 1965 the central government assumed full responsibility for capital costs of rural water sys- Charging for water in a systematic way beg- tems, and the cost-sharing arrangement ended. an around 1930, when the government started Local authorities remained responsible for oper- developing water supplies. The public works ating costs. Water Development and Irrigation department built water supplies systems for town- Division performed maintenance and repairs in ships, outstations, minor settlements, major ad- exchange for an annual deposit of 1 percent of ministrative centers, and a few private estates and total capital costs of all projects in areas under missions. Once in operation the water supply theirjurisdiction (Warner 1970). In 1969 the cen- schemes were expected to be self-supporting, and tral government took on the responsibility for all water users paid for the water they consumed operation and maintenance costs of rural water 120 projects, and abolished all rural water user National Urban Water Authority was able to meet charges (Lwegarulila 1975). Urban consumers its financial ob-ligations through user charges. who had house connections or who obtained wa- However as elec-tricity rates and chemical prices ter from metered public kiosks continued to pay rose the operating deficit reappeared and debts for water. Eventually the government also mounted once again. In September 1992 the wa- stopped charging for water dispensed from public ter institution's ag-gregate liabilities to the Tan- kiosks in cities and towns (Warner 1970). zania Electric Supply Company and Ministry of Water Central Store (which supplied the Present water charging practices chemicals) amounted to about 2.4 billion Tan- zanian shillings (Tshs.) (1US$ = 335 Tshs.). From 1971 to 1991, when a new water pol- With operating losses and accumulated debts, the icy was adopted, rural users did not pay for water. only way that the National Urban Water Auth- And while urban consumers continued to pay for ority was able to survive was by reducing pay- water, collections were too low to cover even op- ments to creditors and by relying on the Treasury eration and maintenance costs. This was because for import support to purchase chemicals. tariffs were low, billing and collection per- In 1991 to help the water authority become formnance was poor, and unaccounted for water financially self-sufficient policymakers proposed losses were large (Swere 1994; Ministry of Water that the National Urban Water Authority Board be 1995). empowered to increase tariffs by up to 10 percent without prior approval of the Cabinet, and that the Political economy of water charges minister responsible for water be empowered to approve tariff increases of up to 15 percent with- In 1981 the government established the out prior approval of the Cabinet (Swere 1994). National Urban Water Authority through an act of In 1992 the government decided to decentralize Parliament. The agency, which commenced op- the power of setting and approving tariff changes. erations in 1984, was meant to operate all the Since September 1992 the water authority board country's urban water systems. But currently it has had the authority to raise tariffs by up to 10 operates only the systems in Dar es Salaam and percent two times a year, for a total cumulative its two satellite towns, Kibaha and Bagamoyo. increase of up to than 21 percent per year. The The National Urban Water Authority was minister responsible for water can increase tariffs expected to be financially self-supporting. How- by up to 15 percent two times a year. Thus the ever revenue from charges fell well short of the water authority in conjunction with the ministry costs of producing and distributing water, and the can effectively increase tariffs by up to 32 percent water institution recognized that tariffs had to be a year. The minister must grant a special con- raised. Yet the power to raise tariffs was vested cession for tariff increases above th.s level. in the Cabinet, not the agency. The Cabinet did The water policy adopted in 1991 changed not act because of the political difficulty of rais- Tanzania's approach to financing both urban and ing tariffs. Therefore in its first years of operation rural water systems. The water policy requires the water authority operated at a loss and accum- that urban consumers pay the full costs of water ulated huge debts. Eventually it stop-ped paying supply and that rural dwellers pay at least a per- the power company and the government store tion of the costs. A number of municipalities, in- which supplied it with chemicals. In 1988 the cluding Arusha, Moshi, and Tanga, are imple- Cabinet finally agreed to raise tariffs to cover the menting the new guidelines. Table 19.1 presents costs of production, and introduced a differential water tariffs for Dar es Salaam, effective May rate structure. Im-mediately thereafter the 1996. 121 Table 19.1 National Urban Water Authority's tariff structure for Dar es Salaam, 1996 Customer category Old tariff New tariff Percentage increase (Tsh per cubic meter) (Tsh per cubic meter) Domestic 54.00 154.00 185.00 Institutions 89.00 177.30 100.00 Commercial 178.00 216.00 15.00 Industries 221.40 254.60 15.00 Irrigation 221.40 254.60 15.00 Brickmakers 221.40 254.60 15.00 Expatriates US$ 4.40 US$ 5.06 15.00 Note: Aprl 30, 1996: 1US$ = 550 Tshs.; May 1996: 1US$ = 606 Tshs Source: National Urban Water Authority 1996. The present tariff structure results in cross- autonomous, they can no longer rely on gov- subsidization among different groups of custom- emient subsidies to cover shortfalls. ers: commercial and industrial users pay more, and subsidize domestic and institutional consum- Revenue collection in schemes operated by ur- ers. ban water supply and sewerage engineers Revenue collection for urban water systems op- Like the regional water engineers, the semi- erated by regional water engineers autonomous urban water and sewerage boards - established July 1, 1994 in Arusha, Moshi and Regional development directors, through re- Tanga - are having difficulty collecting water gional water engineers, are responsible for col- charges. However the agency is aggressively try- lection of water charges in all towns other than ing to identify water users and has introduced a Dar es Salaam. Revenue collection follows the computerized water billing system. These efforts government's financial regulations of "approp- are yielding results and revenue collections are riation-in-aid." Water charges are meant to sup- rising. In Arusha, for example, the water supplier plement the government's financial contributions is visiting all buildings to identify its industrial, to urban water suppliers for operation and maint- commercial, and domestic customers. It has dis- enance costs. Table 19.2 presents government-set covered numerous illegal connections, and has water tariffs for cities and towns other than Dar es started billing the occupants. As a result the Salaam. departnent has collected Tshs. 354 million during The regional water engineers have not been the first year of operation. This is a tremendous particularly effective or efficient in collecting wa- achievement: in 1993-94 the water supplier col- ter charges. Many consumers do not pay their lected only Tshs. 110 million (1993: US$1.00 = bills either because they do not receive them or Tshs. 479.87; 1994: US$1.00 = Tshs. 523.45). because they simply ignore them. People who do The water boards are also starting to sell water pay may wait months or even years after re- from kiosks and standpipes by the cubic meter. ceiving the bill before remitting payments. In the Ward executive officers have been given the res- past government provided subsidies to water sup- ponsibility for operating and maintaining all water pliers to enable them to meet their expenses. kiosks and standpipes in their wards, collecting Therefore poor revenue collection performance fees from users, and relaying the revenue to the did not affect the operations of water suppliers. water board. However, now that water suppliers are financially 122 Table 19.2 Urban water tariffs, 1992 (Tshs. per cubic meter) Category Rate Domestic 21.98 Industrial 92.31 Institutional 35.16 Commercial 72.53 Agricultural 92.31 Expatriate 407.14 Note: US$1.00 = Tshs. 335.00. Source: Swere 1994. Tarifs for rural water supplies Future prospects The water policy of 1991 requires rural con- To improve financial performance of sumers to pay the costs of operation and main- water suppliers, the initiatives creating autono- tenance and the costs of expansion. Individual mous urban water and sewerage institutions communities are free to decide how they wish to should be strengthened. The water boards which raise the revenue. manage water systems should have the power to set tariffs to cover operation and maintenance Water-right application fees and water-user fees costs without having to clear them with the min- istry responsible for water affairs. Furthermore, In addition to water charges, users must also tariffs should reflect all the costs involved in sup- pay to obtain the right to use water through water- plying water. right application fees and water-user fees. In the In addition, water suppliers should take past water rights were issued once and for all for action to enforce water charges. They should dis- a fee of only Tshs. 50. With inflation these fees connect customers who do not pay; charge late shrunk to represent less than the cost of the paper fees and interest charges for people who submit used to prepare water-right certificates. Policy- payments past the deadline; vigorously follow-up makers have recently set new fees for water-right with people or organizations in arrears and per- applications. And in 1994, through the water util- sonally contact the heads of entities which are ization general amendment regulations, it in- major consumers; provide performance-related troduced a new water-user fee for various user incentives to encourage water utility employees to categories. Table 19.3 shows the water-right app- deal with revenue collection more efficiently; and lication fees and the new water-user fees. aggressively track down illegal connections. 123 Table 19.3 Water user fees under the amended legislation, 1994 (Tshs.) Fees Water-right application for domestic/livestock/fish farming 7,000 Water-right application for irrigation/power/industriaVcommercial 40,000 All other applications 7,000 Appeals to the minister 35,000 Water userfees Domestic, livestock, fish farming, district centers, rural: 100 cubic meters 20 Irrigation: 1,000 cubic meters 15 Power royalty per installed capacity 25 IndustrialVmechanical: 100 cubic meters 50 Commercial regional centers: 100 cubic meters 40 References Water Engineers' Conference, Singida, Tanzania. Lwegarulila, F. 1975. "Water Resources Warner, D. 1970. "The Economics of Rural Development in Tanzania during the First Water Supply in Tanzania," Economic Decade of Independence, 1961-1971." AL4JI Research Bureau Paper 70.19, University of Review. Ministry of Water Development and Dar es Salaarn. Power, Dar es Salaamn, pp. 1-13. Water Development and Irrigation Division. Ministry of Water. 1995. "Water and Sanitation 1961. "A Short History of Water Sector Review," Dar es Salaam. Development and Irrigation in Tanganyika:' National Urban Water Authority. 1996. "Tariff Water Development and Irrigation Division, Structure for Dar es Salaam," Dar es Salaam. Dar es Salaam, September 7. Swere, R.M.A. 1994. "Water Tariffs and Tariff Structures." Paper presented at 16th Annual 124 20 TUNISIA Zekri Slim, El Echi Med Lazhar, and Sghaier Mongi Introduction Tunisians have had long experience man- islation (Laws number 58-63 June 11, 1958; aging water in the arid and semi-arid North Af- number 6-60 July 26, 1960; number 63-18 May rican environment, dating back to 1000 B.C. 27, 1963; and number 71-9 February 19, 1971) The Phoenicians, Carthaginians, Romans, Ar- (Abdelhadi 1995; Caponera, 1976). Under the abs, and Turkish all constructed water works, legislation farmers are obliged to make contri- the remnants of which can still be found scat- butions, in cash or kind, to pay the costs of the tered throughout the country. Among the treas- irrigation systems. The size of the contribution ures are the Roman aqueduct between Zaghouan is determined as a proportion of the incremental and Tunis, the Aghlabid pools in Kairouan, and increase in the value of the irrigated land. Thus the man-made underground galleries calledfog- farmers are required to pay at least a portion of gara in the southern part of the country. These irrigation system costs. Implementing this leg- civilizations all had an influence on the legisla- islation was neither easy nor automatic. Indeed tion and institutions that currently govern water it was only partially implemented in the perime- resource management in Tunisia (Caponera tres publiques irrigu6es of Basse Vallee de la 1976). Medjerda (Ministere de l'Agriculture 1980). The introduction of new technologies for The first attempt of set water tariffs in the surface water exploitation begun during the modem era occurred in 1969. L'Office de Mise 1950s with the construction of large hydraulic en Valeur de la Vallee de la Medjerda intro- projects intended to meet the rapidly rising de- duced a charge of 0.004 TD per cubic meter mand for water for irrigation, industry, and ur- (US$0.0076 per cubic meter) (Ministere de ban use. A water management strategy was ad- I'Agriculture 1980). This tariff was set to re- opted to increase water supply while protecting cover maintenance and operating costs. It was groundwater resources from overuse and salini- hoped that the water charges would encourage zation through the intrusion of seawater. farmers to view water as an economic good Between 1962-71 public investment in rather than a free good and use scarce water re- water systems comprised 27 percent of total in- sources more efficiently. vestment in agriculture. Between 1982-91 this Ben Khelil completed Tunisia's first com- percentage climbed to 41 percent of agricultural prehensive study on water pricing in 1971. He investment (Mallek 1988, Sghaier 1995). estimated two types of costs using 1970 prices: operation and maintenance costs and total irri- Past experiences gation costs. He adjusted operation and mainte- nance costs, which included energy and labor Waterfrom public infrastructure costs, for each perim6tres publiques irriguees depending on the profitability of the crop being The government has financed most irriga- grown. Thus for example in the Cap Bon re- tion infrastructure in Tunisia. Public infra- gion, an orange producing area, water cost about structure includes dams and canals conveying 0.0108 TD per cubic meter (US$0.0206 per cu- water to the farm gate. An agrarian reform in bic meter); in the Haute Vallee de la Medjerda, a the early 1950s led to the creation of the vegetable producing region, water cost about "perimetres publiques irriguees." The creation 0.0043 TD per cubic meter (US$0.0082 per cu- and management of the perim6tres publiques bic meter). Total irrigation costs included capi- irriguees and water use is subject to special leg- tal costs in addition to operation and mainte- 125 nance costs. Khelil estimated the total cost to be umes. On the basis of this study authorities pro- 0.030 TD per cubic meter (US$0.057 per cubic posed implementing a charge system with tariffs meter) in the Cap Bon region, and only 0.012 differentiated by crop (Ministere de l'Agricul- TD per cubic meter (US$0.023 per cubic meter) ture, 1986b). in the Haute Vallee de la Medjerda. However Since the 1980s the government has con- tariffs were never set to equal total costs. sidered charging farmers for water to recover In 1971 the objectives of charging for water investment costs and has examined the capacity were made more explicit: of farmers to pay (Ministere de I'Agriculture, * Farmers should pay the true costs of water to 1980). The total cost of water was estimated to reflect resource scarcity. be 0.008 TD (U$0.004) per cubic meter and 600 * Water charges should not be set at levels that TD (US$300) per hectare per year for a period would constrain the development of irriga- of ten years in Basse Vall6e de la Medjerda tion. (1979 prices). A more recent study suggests * Water charges should be part of an integrated that returns to farmers would not fall signifi- development strategy (L'Office de Mise en cantly if they started paying the full operation Valeur de la Vallde de la Medjerda 1976). and maintenance costs of irrigation (Ministere Implementation of the proposed water de I'Agriculture 1985). The study also proposed charge policy faced some difficulties, especially covering investment costs by charging either a on land which was served by irrigation systems fixed rate per hectare or folding the investment but which farmers which not using fully. Poli- costs into the per meter charge for water. The cymakers believed that high water charges were study estimated the total cost of water to be discouraging farmers from using the irrigable 0.045 TD (US$0.037 per cubic meter) and the land intensively. To increase the use of irriga- operation and maintenance cost to be 0.006 TD tion water l'Office de Mise en Valeur de la (US$0.005 per cubic meter) for the Basse Valle Vallee de la Medjerda proposed a two-part tariff de la Medjerda (1985 prices). The study con- structure, comprising a fixed charge per hectare cluded that recovering the full costs of the iffi- and a charge per cubic meter. The fixed charge gation investment would be impossible. In fact was intended to encourage farmers to irrigate all the requirement of the law that farmers pay in- their land with irrigation potential. It was esti- vestment costs was never implemented, and mated to be 69 TD (US$55) per hectare per year farmers paid only the per cubic meter charge. (1986 prices), set to cover capital costs. Opera- The charges were set quite arbitrarily and fluc- tion and maintenance costs were about 0.033 TD tuated from year to year (Ministere de l'Agri- (US$0.026) per cubic meter (1986 prices) culture 1985). (Ministere de l'Agriculture, 1986a). However Prior to 1991 l'Offices de Mise en Valeur the two-part tariff was never implemented. The were in charge of managing irrigation water. fixed charge per hectare was considered too However the Commissariats Regionaux de much for farmers to pay in relation to their re- D6veloppement Agricole took over this respon- turns. In addition, the law governing perimetres sibility in 1991. L'Offices de Mise en Valeur publiques irrigudes stipulated that capital costs were financially autonomous state-owned enter- be paid at the time the project was constructed, prises. They provided most of their services on not annually. a commercial basis, but they also provided pub- A second study estimated the total cost of lic services, such as extension, for which the water to be 0.0573 TD per cubic meter government paid. L'Office de Mise en Valeur (US$0.0455 per cubic meter) including invest- de la Vallee de la Medjerda, established in 1958, ment costs (1986 prices). It concluded that the was the first of these institutions. Among its productivity of water varied widely by crop, and objectives were: studying, constructing, main- that the incremental income generated by ap- taining, and extending the irrigation network; plying water exceeded the cost of water, except maintaining perimetres publiques irriguees when water was used to grow forage or leg- (32,000 hectares and 3800 farmers); providing 126 extension services to farmers; putting inputs and between 1993-95. This represented only 7.7 outputs on a market basis; collecting water percent of the 481 associations d'intr8t collectif charges; and providing short-term-credit from in the country. Establishing associations is dif- the public budget (Ministere de l'Agriculture ficult for two main reasons: often irrigation in- 1983; World Bank 1985). frastructure is degraded and requires consider- able new investment (for example Basse Vall6e Present water pricing practices de la Medjerda), and farmers are accustomed to receiving the assistance and services from the In 1989 the Tunisian parliament approved Commissariats Regionaux de Developpement laws (number 89-44 March 8, 1989) to create Agricole. A recent survey of farmers in areas new Commissariats Regionaux de Developpe- with public infrastructure revealed that 12 to 33 ment Agricole - public institutions with finan- percent, depending on the region, supported the cial autonomy, Offices de Mise en Valeur, and move giving water management responsibility to Offices de Developpement Agricole - under associations (Ministere de l'Agriculture,1995b). the Ministry of Agriculture. The new institu- In 1988 the Agricultural Structural Adjust- tions are responsible for managing and main- ment Program introduced a program to gradu- taining the irrigation infrastructure within the ally increase irrigation water charges to fully perimetres publiques irriguees and organizing cover operation and maintenance costs of irriga- water distribution. The Commissariats Re- tion systems by 1995. This required a 9 percent gionaux de Developpement Agricole uses three increase in real charges and a 15 percent in- types of water charges: a lump sum per hectare crease in nominal charges by 1995. The pro- when metering is not available; a per cubic me- gram is nearly completed. However the four ter tariff for perimetres publiques irriguees with years of drought that occurred since 1988 have meters; and a two-part tariff with a fixed per made it impossible to implement the program hectare component and a volumetric component. completely. Table 20.1 presents nominal and Although the water code requires that the insti- real water prices between 1983-1994. The table tution use rising block prices to encourage farm- also shows the annual average increases in water ers to use water more efficiently, this has not yet prices for the governorates where the Commis- been put into practice (Abdelhedi 1995). The sariats Regionaux de Developpement Agricole law also stipulates that the Commissariats Re- are responsible for water management. These gionaux de Developpement Agricole must es- figures show that water prices increased by only tablish contracts with farmers or farmers' 1 percent a year between 1983-94 in the gover- groups, containing detailed information about norate of Ben Arous. However water prices the water source, farm area, cropping system, rose by 11 percent per year in the govemorate of and the method of water charges used. Jendouba over the same period. Associations d'inter8t collectif have re- Table 20.2 presents the operation and cently been created to manage part of the public maintenance costs and water prices in selected infrastructure. The associations manage areas governorates. The change in the ratio between irrigated with groundwater in oases and some costs and prices shows the steady progress being areas irrigated with tubewells, which comprises made towards fully recovering costs from farn- about one-third the total irrigated area in Tuni- ers. The table shows that prices are higher than sia. The development of associations in the ar- costs in some governorates with important irri- eas which depend on public infrastructure has gated areas, for example in Bizerte, Beja, Jen- been very slow. For example in the governo- douba, and Monastir. By contrast water prices rates of the northern part of the country where are only 62 percent of costs in the governorates the most important irrigation dams are situated of Gafsa, Kasserine, Kebili and Sidi Bouzid. - Ariana, Beja, Bizerte, Jendouba - the num- The gradual shifting of responsibility to associa- ber of associations in charge of irrigation water tions will help to improve cost recovery and at management grew from 25 to 37 associations 127 the same time better the quality of service pro- try of Agriculture, showed that the costs of pro- vided to farmers. viding water exceeded the financial capabilities of existing associations. As a result the gov- Groundwater emient intervened through the Offices de Mise en Valeur and later the Commissariats Re- Groundwater is used for irrigation in the gionaux de D6veloppement Agricole. The in- central, southern and Cap Bon parts of Tunisia, terventions ultimately encouraged farmer de- where average rainfall ranges between 100 and pendency, and marginalization of association 250 millimeters per year. Historically nongov- activities (Ministere de l'Agriculture 1995a). ernmental organizations were in charge of water Currently there are some 160 associations in the management in the oases. These organizations southern part of Tunisia managing water for an successfully managed water when there was area of about 21,700 hectares. Two charge sys- enough water to fully meet demand, due to the tems are in use: a fixed per hectare annual existence of clear water rights and reasonable charge, and a hourly charge. One of the main management rules (Ministere de l'Agriculture objectives of the government program promot- 1995a). In 1933 to make the southern associa- ing associations is to give responsibility to them tions (associations d'interet collectif and grou- to manage irrigation infrastructure in the oases pement d'intdret hydraulique) official, the and recover the costs of the irrigation system, French. administration passed a law allowing including investment costs, through water farmers to constitute associations d'int&& col- charges. lectif (Caponera 1976). Groundwater prices vary widely between The groupement d'interet hydraulique for regions and within the same region. For exam- planning activities provided technical assistance ple in 1993 the price of water in the Kebili and to the associations. The associations relied on Gueliada oases was 124 TD (US$124) per hec- their own financial resources to explore for wa- tare per year. In the Souk el Biaz oasis it was ter, construct infrastructure, and establish the 538 TD (US$538) per hectare per year. Reve- rules and the share for each member. The most nues covered 44 percent and 21 percent of op- important rule of the associations was to give eration and maintenance costs and depreciation each of its members formal water rights. The costs, respectively. These huge differences in amount of water granted by the water right de- prices for water are mainly due to the different pended on farmer's financial contributions to costs of producing and distributing water due to explore for and convey water: land ownership the presence of economies of scale. Some oases and water rights were not related. Owners could cover very small areas, so labor costs per hec- sell or rent water rights. tare are very high (Ministere de l'Agriculture The water code of 1975 transformed the 1991, and 1995a). water right to a water-use right, a system which remains in effect today. Farmers in the oases Domestic and industrial water charges cannot sell or rent the water. Instead they have the right to use water in proportion to the land Currently 15 percent of developed water they own (Abdelhedi 1995). This fundamental supplies in Tunisia is used for urban and indus- change had an important influence on associa- trial needs. Households use about 60 percent of tions d!int6r8t collectif. Members no longer felt water for these purposes, industry uses 13 per- the need to organize into the associations. Fur- cent, and tourism uses 6 percent. Public stand- thennore in other parts of the country the gov- pipes account for 21 percent of water consump- emnment provided the funds for water supply. tion. All urban households have access to clean By contrast farmers in the oases had to pay for water, but only 57 percent of rural households the irrigation systems themselves. do. Half of the groundwateris exploited directly In 1970 the "Plan Directeur des Eaux du by farmers, based on traditional use rights. Sud," a strategic study conducted by the Minis- 128 Table 20.1 Nominal and real irrigation water prices, 1983-1994 (Tunisian dinars per cubic meter) Govemorate 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Percent Total increase percent per year increase 19S3-94 Ariana nominal 0.018 0.018 0.020 0.021 0.023 0.027 0.030 0.033 0.038 0.044 0.051 0.060 12 233 real 0.037 0.034 0.035 0.035 0.035 0.038 0.039 0.041 0.044 0.048 0.054 0.060 5 64 Barous nominal n.a. n.a. n.a. 0.035 0.037 0.041 0.042 0.045 0.050 0.058 0.060 0.062 7 77 real n.a. n.a. n.a. 0.058 0.056 0.058 0.055 0.056 0.057 0.063 0.064 0.062 1 8 Nabeul nominal 0.015 0.020 0.025 0.032 0.032 0.034 0.034 0.037 0.045 0.047 0.050 0.054 12 260 real 0.031 0.038 0.044 0.053 0.049 0.048 0.045 0.046 0.052 0.051 0.053 0.054 5 77 Bizerte nominal 0.018 0.018 0.020 0.021 0.023 0.027 0.030 0.033 0.038 0.044 0.051 0.060 12 233 real 0.037 0.034 0.035 0.035 0.035 0.038 0.039 0.041 0.044 0.048 0.054 0.060 5 64 Beja nominal 0.018 0.018 0.020 0.021 0.023 0.027 0.030 0.033 0.050 0.050 0.056 0.063 12 250 real 0.037 0.034 0.035 0.035 0.035 0.038 0.039 0.041 0.057 0.054 0.059 0.063 5 72 Jendouba nominal 0.010 0.014 0.016 0.020 0.022 0.024 0.026 0.030 0.058 0.058 0.058 0.064 18 540 real 0.020 0.026 0.028 0.033 0.033 0.034 0.034 0.037 0.066 0.063 0.061 0.064 11 214 Siliana nominal 0.010 0.015 0.017 0.020 0.023 0.026 0.028 0.032 0.039 0.046 0.049 0.057 17 470 real 0.020 0.028 0.030 0.033 0.035 0.037 0.037 0.039 0.045 0.050 0.052 0.057 10 180 Sousse nominal 0.014 0.016 0.018 0.021 0.024 0.030 0.033 0.038 0.043 0.050 0.058 0.068 15 386 real 0.029 0.030 0.031 0.035 0.036 0.043 0.043 0.047 0.049 0.054 0.061 0.068 8 138 Monastir nominal 0.014 0.016 0.018 0.021 0.024 0.030 0.033 0.038 0.043 0.050 0.058 0.068 15 386 real 0.029 0.030 0.031 0.035 0.036 0.043 0.043 0.047 0.049 0.054 0.061 0.068 8 138 Mahdia nominal 0.014 0.016 0.018 0.021 0.024 0.030 0.033 0.038 0.043 0.050 0.058 0.078 17 457 real 0.029 0.030 0.031 0.035 0.036 0.043 0.043 0.047 0.049 0.054 0.061 0.078 10 173 Kairouan nominal 0.012 0.015 0.018 0.020 0.020 0.023 0.026 0.030 0.034 0.040 0.046 0.046 13 283 real 0.024 0.028 0.031 0.033 0.030 0.033 0.034 0.037 0.039 0.043 0.049 0.046 6 88 Kasserine nominal 0.010 0.012 0.015 0.018 0.023 0.023 0.023 0.025 0.025 0.030 0.038 0.038 13 280 real 0.020 0.023 0.026 0.030 0.035 0.033 0.030 0.031 0.029 0.033 0.040 0.038 6 87 Sidi nominal 0.010 0.012 0.012 0.018 0.020 0.024 0.026 0.028 0.033 0.038 0.042 0.042 14 320 Bouzid real 0.020 0.023 0.021 0.030 0.030 0.034 0.034 0.035 0.038 0.041 0.045 0.042 7 106 Gafsa nominal 0.006 0.008 0.008 0.009 0.012 0.012 0.014 0.014 0.018 0.020 0.020 0.020 12 233 real 0.012 0.015 0.014 0.015 0.018 0.017 0.018 0.017 0.021 0.022 0.021 0.020 5 64 Kebili nominal 0.010 0.014 0.014 0.015 0.017 0.017 0.019 0.019 0.019 0.023 0.027 0.033 11 230 real 0.020 0.026 0.024 0.025 0.026 0.024 0.025 0.023 0.022 0.025 0.029 0.033 4 62 US$/TD 0.679 0.779 0.835 0.794 0.829 0.858 0.937 0.800 0.920 0.880 1.000 1.000 129 Table 20.2 Operation and maintenance costs and water charges, 1990-1994 (Tunisian dinars per cubic meter) 1990 1991 1992 1993 1994 Cost Price Cost/ Cost Price Cost/ Cost Price Cost/ Cost Price Cost/ Cost Price Cost price price price price pdlce Ariana 0.053 0.033 63 0.055 0.038 69 0.065 0.044 68 0.058 0.051 88 0.062 0.060 97 Ben Arous 0.070 0.045 64 0.084 0.050 59 0.129 0.051 40 0.080 0.060 75 n.a. 0.062 Nabeul 0.049 0.037 76 0.066 0.045 68 0.078 0.047 60 0.069 0.050 72 0.068 0.054 79 Bizerte 0.044 0.033 75 0.057 0.038 66 0.087 0.044 51 0.071 0.051 72 0.056 0.060 107 Beja 0.042 0.033 79 0.047 0.050 106 0.050 0.056 112 0.058 0.059 102 0.058 0.063 109 Jendouba 0.037 0.030 81 0.053 0.058 110 0.044 0.058 132 0.037 0.058 158 0.035 0.064 183 Siliana 0.063 0.032 51 0.063 0.039 62 0.033 0.046 139 0.033 0.049 148 n.a. 0.057 Sousse 0.058 0.038 65 0.056 0.043 77 0.051 0.050 98 0.075 0.058 77 0.096 0.068 71 Monastir 0.064 0.038 60 0.072 0.043 59 0.089 0.050 56 0.065 0.058 89 0.054 0.068 126 Mahdia 0.093 0.038 41 0.090 0.043 48 0.111 0.050 45 0.117 0.058 50 n.a. 0.078 Kaairouan 0.054 0.030 56 0.052 0.034 65 0.052 0.040 78 0.065 0.046 71 0.049 0.046 94 Kasserine 0.056 0.025 45 0.056 0.027 48 0.144 0.031 22 0.105 0.038 36 0.071 0.038 54 Sidi Bouzid 0.066 0.028 43 0.071 0.031 43 0.086 0.037 43 0.079 0.042 54 0.068 0.042 62 Gafsa 0.110 0.014 13 0.043 0.018 42 0.034 0.020 58 0.035 0.020 57 0.035 0.020 57 Kebili 0.040 0.019 48 0.033 0.019 58 0.037 0.023 63 0.038 0.027 71 0.054 0.033 61 Table 20.3 shows real and nominal water trast demand has fallen by 1.8 percent for con- prices for 1983-1992 (Lahoual, et al. 1993). sumption above 150 cubic meters per quarter. The prices include a component representing 60 In some cases the demand has shifted towards percent of wastewater treatment costs. Urban alternative cheaper sources of water, especially and rural consumers pay the same prices for groundwater used to water gardens. Some water. households use groundwater without treating or The last row of Table 20.3 shows the nomi- boiling it before using it, which can cause ill- nal cost of producing and distributing water. ness. This figure does not include capital costs. In- Industries, tourist businesses, and standpipe dustries, public standpipe users, the tourist sec- users are also quite sensitive to water prices, and tor, and domestic consumers using more than shift to alternative water sources or employ 150 cubic meters of water pay prices which more efficient technologies whenever they can. slightly exceed the costs of water. By contrast Between 1983-92 industrial water demand has domestic consumers using tess than 20 cubic fallen by 3.3 percent per year and tourist sector meters per quarter receive significant subsidies: water demand has fallen by about 4.6 percent they paid only 28 percent of the total costs in per year. Although the current price structure 1992. The demand for water in the lowest (and leads to much greater water use efficiency, it has least expensive) consumption band has grown also led to financial problems for the water sup- about 3 percent a year due primarily because of pliers due to the drop in demand among con- new subscriptions (demand per household fell sumers who subsidize other users. by about 4 percent between 1983-92). By con- 130 Table 20.3 Nominal and real prices for urban and industrial water (Tunisian dinars per cubic meter) 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 Percent change Domestic (cubic meters) <20 nominal 0.080 0.080 0.080 0.080 0.084 0.088 0.099 0.106 0.095 0.095 1.93 real 0.150 0.138 0.129 0.121 0.118 0.115 0.120 0.121 0.100 0.095 -4.97 20-40 nominal 0.086 0.086 0.090 0.090 0.094 0.117 0.132 0.137 0.132 0.135 5.14 real 0.162 0.149 0.145 0.136 0.132 0.153 0.160 0.156 0.139 0.135 -1.97 40-70 nominal 0.111 0.118 0.129 0.129 0.135 0.150 0.165 0.162 0.158 0.161 4.22 real 0.208 0.204 0.207 0.195 0.189 0.196 0.200 0.184 0.167 0.161 -2.83 70-150 nominal 0.178 0.193 0.221 0.22 0.229 0.242 0.26 0.272 0.258 0.326 6.95 real 0.334 0.334 0.355 0.333 0.320 0.316 0.315 0.309 0.272 0.326 -0.29 >150 nominal 0.279 0.312 0.370 0.381 0.406 0.437 0.461 0.481 0.484 0.524 7.25 real 0.524 0.540 0.595 0.577 0.568 0.571 0.559 0.547 0.511 0.524 0.00 Public standpipes nominal 0.303 0.339 0.410 0.416 0.447 0.466 0.494 0.513 0.542 0.565 7.17 real 0.569 0.586 0.659 0.630 0.626 0.609 0.599 0.584 0.572 0.565 -0.08 Industrial nominal 0.308 0.346 0.419 0.426 0.459 0.477 0.506 0.526 0.559 0.577 7.22 real 0.578 0.598 0.674 0.645 0.642 0.623 0.613 0.598 0.590 0.577 -0.03 Tourism nominal 0.340 0.374 0.385 0.430 0.470 0.480 0.510 0.562 0.573 0.582 6.15 real 0.639 0.647 0.619 0.651 0.658 0.627 0.618 0.639 0.605 0.582 -1.02 Cost nominal 0.217 0.236 0.269 0.267 0.280 0.297 0.311 0.322 0.320 0.340 5.12 Note: The domestic consumption figures are for a period of three months. Source: Lahoual, et. al. 1993. Reused wastewater which have a long history of using treated wastewater for irrigation, such as Ariana, prices Since 1960 Tunisia has had experience us- tend to be equal to prices of conventional water. ing secondary treated wastewater for irrigation. This is inequitable, since farmers using treated Currently some 100 hecto cubic meters of wastewater can grow only a limited set of crops. wastewater per year undergo secondary treat- In regions where the use of treated wastewater is ment and are made available for irrigation, with new, such as Kairouan, wastewater costs much certain restrictions. In 1993 about 2,425 hec- less than conventional water. Its low price is tares were irrigated with treated wastewater. It intended to encourage farmers to use treated is estimated that by 2010 treated wastewater will wastewater for irrigation. Without strong price be used to irrigate about 28,500 hectares (Zekri incentives farmers are reluctant to do so, fearing et al. 1995). Prices of treated wastewater vary potential environmental and health impacts and widely between regions (Table 20.4). In regions disliking the restrictions placed on crop choice. 131 Table 20.4 Prices of secondary treated wastewater for irrigation (Tunisian dinars per cubic meter) 1991 1992 1993 1994 1995 Average percent increase Ariana nominal 0.041 0.044 0.051 0.060 0.069 13.90 real 0.050 0.051 0.057 0.064 0.069 8.51 Ben Arous nominal n.a. n.a. 0.048 0.050 0.055 7.04 real n.a. n.a. 0.054 0.053 0.055 0.99 Kairouan nominal n.a. 0.023 0.027 0.027 0.032 11.64 real n.a. 0.026 0.030 0.029 0.032 6.56 Source: Minist&re de I'Agriculture 1995b. References Planification, des Statistiques et des Analy- ses Economiques. Dossier 7. L'Office de Abdelhedi, T. 1995. "Code des Eaux: Une Mise en Valeur de la Vallde de la Medjerda, Strategie Moderne." Seminaire Interna- Tunisie. tional sur les Aspects Economiqes de la . 1985. "Recouvrement des Inves- Gestion de l'Eau dans le Bassin Mediter- tissements et des Frais d'Entretien et de raneen. CIHEAM, MAMVA et IAV Hassan Fonctionnement de l'Infrastructure Hy- II. Marrakech, May 17-19, 1995. Maroc. draulique du P.D.E.N." DEGTH et CNEA. Ben Khelil, M. 1971. "Etablissement d'une . 1986a. "Approche d'une Nou- Tarification du Cubic Meters d'Eau d'Irriga- velle Tarification de l'Eau d'Irrigation sur le tion pour les Grands Am6nagements." Primetre de la Basse Vallee de la Med- Ministere de l'Agriculture, Direction de jerda. La Tarification Binome." L'Office de l'Hydraulique et des Amenagements Ruraux, Mise en Valeur de la Vall6e de la Medjerda. Tunisie. DEER. Caponera, D. A. 1976. "Droit des Eaux dans . 1986b. "Tarification de l'Eau les Pays Musulmans." Bulletin d'Irrigation dans la Basse Vallee de la Medjerda. et de Drainage de la Food and Agriculture Aper,u Methodologique et Elements Organization 20 (1). d'Analyse." L'Office de Mise en Valeur de Lahoual, M., M. S. Rejeb, L. Bouzaiane, M. la Vall6e de la Medjerda. DEER. Direction Daousas, C. Mamoghli. 1993. "Etude des Etudes. Economique sur l'Eau Potable en Tunisie." . 1991. "Etude des Possibilites et SONEDE. Ministere de l'Agriculture, Tu- des Limites des Associations d'Interets nisie. Collectif dans la Gestion des Ouvrages Hy- Mallek, A. 1988. "L'Hydraulique Agricole du- drauliques du P.D.E.S. Cas des Associa- rant les Differents Plans." Guide de l'Eau, tions d'Interets Collectif du Jerid." DGGR Tunisie. Fondation de l'Eau, Tunis. et CNEA. Ministere de l'Agriculture. 1980. . 1995a. "Etude des Possibilitds et "Recouvrement des Investissements Hy- des Limites des Associations d'Interets drauliques en Tunisie." Vol. 1: Rapport de Collectif dans la Gestion des Ouvrages Hy- Synthese. DEGTH et CNEA. drauliques du P.D.E.S." Rapport Definitif. 1983. "Gestion et Entretien des DGGR et CNEA. Perimetres Irrigues. Rassemblement des . 1995b. "Etude de la Gestion et de Donnees et Diagnostic." Direction de la la Tarification de l'Eau d'Irrigation au Niv- 132 eau des Perimetres Irrigues. Diagnostic de World Bank. 1985. "Projet National d'Amelio- la Situation Actuelle." Vol 1: Rapport G& ration de la Gestion du Secteur Irrigue. neral. DGGR et Groupement CNEA-BRLi. Rapport d'Evaluation," Tunisie, 5396-TU. L'Office de Mise en Valeur de la Vallee de la Middle East and North Africa Region, Medjerda. 1976. "Etude de la Tarification ECA/MENA Technical Department. de l'Eau d'Irrigation dans la Basse Vallee de Washington, D.C. Ia Medjerda." Ministere de I'Agriculture, Zekri, S., L. Ghezal, T. Aloui, K. Djebbi. 1995. Tunisie. "Les Externalit6s Negatives de l'Utilisation Sghaier, M. 1995. "Tarification et Allocation des Eaux Usees Traitees en Agriculture." Optimale de l'Eau d'Irrigation dans les Seminaire Internationale sur les Aspects Systemes de Production de la Region Oasi- Economiques de la Gestion de l'eau dans le enne de Nefzaoua (Sud de la Tunisie)." Bassin Mediterraneen. Marrakech, May These de Doctorat. Universite de Gand. 17-19, 1995. Maroc. Belgium. July 1995. 133 21 UGANDA Hillary Onek Introduction Uganda has abundant sources of water sup- porting and sustainable basis: some towns and ply including streams, natural wells and springs, subscribers may cross-subsidize others, but over- lakes, rivers and underground aquifers. In all the water utility must be financially viable. Uganda prices of water have tended to be influ- The Corporation is responsible for financing its enced by social factors. Before the National recurrent expenses and minor capital expen- Water and Sewerage Corporation took over water ditures, and does not receive subsidies for these. supply and sewerage services in 1972, water It does receive grants and loans for major devel- charges were set mainly to satisfy the desires of opment works, through the government from the urban inhabitants, and consumers were paying agencies such as International Development As- no more than a token fee for water. Water sociation, Kreditanstalt fur Wiederaufbau, charges were incorporated into house rents (house Austria, Germany, and the European Union. rents were also heavily subsidized). Very few The government of Uganda owns The Nat- people benefited from these subsidies, however. ional Water and Sewerage Corporation. The Many of those who did were civil servants living Minister of Natural Resources has the power to in towns. Water charges did not come close to re- designate the National Water and Sewerage Cor- flecting the costs of supplying water. poration responsible for any of Uganda's urban It is estimated that only about 40 percent of water systems through statutory instruments. In- the people living in rural areas (where 90 percent itially the Corporation was responsible for the wa- of Uganda's people live) has access to safe drink- ter and sewerage systems of Uganda's three lar- ing water supplies, mainly from boreholes with gest towns, Kampala, Jinja, and Entebbe. The handpumps and protected springs. Rural people Corporation then took on the responsibility of op- without access to safe drinking water obtain water erating the water supply systems in six additional from unimproved and often unsafe sources, towns, bringing the total to nine. In these towns, sometimes far from their dwellings. 50 percent of water supply is distributed to res- There are currently about 34 urban centers in idences, 21 percent to industries and commercial Uganda with some form of piped water supplies. enterprises, and 29 percent to government offices About half the residents of the nine major towns and other institutions. with water systems operated by National Water and Sewerage Corporation-Entebbe, Gulu, Jinja, Water pricing practices in the past Kampala, Lira, Masaka, Mbale, Mbarara and Tororo-obtain their drinking water from the In 1971 water was declared a gift of God and piped water network. Most of the water supply made available to consumers free of charge. But installations in urban areas not served by National in 1984 the government changed its policy, and Water and Sewerage Corporation have virtually established a tariff system. The water charge ceased to function due to the near absence of fin- system was based on the following principles: ancing. It is estimated that only 15 percent of the water is a scarce good so prices should be set to inhabitants in these towns have adequate water encourage consumers to conserve; water utilities supplies. should be financially self-supporting; prices The National Water and Sewerage Cor- should ensure social equity; charge systems poration was established in 1972 with the objec- should be easy to understand and administer; and tive of operating urban water and sewerage sys- charges should be different for different cat- tems within Uganda on a nationally self-sup- egories of users. 134 Commercial users pay three times as much Tariffs are reviewed each year as part of the per cubic meter than persons obtaining water pub- budgeting process. Expected revenue from tariffs lic standpipes. The rationale is that water used for is compared with planned expenditures, and both commercial and industrial purposes is an input to are adjusted sd that revenues cover costs. In- business activities and generates profits. Charges creases in tariffs are made only after considering also reflect the different levels and costs of pro- the unit costs of production, affordability, and the viding services: supplying water through stand- level of inflation since the last tariff increase. pipes is far less costly than piping water to indiv- Table 21.1 shows increases in water tariffs since idual users. 1989. Table 21.2 provides detailed tariff data. Table 21.1 Increases in water tariff increases since 1989 (percent) Percent increase March 1989 360 November 1989 60 May 1990 69 September 1991 16 August 1992 45 Introduction of Commercial Transactions Levya 25 August 1993 20 March 1994 60 Since March 1994 0 a Commercial Transactions Levy: government tax of 15 percent applied to all water and sewerage bills starting in July 1993, all proceeds from which are forwarded to the government of Uganda. Importantfeatures connection. In September 1993, the utility in- troduced minimum charges for gov- Tariffs were set to differentiate between dif- ernmenttinstitutions and industry/commercial ferent categories of consumers, with poor urban users and for public standpipes. households paying the lowest rates. Unmetered Starting in September 1993, the two bands charges were set according to the number of taps for assessed govermnentlinstitutional and indus- for residences, and the number of consumers for trial and commercial categories - 250-500 users institutions and government offices. (number of persons drawing water from the con- In the past all consumers other than public nection) and more than 500 users - were com- standpipe users were charged a fee for sewerage bined into a single category: more than 250 users. equaling 50 percent of their water charges, In Uganda there is little irrigation, and none whether or not they were connected to the main which is publicly-supported. Irrigators tend to sewage systems. However starting in June 1990, grow crops generating high returns such as flow- the National Water and Sewerage Corporation in- ers and fruits. The country enjoys abundant rain- troduced a new charge system which dif- fall, and irrigation is not needed for subsistence ferentiated between category of consumer (dom- crops. estic, institutional and government, and industrial and commercial consumers). At the same time, it Present water pricing practices introduced a tiered tariff for industrial and com- mercial users and a minimum charge for en- Currently, water charges are based on a terprises with meters depending on the size of the number of principles. One is full cost recovery; 135 all operation and maintenance costs, depreciation (US$0.38) while commercial and industrial con- and capital costs are included in the tariff. An- sumers pay 1,056 shillings per cubic meter other is social equity. Water charges for the less (US$1.00). Commercial consumers must also privileged are about one third charges to more af- pay surcharge of 100 percent for sewerage while fluent commercial and industrial users. Standpost standpost consumers do not. consumers pay 400 shillings per cubic meter Table 21.2 Tariff schedule, 1989-94 (Uganda shillings) Dec. 1989 June 1990 Sept. 1991 Sept. 1992 Sept. 1993 April 1995 Public standpipes Unmetered (per month) 5,520 9,375 10,800 15,700 18,750 30,000 Metered (per cubic meter) 74 125 145 210 250 400 Domestic use Unmetered (per month) 1 tap 736 1,250 1,440 2,100 2,310 3,696 2-4 taps 2,208 3,745 4,310 6,250 6,930 11,088 5-8 taps 3,312 5,620 6,460 6,930 11,550 18,480 over 8 taps 4,968 8,430 9,700 14,070 17,325 27,720 Metered (per cubic meter) 112 190 220 320 385 616 Institutions and government Metereda(per cubic meter) 133 225 270 395 475 760 Major industrial and commercial Metered (per cubic meter) First 500 permonth 243 315 380 550 660 1,056 501-1,500 per month 243 380 455 660 790 1,264 > 1,500pernmonth 243 425 510 740 890 1,424 Minor industrial and commercial Metered (per cubic meter) 243 315 380 550 660 1,056 a For institutions and government offices without meters, monthly consumption is estimated. Note: Minimum charges, connection fees, reconnection fees, penalties, and sewerage charges are not included. (US$ = 1,050 shillings). Unmetered residential consumers pay flat (US$3.75). Commercial consumers pay 1,056 rates, but commercial and industrial consumers (US$1.00) shillings per cubic meter for the first pay increasing block rates. Flat rates are based on 500 cubic meters, 1,264 shillings (US$1.20) per the number of taps for domestic consumers. The meter for the next 501-1,500 cubic meters per lowest rate per month is 3,969 shillings month, and 1,424 shillings (US$1.35) for con- sumption over 1,500 cubic meters per month.9 49 The exchange rate in June 1996 was about 1,050 Uganda shillings = US$1. 136 Successes ing taken to regularize standpost vending and control the prices vendors charge. Because of the move to full cost recovery, Many consumers do not understand or are the National Water and Sewerage Corporation willing to pay the surcharge for sewerage, and ar- has been able to sustain its operations and even rears are high. While the utility has the authority expand its manpower development programs. to disconnect nonpaying consumers and take Revenues have risen, so the Corporation is dev- them to court for outstanding charges, it still does eloping its operational capacity. Because of its not fully utilize its powers. Many consumers be- good performance, the government has given the lieve that it is fairer to raise charges per cubic me- Corporation responsibility to operate the water ter of water than to raise minimum charges. Fin- and sewerage systems in three additional towns, ally consumers view reconnection fees, imposed bringing the systems under its management to on consumers who are disconnected for twelve. The number of consumers the utility nonpayment of water bills as excessive. Cur- serves has grown from 30,000 accounts in rently these charges range from 38,280 shillings 1993/94 to approximately 59,000 accounts by the (US$36.25) for households to 125,300 shillings end of 1995. Because water is more available and (US$118.37) for consumers with 1/2 inch pipes. affordable, public health and hygiene in the towns This discourages potential consumers from apply- where the utility operates has improved. ing for water connections. However, changing Residential consumers especially like the flat the tariff structure is difficult and cumbersome: rate charge system, since it makes budgeting fair- tariffs cannot be set or changed without gov- ly easy. They are therefore much more able and emient cabinet approval. willing to pay than in the past. The increasing block pricing strategy for industrial and com- Current debates and future prospects mercial consumers is working effectively. While the Corporation is a monopoly and can therefore Pricing set prices at any level it pleases, it has chosen to keep its tariffs affordable and has avoided con- The Corporation is currently reviewing its sumer resentment. tariff structure. Among the options being con- In some of smaller urban centers where the sidered are abolishing minimum charges and re- Corporation operates, such as Gulu and Lira, poor placing them with volumetric charges based on inhabitants sometimes prefer to collect water free actual meter readings; charging flat fees for sew- of charge from the nearest wells and borehole erage rather than basing the fees on water con- pumps - even when they can afford to pay for sumption; reducing or reformulating the new con- water from taps. This because the labor of the nection and reconnection fees in order to en- people who collect the water, usually children, is courage more consumers to join the Corporation valued at very low levels. network; licensing public standpost vendors to re- duce or eliminate the rent which unregulated ven- Difficulties dors currently extract from the system; and intro- ducing a flat monthly service fee. The attitude that water is a free gift of God The Corporation is currently enjoying a still persists and not all consumers pay their water monopoly on water supply and sewerage services. bills in a timely manner. It is difficult to stop ven- However, it may be appropriate to privatize some dors from charging excessive prices at standposts of its activities to improve its efficiency. For ex- since the Corporation does not currently license ample, the private sector could handle bill pro- them. This discourages some consumers from cessing and collection, leaving the Corporation using the standposts. Measures are currently be- with responsibility only for producing and dis- tributing water. 137 References . Various years. "Board Proceed- ings, 1994-1996". National Water and Sewerage Corporation. Uganda. 1995. "National Water and Sewerage Various years. Annual Reports 1993, 1994, Corporation Statute. Statute Supplement 1995. No. 7." 1994. National Water and Sewer- . Various years. "Background to age Water Tariff. the National (Uganda) Budget, 1991-96." 138 22 UNITED KINGDOM Judith Rees Introduction The United Kingdom is well endowed with sources are relatively plentiful. There are no water resources, but rainfall is not well distrib- charges for abstraction. uted in relation to population. Annual rainfall in In England and Wales a license system has Scotland, Northern Ireland, Wales, northwest gradually replaced the common law approach and southwest England, all of which are rela- since 1945. Since 1968 abstraction charges tively sparsely populated, averages more than have been levied. Until 1993 the charging 1,000 millimeters per year (1,400 millimeters in schemes varied by region. The 29 catchment- Scotland), but is less to the south and east. East based river authorities initially deternined the Anglia, for example, receives about 610 milli- rates; after the 1974 reorganization of the water meters rain per year, and the densely-populated industry, the 10 multi-purpose regional water Thames region receives some 700 millimeters. authorities took over this responsibility. In the drier south and east, the abstraction of Typically, charges comprised annual fixed water (excluding water for power stations, fish access fees (or minimum charges) - designed farms, and others with 100 percent return flows) to recover the basic administrative costs of the is already close to exceeding 1-in-50 year licensing system - plus unit charges levied on drought rainfall levels. Indeed, in the Thames the quantity of water authorized for abstraction. area abstraction exceeds this threshold, when Charges were not generally based on actual use. considering the high levels of water reuse. However, in some areas concessions were made Good data on abstraction are available only to spray irrigators, who paid a proportion for England and Wales; abstractions in Scotland (normally 25 or 50 percent) of the charges for and Northern Ireland are not licensed and meas- authorized abstraction, and became liable for uired. Over England and Wales as a whole, 80 further payments in years when actual usage percent of abstracted supplies (25,860 million exceeded that proportion. liters per day) is taken from surface water Authorization (or availability) charges were sources. But in southeast England and East An- calculated by establishing a basic price per glia groundwater is more important, providing authorized unit and then adjusting the price us- 50 percent of supplies. Excluding abstractions ing weights to take account of factors such as from tidal sources and those for uses with 100 season, source, return flow rates, river quality, percent return flows, the public water supply and the degree of support provided to maintain sector uses 80 percent of abstractions, industry river flows. By law, the regional water authori- and power stations use 17 percent, and agricul- ties could set charges high enough only to re- ture uses 3 percent (Water Services Association cover resource management costs; charges were 1995, Department of Environment 1994). typically too low to act as a demand manage- ment tool. Abstraction charges Piped water charges Traditionally, public water supply agencies, industries, and farmers obtained riparian rights Historically, domestic water supply was under common law to abstract water from be- provided to all as a universal service, regardless low, on, or adjacent to their property. This of ability to pay. Virtually all domestic, and common law system remains in force in Scot- many commercial properties, paid for water ac- land and Northern Ireland, where water re- cording to the rental (ratable) value of the prop- 139 erty, the normal basis for assessing local gov- demand management tool since, in accordance emmnent taxes. Under this system charges are with the 1989 Water Act and subsequently the not related to consumption so consumers have 1991 Water Resources Act, the National River no incentive to conserve. However, industry Authority cannot set charges higher than are and some commercial enterprises had meters, needed to recover costs properly charged to the and paid on the basis of quantities used. water resources account. In practice this means Until the late 1980s all regions of the that charges are low since the National River United Kingdom used this system. This is no Authority undertakes relatively little capital in- longer the case. Today the different regions use vestment in river flow management; water com- different charging systems. In Scotland, charges panies undertake most such investments. were briefly based on the "community charge" The national scheme imposes an applica- (poll tax), a fixed annual fee assessed on each tion charge for all new or revised licenses and adult occupying the property. Charges are now an annual charge based on the authorized ab- based on the council tax liability of properties, straction volumes. Annual charges are calcu- which is established by assessing asset values lated from a standard formula, V x A x B x C x and placing properties into one of eight charge SUC, where: bands. In Northern Ireland some properties are V= Licensed volume. metered, but most pay for water as part of their A = Source factor. Abstractions from sources local council rates. In England and Wales the where there has been capital investment privatization of water suppliers in 1989 initiated are multiplied by a factor of 3; abstrac- a move away from basing water charges on local tions from sources where there has not tax assessments. Indeed a law was passed re- been capital investment (including all quiring all companies to implement new charg- ground water) are multiplied by a factor ing systems by 2000. In the meantime proper- of 1; and abstractions from tidal waters ties pay for water on the basis of historic ratable are multiplied by a factor of 0.2. values, although new properties are normally B = Season factor. Year-round, factor of 1; metered. summer only, factor of 1.6; winter only, factor of 0.16. Present water pricing practices C = Loss factor. High loss, factor of 1 (spray irrigators); medium loss (public water Abstraction charges in England and Wales supplies, most commercial and indus- trial use), factor of 0.6; low loss Following the privatization of the water and (mineral and vegetable washing, none- sewerage utilities, the resource conservation and vaporative cooling), factor of 0.03; very river management functions of the regional wa- low (power generation, fish farms, ef- ter authorities were transferred to the National fluent dilution), factor of 0.003. Rivers Authority. In 1996 the National Rivers SUC = Standard Unit Charge. This varies by Authority became part of the Environmental year and by region, depending on Na- Agency. It was widely accepted that the inher- tional River Authority regional expen- ited abstraction charging schemes lacked con- diture. SUCs for 1995-96 ranged from sistency and failed to "bear any relationship to £6.29 per 1,000 cubic meters in York- the full costs imposed by particular abstractions, shire to £16.22 per 1,000 cubic meters including the costs imposed on the environment" in Northumbria.50 (Department of the Environment 1992). How- While the use of standardized national fac- ever, the national scheme introduced in 1993, tors is administratively simple and give the ap- while removing the inconsistencies, is far from pearance of fairness (abstractors are treated the setting charges which reflect the impact of indi- vidual abstractions on water resources and the environment. Moreover, it is not effective as a 50 £1=US$1.61. 140 same way regardless of location), less attention between 52 and 122 percent. The rate of in- is now paid to the spatially differentiated costs crease was slowed in April 1995, when the Di- and impacts of abstraction. An abstractor taking rector General of Water Services established water from an overused catchment or depleted new limits on annual price increases under the aquifer will pay the same amount as one utiliz- retail price index ± an adjustment factor "k" ing a source with excess capacity. And, given system of price controls."' The government set the prohibition against charging more than is the limits to be effective during the first five needed to recover cost, charges levied on winter years of private operations. Today average wa- only, surface, or tidal abstractions, which have ter charges are still not high by international negligible effect on resource availability, limit standards: average household bills are currently the National River Authority's ability to charge £99 per year for water and £112 for wastewater, more for abstractions in water-short areas and although there are wide variations among com- low-flow periods. Other difficulties arise due to panies. However, the steep increases, coupled the use of authorized quantity as the sole meas- with the high profits made by private companies, ure of volume. Industries and private water means that water price levels have become a companies have no incentive to conserve politically contentious issue, in addition to the (through recycling or increased leakage detec- long-standing debate over charging methods. tion), since their charges are unaffected unless The government, the economic regulator, they forego part of their license - which they and the National River Authority and Environ- are reluctant to do since licenses normally have mental Agency all favor the introduction of me- a significant asset value and may be difficult to tering and tariffs based on consumption to pro- obtain or renew if water demand changes in the mote efficiency, equity, and environmental sus- future. tainability. It is recognized, however, that intro- The national scheme also takes no account ducing universal metering immediately would of the value of return flows: water companies be prohibitively expensive: installing internal are placed in a single loss factor category re- meters on existing properties would cost about gardless of the water return point. Thus, there is £165 per property, and installing the more no incentive to make such returns in upstream common external meter would cost £200. An- parts of the catchment, where they could add to nual operating costs would amount to approxi- river flows and be made available for reuse. mately £13 (Ofwat 1995). These expenses, Further, the regionally-based standard unit which the consumer must ultimately bear, can charges reflect past investments and have little only be justified economically and socially to do with current water availability. The high- where metering is the cheapest method (in eco- est charges are in Northumbria, a region with a nomic and environmental terms) of maintaining large resource surplus. Areas with the lowest supply and demand balances. These conditions margins between effective rainfall and actual will apply in resource-scarce areas where incre- abstractions have charges which are 14 percent mental supply costs are high. A number of lower (Anglia), 36 percent lower (Southern), companies have begun selective metering pro- and 51 percent lower (Thames) than Northum- grams (for example, Anglian, Mid Southern, bria. Severn Trent), including those which target high peak users such as sprinkler users and swim- Piped water charges ming pool owners. In addition all companies have optional meter schemes, and allow custom- Since water suppliers were privatizated water charges have increased markedly. Be- 51 The "k" is a number specific to each company, and indi- tween 1989 and 1994-95 unmetered household cates the company's allowable changes in annual charges. At the bills increased between 50 and 150 percent (in time of privatization in 1989, the Secretary of State set the adjust- ment factors. However, in 1994 the Director General of Water nominal terms) depending on the water com- Services reset them. They will continue to be revised every five or pany. In addition, unmetered sewage bills rose ten years. 141 ers to choose their payment methods: under tional River Authority 1995). More recently, most schemes the customers pay a subsidized comparison of consumption during the hot rate for meter installation, although some com- summer of 1995 among metered and unmeas- panies (for example, South East Water) will in- ured users showed that metering largely re- stall them free of charge. moved the peak-use component (Mid Kent Wa- The droughts of 1989-92 and 1995-96 ter Company 1997, personal communication; have highlighted the need to treat water as an Folkstone and Dover Water Company 1995). economic good and to employ demand man- agement measures to help achieve supply and Current debates and future prospects demand balances. However, opposition to rais- ing prices remains strong, and the government Abstraction charges has not made the installation of meters compul- sory. Although the percentage of households Although the government favors the use of and businesses with meters has grown consid- economic instruments for environmental man- erably since 1991-92 - from 2.8 to 7 percent agement, it is by no means certain that it will of households and 66 to 76 percent of businesses allow their use to manage water demand in the - over 72 percent of all piped water is still pro- near future. vided on an unmeasured basis. It is widely accepted that current charges Some people oppose metering on ideologi- provide little incentive to conserve. Recent re- cal grounds, viewing water as an essential, uni- search suggests that raw water may be seriously versal right, others are reluctant to contemplate underpriced: in the Thames region it is estimated the redistributive effects which would result that the abstraction charges cover only 10 per- from metering, still others are concerned for the cent of the cost of incremental expansion, let health and hygiene of low-income families, and alone the costs of environmental externalities. some are suspicious that metering will be an However, there is considerable political opposi- excuse for water companies to increase prices tion to increasing water charges. As the water and profits. Although some water companies companies account for 81 percent of consump- have announced their intention to progressively tive abstraction (the remainder is for fish farm- introduce metering (for example, Anglian and ing, mineral washing, and nonevaporative cool- South East Water) there are still many within the ing) it is inevitable that their customers would industry who doubt that the costs can be justified pay most of the increase in raw water costs. The by reductions in demand and delayed develop- National River Authority and Environmental ment of new capacity. Some authorities are re- Agency are, however, investigating the practical luctant to accept the greater instability in reve- implications of introducing incentive charges. nue that metering potentially brings, and prefer Their introduction will depend on the willing- to retain fixed annual fees. ness of the government to change the law and There is now considerable evidence in the remove the current prohibition on collecting United Kingdom that metering does reduce con- revenues in excess of costs. sumption. In a large-scale trial conducted in the Studies are also being conducted on the Isle of Wight, average daily demand fell by 22 potential role of tradable permits in improving percent between 1987 and 1992; importantly, water use efficiency: tradable permits are metering also significantly reduced peak de- thought to be less politically contentious than mand (Binnie 1992). In smaller-scale trials environmental taxes. However, permit trading is conducted from 1989-92 in 11 districts using a not without problems. For example, if currently variety of different tariff structures, average an- unutilized or underutilized licenses are traded, nual demand per household fell by approxi- resource shortages could be exacerbated; if mately 11 percent: in dry summers monthly, trading increased consumptive use, moved water weekly and daily peaks were reduced by 25-35 between catchments or shifted the location of percent (Department of Environment 1993, Na- return flows, environmental damage could arise. 142 It is likely that policymakers will be cautious the Paying for Water Symposium, London, before introducing tradeable permits, but trials January 28. could be undertaken in the near future. Department of the Environment. 1992. "Using Water Wisely: A Consultative Paper." Lon- Piped water charges don. 1994. "Water Metering Trials- No one expects an immediate move to me- Final Report." National Metering Trials tering and charges based on use. But if current Working Group, London. trends continue, the proportion of metered . 1994. "Digest of Environmental households will increase to 14 percent by 2000 Protection and Water Statistics." London. and 33 percent by 2015. And progress could be Folkstone and Dover Water Services. 1996. more rapid. Following the 1995-96 drought, a "The Impact of Metering on Peak Water number of companies started to require sprinkler Use." In OfWAT Annual Report 1995/96, users and swimming pool owners to use meters; Birmingham. others have introduced free meter optional OfWat. 1991. 1991. "Paying for Water; the schemes, which have proved attractive to cus- Way Ahead." Birmingham. tomers, especially those with high property as- . 1994. "Future Charges for Water sessments. However, much will depend on and Sewerage Services." Birmingham. politics and the attitude of the new Labour gov- . 1995. "1995-96 Report on Tariff emnment. A decision will have to be made soon Structure and Charges." Birmingham. about allowable charging methods for nonme- National Rivers Authority. 1995. "Saving Wa- tered households after 2000: the law prohibits ter: The National River Authority's Ap- the use of property assessments as the basis of proach to Water Conservation and Demand water charges after that date. Although the cur- Management." National River Authority, rent government has announced its intention to Bristol. allow the current system to continue and refuses . 1995. "1995-96 Annual Ab- to allow the use of the new council tax as the straction Charges." National River Author- charging base, it has not yet introduced legisla- ity, Bristol. tion to change the law. The Labour government Rees J., and S. Williams. 1993. "Water for Life may allow the use of a council tax based system. Strategies for Sustainable Water Resources Management." Council for the Protection of References Rural England, London. Water Services Association. 1995. "Water Binnie, C.J.A. 1992. "Demand Management, Facts 1995." London. Tariffs and Metering." Paper presented at 143 23 UNITED STATES Richard W. Wahl Introduction In the United States, state agencies, rather costs of designing and constructing new storage than the federal government, generally grant and delivery facilities, the costs of purchasing rights to use water for a particular purpose at a water rights, the legal and engineering expenses specified location. These state agencies charge of transferring those water rights to new users, fees for filing and processing new permits and and the costs of obtaining permits for any new for reviewing and processing changes in the use facilities, and the demand of final consumers. of existing water rights, but do not charge for Of course, the demand of final consumers will to the use of the resource. However, once water some degree depend on the availability of alter- rights are in private hands, private parties gen- native water supplies which they can exploit erally can sell or lease them, with certain res- themselves, such as rivers, groundwater, or rain- trictions, to other water users. In such sec- water collected in impoundments. ondary markets, the price would normally reflect In places where there are water markets, a value for the resource. owners of water rights can sell water. Districts, Water is provided to final users through a industries, and individuals aware of these oppor- variety of institutional arrangements. Urban res- tunities can price water to themselves at the reg- idents normally receive water from local water ional market value of water; that is they can hus- districts (city, county, or other special water band the resource at its opportunity cost. Op- district). Industries may receive water from ur- portunities for selling water are not normally ban water districts, or may have their own available to urban water users, but may be avail- sources of supply; large industries in rural areas able in varying degrees to individual farmers are particularly likely to have their own supply within in an irrigation district. This is because sources. Farmers often receive irrigation water farmers use larger blocks of water and because from irrigation districts that construct and main- their supply is typically a larger fraction of an tain water storage reservoirs and delivery canals agricultural districfs supply. for shared use. Most urban and agricultural wa- ter districts are organized under state laws which Revenues through tax assessments limit the charges they can impose to no more than their costs. Accordingly, most districts Both urban and agricultural districts may price their water to cover costs of delivery, in- obtain revenues from tax assessments based cluding the costs of building and maintaining either on the value of property or the number of facilities within the district. Where districts pur- acres of land owned. In the past, these as- chase some, or all, of its water from a larger sessments were used to provide financial "umbrella" district or a state- or federally-fin- security for district water suppliers. Such as- anced water facility, prices also include pay- sessments on land were based on the rationale ments made to the external water authority. that all property owners within a district enjoyed A district needing to increase its water sup- a benefit from the availability of water- reflec- plies would compare the cost of developing new ted in the increased value of their land- even if facilities to store and deliver water using its own they did not use the resource. Water districts water rights with the cost of purchasing water were formed with legal authority to place liens from other sources. Therefore, in places where on the property of owners who failed to pay there are functioning wholesale markets for wa- their assessments. ter, the market price will be determined by the 144 Charges based on property assessments must be set to recover costs, but no higher; wa- provide no incentive to conserve the resource, ter suppliers are not profit-making enterprises. and among urban water districts this practice has Rate structures employed by water districts in- been declining. For example, the percentage of clude flat-rates, declining block rates, and in- revenues collected through property taxes by the creasing block rates. Specific rates and block Metropolitan Water District of Southern Cali- sizes are typically differentiated among various fornia fell from over 80 percent before 1950 to customer classes, such as residential, com- less than 50 percent since 1970. The district ex- mercial, industrial, and public uses (such as pects this percentage to decline still furtber parks and municipal buildings) (Beecher, Mann, (Metropolitan Water District of Southern Calif- and Landers 1990; American Water Works omia 1990). Association 1991; American Water Works As- sociation Research Foundation 1997). Federally subsidized irrigation water Declining block rates, once justified as quantity discounts, have been criticized as wasteful by One special case deserves mention: in order economists and others, and over the past three to promote settlement of the arid western United decades have been employed less and less. States, the United States Congress established Since the most economical water sources the Bureau of Reclamation in 1902, and offered are typically developed first, the long-run marg- interest-free loans for the construction of ir- inal costs of expanding water supplies are gen- rigation water systems. Subsidies grew from erally increasing. Therefore, pricing water at levels of around 14 percent near the beginning average cost leads to undervaluation and over- of this century to levels of over 90 percent in the use. But, just how to employ long-run marginal 1980s, principally because Congress extended cost pricing remains controversial and prob- repayment periods (Wahl 1989). As a result, ir- lematic for both practical and theoretical rigation districts receiving water from Bureau reasons. Some utilities in water-short areas use facilities, which supply water to about 20 per- increasing block rates. But, flat rates by cus- cent of the irrigated acres in the West, were able tomer class are the most common. A growing to price water at far less than the economic cost response intended to reflect the higher costs of of delivery. Urban and hydropower users re- facility expansion is the use of "tap" fees, under ceived smaller subsidies, by paying positive but which new residential subdivisions or businesses below-market interest rates. are charged a one-time system connection fee to defray a portion of the cost of increasing system Present Water Pricing Practices capacity. In the past, some agricultural districts have The rest of this chapter focuses principally charged different rates based on the cost of de-- on issues of pricing water to final consumers, livering water to different locations within their rather than on wholesale water markets, al- districts, while others have charged uniform though pricing in the latter is clearly influenced rates. The Westlands Water District in Calif- by the former. omia, for example, has historically charged more to users on higher elevation lands, because Water rate structures pumping costs are higher and the price of water purchased from the federal Central Valley Nearly all water districts charge for water Project is higher (Table 23.1). on the basis of their average costs. Costs for State or federal legislation may contain wastewater treatment may be included in general exhortations to conserve water, but leg- charges for water, particularly for residential ur- islation rarely mandates rigorous examination of ban customers. The practice of setting prices to rate structures. Nevertheless, both urban and reflect average costs derives principally from the agricultural water districts are becoming more legal requirement in most districts that charges aware of the economic consequences of water 145 pricing. An analysis of different rates structures based on the account balances of individual dis- by urban districts has become more common, tricts. Table 23.1 illustrates depicts typical rates. and an increasing number of water utilities have tried to modify their rate structures to avoid dis- Umbrella districts incentives to conservation (such as declining block rates) and, in some cases, to incorporate Another issue in establishing incentive incentives for conservation. prices is the relation between regional umbrella Prominent examples of incentive pricing districts and their member water districts. For have been instituted by a few irrigation districts example, the Metropolitan Water District of in California's Central Valley seeking to reduce Southern California is the residual supplier of the application of irrigation water to lessen the water to some 27 member agencies. These outflow of contaminated drainage water from agencies obtain water from their own sources in their districts (Thomas and Leighton-Schwartz addition to the Metropolitan Water District. The 1990; Wichelns 1991). For example, in 1988 Metropolitan Water District has argued that it the Broadview Water District increased its may do little good for it to price water at long- charges for water used above 90 percent of his- run marginal cost if its members do not. Any in- torical averages by 2.5 times, from US$16 per crease in prices which the Metropolitan Water acre foot"2 to US$40 per acre foot, where water District establishes for new supplies will be sig- application rates are computed by crop.53 In nificantly diluted if member agencies average 1987 the Pacheco Water District adopted a sim- the new fees with the those reflecting the costs ilar a system of crop-specific tiered rates, with of obtaining water from other sources. The con- water in the first tier costing US$36 per acre- tractual relations between umbrella districts and foot and water in the second tier costing US$60 their members is an area that needs to be ad- per acre foot. In 1989 the Central California Irr- dressed if incentive pricing is to be fully ef- igation District adopted a tiered rate that is in- fective. dependent of the crops grown: charges for water almost tripled (from US$5.50 per acre foot to Subsidy reform US$15.00 per acre foot) for water volumes above 3.25 acre-feet per acre.54 In 1989 the dis- There have been several attempts to reform trict lowered the second tier to US$10.00 per the subsidized pricing of irrigation water of fed- acre foot because it was collecting more than eral projects. Proposals to raise prices have had needed to recover costs. little success because districts have long-term All districts receiving water from the large contracts for water. Furthernore, districts have federal Central Valley Bureau of Reclamation allies in the United States Congress supporting project are required to use incentive pricing un- their efforts to prevent rate increases. der the Central Valley Project Improvement Act One significant exception is the Central of 1992 (Title XXXIV of Public Law 102-575). Valley Project Improvement Act. Established to The Act establishes a three-tiered rate for water protect the fishery and recreational resources in prices: higher rates are charged for water above California rivers and estuaries, this legislation 80 percent and 90 percent of historical contract adopts a three-pronged approach: reallocating amounts. Water rates in the Central Valley Pro- some water for instream use; increasing charges ject vary by region, based on the services pro- to water districts through the introduction of vided, such as project storage, canal con- tiered rates and a flat surcharge of US$6 per veyance, and additional pumping charges, and acre-foot (Table 23.1); and placing additional revenues in a fund to buy water from the af- 52 1 acre foot = 0.4 hectare. fected districts and other sources (Wahl 1994). 53 Unless otherwise noted, all ptices are in 1988 US dollars. This legislation illustrates the complex links between conditions external to a district " I acre foot = 1235 cubic meters. and its own pricing structure. In addition to 146 raising federal charges to Central Valley Project eral projects (Wahl, 1989). Over the long-term, irrigation districts, the legislation reduces del- the existence of markets should lead districts to iveries to districts and facilitates the marketing value water internally at its external opportunity of district water for both commodity and in- cost - if not to formally price water at that stream uses. These latter provisions may lead level. The Bureau of Reclamation adopted such districts to reexamine their internal pricing struc- a policy in 1989, and applied it to all of its pro- tures. jects. The Bureau of Reclamation is now pre- The adoption of policies to facilitate market paring a study of incentive pricing, that may transfers of water may prove an easier route to lead to the adoption of guidelines for irrigation encouraging more efficient use of water than districts to use in setting prices. legislatively mandating pricing reforms, part- icularly for subsidized irrigation water on fed- Table 23.1 Rates and surcharges for irrigation water attributable to the Central Valley Project Improvement Act (1994 US$ per acre foot) Before Act After Act (US$6 surcharge, plus tiered rate) Up to 80 percent 80-90 percent 90-100 percent Anderson Cottonwood Irrigation District, Northern Sacramento River 7.94 13.94 17.19 20.43 Colusa County Water District, Tehamna Colusa Canal 24.51 30.51 59.38 88.25 Westlands Agricultural Water District, Delta Mendota Canal 18.52 24.52 46.63 68.73 Westlands Water District, San Luis Canal 33.46 39.46 63.85 88.23 Madera Irrigation District, Madera Canal 25.04 31.04 42.08 53.12 Delano Earlimart Irrigation District, Fraint-Kem Canal 21.15 27.15 37.60 48.05 Pricing of the resource Management Act of 1980, in addition to other measures, imposed taxes on pumping that were It is unlikely that states will begin to im- expected to increase over time. In other lo- pose a resource charge for the abstraction of sur- cations in the West, local and state governments face water, given the long history of not doing have instituted a variety of measures to allow so. However, there have been some initiatives use and recharge of groundwater basins. The at the state level to charge for water extracted measures primarily establish rules for depositing from groundwater sources - largely to limit the and withdrawing water and involve charges only use of the resource. Arizona's Groundwater to cover costs of engineering, administration, and water losses. 147 Market incentives to individuals within districts protect instream environments, policy- makers may experiment with estab-lishing Since most final consumers of water obtain public funds to buy water from willing sel- their water from districts, a continuing issue is lers for such uses. These devel-opments likely to be the freedom individuals have to sell will have impacts on future water pricing at their water allocations to others - and profit the wholesale and retail levels. from the sales. This issue is especially im- portant in irrigation water districts, where in- References dividual water allocations may be large. The Central Valley Project Improvement Act fac- American Water Works Association. 1991. ilitates user-initiated transfers (which are not ad- Water Rates Manual (Manual M-1). dressed by California state water law), and re- Denver, Colorado. quires that districts complete a review within 90 American Water Works Association Research days. Foundation. 1997. Long-term Effects of Conservation Rates. Denver, Colorado. Current debates and future prospects Beecher, Janice, Patrick Mann, and James Landers. 1990. Cost Allocation and Rate The future of water pricing in the United Design for Water Utilities. The National States is likely to reflect two basic trends: Regulatory Research Institute, Ohio State * Greater attention to incentive pricing. University, Columbus, Ohio. Because of increasing competition for limit- Metropolitan Water District of Southern ed water resources, water suppliers and state California. 1990. Water Conservation and federal administrators and law-makers Pricing Approaches of the Metropolitan are likely to pay increasing attention to wa- Water District. Los Angeles, California. ter pricing incentives internal to districts, to Thomas, Gregory A., and Michelle Leighton- assist in institutionalizing regional markets Schwartz. 1990. Legal and Institutional for water, and to find other means to lower Structures for Managing Agricultural the transactions costs of water transfers. Drainage in the San Joaquin Valley: With the ongoing declines in federal funding Designing a Future. Natural Heritage for major facility construction, regional in- Institute, San Francisco, California. stitutions, both intrastate and interstate, may Wahl, Richard W. 1989. Markets for Federal evolve to address a variety of pressing water Water: Subsidies, Property Rights, and the management issues, including the provision Bureau of Reclamation. Resources for the and pricing of agricultural drainage services, Future, Washington, D.C. Baltimore: Johns the development of water markets, the pro- Hopkins University Press. tection of the environment, and the ad- . 1994. "Market Transfers of ministration of interstate water compacts. Water in California." West-Northwest * Increased demands for instream uses. The Journal of Environmental Law and Policy increased competition for water will also re- 1(1): 49-69. quire water institutions to pay more attention Wichelns, Dennis. 1991. "Increasing Block- to the need to provide water for instream rate Prices for Irrigation Water Motivate uses - recreation, fisheries, and habitat for Drain Water Reduction." In Ariel Dinar, endangered species - and the need to con- and David Zilberman (eds.), The Economics trol irrigation drainage to prevent pollu-tion. and Management of Water and Drainage in In addition to promulgating regula-tions to Agriculture. Boston: Kluwer Academic Publishers. 148 24 CAPITAL COST RECOVERY: WORLD BANK EXPERIENCE IN IRRIGATION PROJECTS Anne Marie del Castillo Introduction The World Bank has encouraged govern- generally ranged between 15 percent and 45 ments and others to recover irrigation system percent of total costs. costs from users for many years. The Bank has maintained that users should pay fees to cover Bank policy both operations and maintenance costs and a portion of capital costs. Most Bank-supported Two World Bank documents, the Vice irrigation projects include arrangements to re- President's policy note, "Financing Operations cover operations and maintenance costs and a and Maintenance in Irrigation" (1984), and the few have incorporated measures to recover a Water Resources Management: A Policy Paper portion of capital costs.55 (1993) spell out the official Bank policy re- Although they have often been ignored, garding cost recovery. The Vice President's most Bank loans contain covenants to ensure policy note states: that water charges are appropriate. However the loan covenants, particularly those dealing with The longer term objective of cost recov- recovery of investment costs, have often been ery should be to have a system of re- quite vague, making it difficult to determine source mobilization that will finance whether or not a country has complied with the capital costs, so permitting the replica- covenants (World Bank 1986a). Nearly half of tion of investments. Long-term objec- the covenants dealing with investment costs that tives should also include capturing rents were reviewed by the World Bank's Operations from those who benefit directly from ir- Evaluation Department contained wording on rigation, unless there are specified rea- cost recovery levels such as "as much as possi- sons (for example, equity or regional ble" or "a reasonable portion of investment development goals), why governments costs." Some merely stated that a study would choose not to do so. be undertaken to determine what should be done. In very few cases were significant capital The note requires that at project appraisal: there costs recovered. Nevertheless because of the are assurances that sufficient funds are available covenant's wording it is not possible to state for operations and maintenance; there is ade- with certainty that the covenants were violated. quate recognition that the longer-term objective The same review found that covenants re- is to have a system of resource mobilization that quiring the recovery of operations and mainte- covers capital costs, thus permitting investment nance costs had not been complied with in at to be replicated; resources are mobilized from least two-thirds of the irrigation projects re- the parties who benefit directly from irrigation, viewed (World Bank 1986a). The proportion of unless there are specified reasons why govern- operations and maintenance costs recovered ments choose otherwise; and the effects of the proposed fiscal system on farmers' incentives is analyzed. According to the Water Resources Man- 55 Operations and maintenance costs are the annual costs of according Policy Paper: operating and maintaining the irrigation facilities. Capital costs agement - A Policy Paper: are those associated with the initial construction, upgrading and major rehabilitation of irrigation facilities. 149 For irrigation, ....prices reflecting op- enough to provide information on actual cost- portunity costs are desirable, but cost recovery experience. Experience from projects recovery fees that ensure the financial in Brazil, Chile, Korea, Mexico, and Peru are viability of water entities are a more re- reviewed below. alistic immediate objective. Since such fees are often significantly below the Brazil opportunity cost, they reduce, but do not eliminate the misuse of water resources. In accordance with the existing federal irri- Therefore, in the interim, other mecha- gation law of 1979 and its regulations (decree nisms such as water trading or adminis- 89496), farmers who benefit from irrigation trative reallocation are needed. The schemes must pay water charges. In Brazil irri- evidence suggests that farmers want and gation water charges consist of a two-part tariff are willing to pay for, reliable supplies containing a volumetric water charge to cover of irrigated water. However, the practi- operation and maintenance costs, and a per hec- cal problems of pricing for irrigation tare water charge to recover the public invest- services are sometimes complex (p. 49). ments in off-farm irrigation infrastructure. In One way to circumvent some of addition, the government is entitled to recover these issues is to measure the water de- from small farmers public investments to ac- livered to a water users group, which, in quire land and on-farm equipment. According turn, is responsible for delivering water to the terms of the loan, costs are recovered over to farmers and collecting fees (p. 50). 25 years at an annual interest rate of 6 percent. The record of nonpayment and non- The five-year Brazil National Irrigation collection of fees for water is long and Program: Northeast Irrigation I Project includes well-documented. It reflects two prob- provisions for recovery of investment costs lems: weak incentives to collect and (World Bank 1990). According to the project's limited willingness to pay because financial study of farm models, beneficiaries services are poor. In many cases the re- would be able to pay the capital costs of the irri- cord of poor collection can be attributed gation system over 25 years, in addition to land to lack of political determination to en- and costs of improving their farms. The finan- force collection and limited motivation cial analysis assumed that farmers would pay of agencies to collect, since they are not investment costs, operation and maintenance required to cover their costs ..... Failure costs of off-farm infrastructure, and, for farmers to recover costs and to reinvest in the with less than nine hectares, costs of extension systems leads to a vicious cycle services. whereby service declines with collec- Under the project the newly created irriga- tions ...and consumers, in turn, become tion districts would collect water charges and less willing to pay for poor-quality use the revenues to pay the Regional Develop- services provided. Conversely, high ment Company and the National Department of collection rates often reflect decentral- Drought Related Works for operation and ized management and enforced financial maintenance of the main irrigation works and to autonomy and accountability of water finance their services. The Executive Secretariat entities, which in turn deliver high- for the National Irrigation Program is moving quality services for which consumers towards improving the enforcement of water are willing to pay (p. 54). charges through existing legal measures, in- cluding making beneficiaries' land rights con- Bank experiences tingent on the payment of water charges. The Regional Development Company and There are a number of Bank-supported irri- National Department of Drought Related Works gation projects that have been underway long have issued satisfactory legal regulations to en- 150 sure that beneficiaries are charged for invest- lower than farmers choosing the wheat index. ment and operation and maintenance costs, be- The rate of interest could not be less than the ginning in the first year of cultivation. The rate on long-term paper issued by the central charges would increase gradually over a period bank. of four years, and stabilize in the fifth year. The level of direct cost recovery would be The government provided assurances at negotiated with the beneficiaries for each in- negotiations on two key issues. The first was vestment. It would be between 100 percent and that water charges would be set at levels suffi- 50 percent of the cost of the investment, net of cient to fully recover operation and maintenance taxes. If the investment benefited small farmers costs and public investment costs for off-farm in marginal areas, the level of direct cost recov- infrastructure in real terms, plus finance charges ery could be below 50 percent. Within each of 3 percent annual interest. The second was subproject, commercial farmers would be re- that water charges would be adjusted progres- quired to pay a minimum of 50 percent and sively beginning in the first year of cultivation small farmers a minimum of 23 percent. Culti- according to a methodology acceptable to the vators of small household plots and farmers in Bank. The proposed water charges would be extreme poverty could pay less than 25 percent reviewed with the Bank prior to making the ad- of the capital costs. justments. It is too early to assess the performance of this project in cost recovery. However, its suc- Chile cess will depend upon the effectiveness of the public agencies in collecting water charges. The Chilean approach to managing irriga- tion systems, along with agricultural services in Korea general, is characterized by its strong market orientation. Its irrigation system is designed In many Bank irrigation projects in Korea, within the context of a water rights market, an such as the Miho Watershed Development Proj- approach many consider to be the most ad- ect (World Bank 1986b), the Yong San Gang vanced in Latin America. Irrigation Project Stage I and II (World Bank The Irrigation Development Project in 1980b), and the Ogeso Area Development Proj- Chile makes provisions for recovering capital ect Stage I (World Bank 1980a), the Korean costs (World Bank 1992). The costs to be re- farmland improvements associations or water covered are based on the cost of investment, net users' associations are responsible for recover- of taxes, to be estimated after. the final design ing costs from farmers for projects completed has been completed. The investment costs and transferred to the associations. When taking would be divided by the total number of water over projects, Korean farmland improvements rights (acciones) within the project: beneficiar- associations are required to pay between 30 per- ies would pay the costs in proportion to their cent and 100 percent of its capital costs. Re- share of water rights. Grace and repayment pe- payment is over 35 years at an annual interest riods would be negotiated on a project-by- rate of 5.5 percent with an initial grace period of project basis. However grace could not exceed five-years. The government provides a grant for four years, and repayment could not extend be- the whatever capital costs are not paid for by yond 25 years. Repayment would be indexed by farmers. Farmland improvement associations the "development unit" (unidad de formento, a set irrigation charges at levels to cover all oper- government standard used to index public bene- ating and maintenance costs and their share of fits, which in 1995 was equivalent to US$30), or the capital costs, amortized over 35 years. Rec- the wholesale price of wheat. Farmers could ords indicate that farmland improvement asso- choose whichever method they preferred. How- ciations have been very successful in collecting ever, farmers choosing the development unit charges from farmers and repaying the govern- method would pay a rate of interest 1.5 percent ment loan. 151 In the Korean Paju Irrigation System Proj- This was a substantial increase over the little to ect, water charges consist of two components: zero capital cost recovery required in earlier one to cover operations and maintenance and projects. The commission's commitment to re- one to recover capital costs of the project covering a portion of capital costs is clear (World Bank 1980a). The operations and through its efforts in several districts in the maintenance charge varies among the five dis- northwest and north regions of the country: wa- tricts or subprojects which comprise the Paju ter users are paying 15 to 25 percent of capital Irrigation System Project, but is uniform within costs for ongoing rehabilitation and moderniza- districts. The operations and maintenance fee tion works. comprises two distinct components, one for ad- ministrative costs and one for costs of operating Peru the irrigation system (for example pumping, and operation of reservoir and canal gates). The av- The existing legislation in Peru defines two erage per hectare administrative cost is applied classes of water tariffs, one for agricultural use uniformly throughout the Paju, but irrigation and the other for nonagricultural use (Supreme costs are calculated separately for each district. Decree 003-90-AG 1990). In general the tariffs To calculate water charges to recover capi- do not reflect the true cost of water. For agri- tal costs, authorities classify land into four culture the volumetric water tariff includes three grades intended to reflect differential benefits components. The first is a "water users' asso- from the project. The highest charges are ap- ciation" component (ingresos de lajunta de usu- plied to newly irrigated land which is consoli- sarios) intended to raise funds to finance opera- dated as a result of the project. The next highest tions and maintenance, the conservation and charges are applied to newly irrigated land, not improvement of common irrigation infrastruc- yet consolidated. Lower charges are applied to ture, and the operating budget of the Adminsi- land that had irrigation facilities before the proj- trador Tecnico. The second is a water levy ect, but which is consolidated as a result of the (canon de aqua), calculated as 10 percent of the project. The lowest charge is applied to previ- first component. Revenue from this levy goes to ously irrigated land, not yet consolidated. the agricultural development fund,fondeagro, or to special irrigation projects. The third is an Mexico amortization component to recover the cost of public investments in irrigation storage infra- Provisions for capital cost recovery are in- structure. This is also 10 percent of the water corporated into the Ley de Contribucion de Me- users association component, except when spe- joras pro Obras Publicas Federales de Infra- cial projects authorities decide otherwise. structura Hidraulicos, which requires benefici- Except in very few cases irrigation water aries to pay up to 90 percent of the reimbursable tariffs are unrealistically low and do not raise costs of the investment. Farmers pay water sufficient funds for proper operations and charges semiannually or annually for a maxi- maintenance of the irrigation systems (the am- mum of 40 years. Charges are adjusted semian- ortization component is usually not recovered). nually to reflect changes in the consumer price Recently government policy for irrigation has index. The National Water Commission focused on improving efficiency by giving full (Comision Nacional de Aqua) calculates the responsibility to water users for operations and reimbursable costs, which are defined in the maintenance of their irrigation systems, and same law. Charges may be reduced by presi- recovering 80 percent of investment costs for dential decree based on the ability to pay. deferred maintenance works, including the reha- The National Water Commission set the bilitation and modernization of existing systems goal of recovering 30 percent of new construc- (World Bank 1995). tion capital costs under the US$400 million Iffi- The project contains provisions for the re- gation and Drainage Project (World Bank 1991). covery of 100 percent of total investmnent costs 152 for rehabilitation. Commercial banks will ex- nance in Irrigation, March. In World Bank. tend credit to users at market rates through a line 1993. of credit financed by the World Bank for this . 1986a. "World Bank Lending purpose. Recently approved legislation gives Conditionality: A Review of Cost Recovery ownership of irrigation infrastructure to the us- in Irrigation Projects." Operations Evalua- ers, who repay the loan to the banks. Depending tion Department, June. Washington, D.C. on the system and the nature and scope of works . 1986b. "Korea Milho Watershed required, small farmers (those with less than 3 Area Development and Yong San Gang Irri- hectares) may not be able to repay the rehabili- gation Project Stage II." Project Completion tation costs in addition to the higher operations Reports, 6197, May. and maintenance charges. Where this is true, . 1990. "Brazil National Irrigation more profitable farmers within the same water Program." Staff Appraisal Report, 8038- users association will pay more to insure full BR, January. Washington, D.C. cost recovery. . 1991. "Mexico: Irrigation and Drainage Sector Project." Staff Appraisal References Report 9779, October. Washington, D.C. 1992. "Chile Irrigation Develop- World Bank. 1980a. "Korea Ogsego Area De- ment Project." ." Staff Appraisal Report velopment Project Stage I." Project Com- 10850-CH, October. Washington, D.C. pletion Report 7041, December. . 1993. Water Resources Manage- 1980b. "Korea Yong San Gang ment: A Policy Paper. Washington, D.C. Irrigation Project Stage I." Project Perform- . 1996. "Peru Irrigation Subsector ance Audit Report 3048, June. Project." Staff Appraisal Report 13542, 1984. Vice President's Policy June 27. Note: Financing Operations and Mainte- 153 25 WATER USER ORGANIZATIONS AND IRRIGATION OPERATION AND MAINTENANCE: FINANCIAL ASPECTS Geoffrey Spencer and Ashok Subramanian Introduction In most countries state agencies have tradi- service levels and negotiating the terms and tionally been responsible for water resources scope of user fees (Jones 1995). development and management. Increasingly, however, water users are taking on an expanding Do water users now pay for irrigation serv- role in managing water systems and in financing ices? irrigation operations. Consequently, there is considerable interest in how water users' or- The size and extent of user financing in ganizations work and the ways they manage and countries today is often difficult to pinpoint. finance water systems. Among the reasons are the indirect manner through which country's collect contributions, Why are water users' organizations involved often through taxes on irrigated land sent to the in irrigation financing? treasury, the difficulty of ascertaining just what the operation and maintenance expenses are and In many developing countries government how much users are charged, and the difficulty allocations for operation and maintenance and of linking all types of user payments - includ- rehabilitation of irrigation systems are well be- ing cash and in-kind contributions and taxes- low the expenditures necessary to sustain water to irrigation services. supply systems in perpetuity. User fees gener- In addition cost categories and criteria for ally are insufficient to fill the gap due to unreal- allocating costs are not standardized, so it is dif- istically low fees for water services and low lev- ficult to make cross country comparisons of who els of collection, because of administrative pays for what (costs in this context include re- weaknesses and user unwillingness to pay for current costs of operation and maintenance and poor water services (World Bank 1986). Other administration and replacement costs, but not obstacles to sustainably managing irrigation capital cost for enhancement or modernization). systems are the rising share of staff salaries and Figure 25.1 places countries in a govern- benefits in total operation and maintenance ment-user contribution matrix in accordance budgets at the expense of works expenditures, with their relative shares in financing irrigation and the absence of a direct management link operation and maintenance. The data come between user payments, service provision, and from country and World Bank reports on irriga- operation and maintenance expenditures. tion projects. The data were cross-checked with Realizing that irrigation system operations published literature wherever available. A are unsustainable and reacting to pressure from country's position in the matrix is based on na- finance ministries, irrigation agencies are de- tionwide experience and the authors' assess- volving management responsibilities - includ- ments of the relative contributions of the public ing financing of operations - to water users' and private sectors towards expenses. While a associations. The underlying principle is that country may have some systems financed beneficiaries of water services should pay the largely with user contributions, this alone is not costs of the desired services. Consequently or- sufficient to qualify it for placement in the lower ganized groups of water users, like the water right hand part of the figure. users' associations, have a role to play in setting 154 The top left-hand corner of Figure 25.1 de- eration and maintenance of entire systems in- picts countries with a large government role in cluding headworks and diversion weirs. In financing irrigation operation and maintenance. Mendoza, Argentina water users' associations Prominent irrigating countries like India and have full financial responsibility for operation Pakistan are in this category. Users in informal and maintenance and administrative costs, but or formal water users' associations are responsi- they receive subsidies for rehabilitation and ble for tertiary watercourse level operation and modernization works. In Nepal farmers have maintenance. The irrigation agency is normally traditionally managed a majority of irrigation responsible for operation and maintenance systems. The government manages the few above this watercourse level. In the countries in large scale systems but is progressively handing this part of the figure users pay about 30 to 50 responsibility for their management to water per cent of operation and maintenance costs. users' associations. In all these countries water Although there are a few examples of systems users' associations recruit their own staff, collect for which users pay 100 percent of the operation water use fees, and pay for operation and main- and maintenance costs, in most countries the tenance. A system of checks and balances has public sector irrigation agency is the primary been instituted to ensure that water users' asso- financier of operation and maintenance. All ciations are accountable to their members and countries in the upper left-hand corner of the that the government agency is accountable to the figure are increasingly collecting a larger pro- water users' associations. portion of funding from users. The middle section of Figure 25.1 depicts What are the lessons of experience? countries where government and user contribu- tions are relatively similar. Users in countries in Country experience shows that five key this category are fully responsible for water- issues or activities must be addressed if water course operation and maintenance. Users are users are to successfully manage and finance also expected to pay some fees to the irrigation irrigation systems. agency for its services. In the Philippines and Morocco governments manage large-scale sur- Determine operations and maintenance cosls face systems. Users contribute about 50-75 per cent of operation and maintenance costs. The In conjunction with determining service case of Colombia is different. Here water users levels, analysts must estimate operation and are assuming responsibility for operation and maintenance costs for system level and type of maintenance in an increasing number of irriga- service, specifying expenditure categories - tion districts. staff, material, equipment, vehicles, and over- The bottom right-hand corner of Figure head costs. In some countries staff costs com- 25.1 depicts countries with a relatively small prise up to 50-60 per cent of total operation and government role in financing irrigation opera- maintenance costs. At times of budgetary pres- tion and maintenance. In Mexico users are re- sure, cuts are most likely to be made in the non- sponsible for the operation and maintenance of staff portion of the budget, such as works. tertiary and secondary canal systems. The gov- The managing agency must complete an ernment is responsible for managing the main exercise to identify the full range of services it systems with contributions from water users' provides - irrigation, water in bulk, water sup- associations. But, progressively, federations of ply, flood control, drainage, and others - and water users' associations are being formed and allocate costs to each service category. Annex taking over the responsibility of managing op- 25.Al lists a range of services agencies are erations and maintenance upstrearn (Gorriz, likely to provide and gives an illustration of cost Subramanian, and Simas 1995). In Chile water analysis carried out in Haryana, India (World users' associations are responsible for the op Bank 1983). 155 Figure 25.1 Indicative mix of government and user contributions to operation and maintenance (national average) Nigeria o Indonesia r2 K Senegal c. Madagascar 0 E ~~~~~~~~~~Turkey > ~~~~~~~~~~~~~Vietnam Philippines Cd 0 Moro c ~~~~~~~~~~~~Colombia\ Mdexio Increasing user contribution Informnation on costs of services and bene- and duration are critical variables of irrigation fits to be derived from the project must be pro- water supply. Therefore it is crucial that water vided to project beneficiaries. Mexico carried users' associations are involved very early in out a successful program to disseminate infor- designing the project so that the level and type mation and train farners and agency staff. of services provided truly reflect farmers de- Topics covered in the program included water sires. If users are involved in determining serv- management, system operation and mainte- ice levels, they are much more likely to value nance, accounting and financial management, and pay for the services. In the past, operating and organizational issues for water users' asso- rules of the system were usually taken as given ciations. Egypt has developed a program to de- and users were generally not expected to pay for liver information through the Irrigation Advi- capital or operation and maintenance costs. sory Services, constituted exclusively for water In Mexico water users' associations are users' organizations. The service advises the becoming involved in water management. Here water users' associations on the costs of irriga- managers hired by water users' organizations tion services and options for setting and col- prepare irrigation plans at the level of the lecting service fees. modulo, each covering about 5,000-8000 hec- tares. The managers take into account cropping Involve users in defining service levels plans, conveyance losses, and the need to dis- tribute water equitably. The plans are then dis- Irrigation water is a valuable input into ag- cussed with the national irrigation agency to riculture production. Quantity, quality, timing, determine the final allocation of water. Water 156 users' associations pay the full operation and users' organizations, increases in service fees or maintenance costs at the secondary level and water charges, and costs of new responsibilities below. They also pay a portion of the operation for operation and maintenance. and maintenance costs of higher levels of the In the Philippines system rehabilitation, system. improved operation and maintenance, and the In Mali in the Office du Niger, joint com- decentralization of management of the late mittees have been established for operation and 1970s and early 1980s led to the expansion of maintenance in every region. The committees irrigated area and to equitable distribution of comprise 5 to 10 representatives of producers water during the dry season. This in turn raised and 5 to 10 representatives of the office. Com- the output of dry season rice by 10 per cent in mittees decide on types of services, manage ex- the sample area studied. Incremental costs of penditures (including procurement matters), and irrigation projects are often less than 20 to 30 set water service fees. The committees also di- percent of the incremental income generated rectly manage and make decisions on the use of from the projects. Farmers are much more 50 percent of the user fees collected for opera- willing to pay for irrigation operation and tion and maintenance. maintenance if they receive higher incomes In Chile the national federation of water from the application of water. Of course income users' associations was involved in designing a also depends on output price policy, market ac- World Bank supported irrigation project (World cess, and agricultural extension services, so Bank 1992). The federation and local water us- these may have to be reviewed and strengthened ers' associations played an active role in pre- to allow farmers to derive the full benefits of the paring the project and were involved in discus- project. In some cases water users' associations sions of service options and costs at all times. may find that incremental income gains from the Later water users' organizations were given the use of installed technology (for example, right to approve all investment proposals and pumping stations) will not outweigh the costs of other project components. operation and maintenance and replacement In the past the general norm has been to (Johnson, and Reiss 1993). Thus farmers may involve water users informally at the project de- be unwilling to assume new responsibilities. sign stage, when service levels and costs are Water users' associations may also gener- determined. However, water supply and sanita- ate income from sources other than user fees. tion sector managers have been experimenting For instance some irrigation districts in the with establishing formal methods using focus western United States rely on revenue from groups and participatory approaches. Surveys, power sales to balance their irrigation budgets. focus groups, and contingent valuation tech- In China water users' associations earn income niques have also been used in selected sites to from the sale of fish and the collection of fees assess demand and willingness to pay for serv- from fishermen and recreational water users. ices, with considerable success (Whittington, et. These diverse sources of income may be par- al. 1992). ticularly important during periods of bad weather, such as droughts and floods, when crop Assess user willingness and capacity to pay output and farmer incomes may fall. Users will be willing to pay for services to Determine appropriate charging mechanisms the extent that they derive benefits from the project through improved reliability of water There are a number of alternative charging services, better access to water of the preferred mechanisms available for agencies and water quantity and quality, and increased returns from users' associations to use in structuring charge agricultural production. For the user these bene- systems. Fee structures should be equitable, fits must substantially outweigh the opportunity administratively simple, and easily understood costs of participating in meetings of the water 157 by both users and people who administer and In Vietnam the provincial and national govern- collect the fees. ments finance new irrigation systems up to a User fees. User fees are generally calcu- command area of 150 hectares. Below this level lated on the basis of irrigated area. This method farmers are responsible for building the chan- has the advantage of being relatively simple to nels, although the government provides surveys, understand. However because the fees are not designs, and materials in some instances. Once related to volume of water consumed, farmers schemes are completed and given to farmers have no incentive to use water efficiently. The associations, each member must provide up to use of volumetric charges solves this problems. 20 person days per year to maintain the tertiary However in many places measuring water use as well as secondary systems. may be difficult. Often agencies use a combi- Replacement of assets. A significant cost nation of the two methods. In Mexico for in- of irrigation services is depreciation of the assets stance the National Water Commission used to store, transfer, and deliver water to us- (Comision Nacional de Aqua) charges the water ers. Assets range from minor tools and equip- users' associations for quantity taken at the ment, buildings and housing, motor vehicles and turnout of the secondary canal. In turn the water heavy equipment, canals and drains, pumping users' associations charge individual members stations, and sometimes major structures such as on the basis of area irrigated and type of crop. dams. In some places, for example Vietnam, Water users' associations also use other charg- cost estimates (and hence of user fees) include ing methods such as setting fees by the season, depreciation costs. However depreciation costs but this clearly favors the high volume user. are usually neglected in calculating the costs of Many countries use two-part tariffs structures - water services regardless of whether irrigation comprising a fixed fee to cover fixed overhead agencies or water users' associations provide expenses, and a variable fee based on use. This irrigation services. structure has the advantages of providing a reli- The value of assets declines at different able stream of income for water suppliers, while rates: each year owners lose a significant non- retaining incentives for consumers to conserve, cash value as assets depreciate, even with ade- Designing charge systems should be a topic in quate maintenance. Without proper mainte- training programs for water users' organizations, nance service life will be shortened, and depre- so that farmers learn the implications for effi- ciation will accelerate. Therefore agreements ciency and equity of using various charge sys- between irrigation agencies and water users' tems. organizations should include standards for op- Property taxes. Water charges collected eration and maintenance carried out by water through property taxes are based on the value of users' organizations. In Mexico the hydraulics the irrigated land. Land with access to irrigation committee at the district level approves the an- and drainage systems is almost always worth nual operation and maintenance program pro- more than land without such access. Landown- posed by the water users' organizations. Provi- ers pay some proportion of their property value sion is also sometimes made for collecting and in taxes. The problem with this method is that retaining disaster funds by water users' associa- the treasury generally collects land taxes and the tions. taxes are not transparently linked to the provi- Care of assets is vital if water system per- sion of irrigation services. Also valuing and formance is to be sustained.56 Maintenance and revaluing land demands enormous administra- ongoing replacement programs for all assets tive resources. In some places permanent tax committees have been set up to regularly review and decide upon the basis and rate of taxation. 56 Increasingly countries are requiring in-kind and cash contri- butions to pay for capital costs. This helps ensure that designs of In-kind contributions. Farmers sometimes irrigation systems are cost effective, and designed appropriately contribute labor, materials, or both instead of for demand. It also generates a sense of ownership among project money to pay operation and maintenance costs. beneficiaries. 158 need to be planned and implemented in an ef- parts of systems (Subramanian, Jagannathan, fective and economical manner. It is essential to and Meinzen-Dick 1997). They are entirely re- collect adequate data about the location, age, sponsible for managing the water system and condition and serviceability of all assets for this. financing a portion of the irrigation infrastruc- Water users' associations often need training ture. They pay for water delivered in bulk from and assistance to prepare an asset inventory and the agency, which cover the agency's operation formulate an effective maintenance and re- and maintenance costs for the parts of the sys- placement program. It may be important to as- tem under its control. Under this arrangement sure that water users' associations' have access the agency and the water users' organizations to credit for equipment purchases as they as- agree on mutual rights and responsibilities. sume the responsibility for the assets. Water users' organizations keep transparent ac- counts and conduct regular audits to show their members that the financial management of the Provide direct links between user fees and organization is sound. They hold general meet- services ings when members discuss financial perform- ance including the accounts and audits. In some places farmers may be reluctant to If the government manages the system us- pay user fees because they do not see a link ing fees collected from users, water users' asso- between their contributions and the irrigation ciations should still collect the fees. The asso- agency and its services. Often another agency, ciations can collect fees at lower cost and apply such as the finance ministry, collects the reve- sanctions to enforce payment more easily than nues, ultimately delivering them to the consoli- government agents. Experience from the Phil- dated fund of the treasury. The finance ministry ippines shows that water users' associations are usually allocates funds to the irrigation agencies highly effective if they are organized and have a without linking them to revenues collected. role and incentive to collect the fees. In India In the future the money cycle must be made pilot projects in Maharashtra allow water users' transparent. Determining costs is a first step. It associations to retain a proportion of collections is also essential that the irrigation agency has the as a bonus. As a result fee collection markedly autonomy (and the responsibility) to organize improved. Better fee collection does not solve irrigation financing (Small, and Carruthers the problem of high costs of agency provision of 1991). services, due to high staff costs. Ideally water users' associations collect fees for services provided and manage the lower 159 Annex 25.A1 Water services categories and services. They use the two factors - cost and costs in Haryana, India quantity - to calculate the unit costs for each particular service (Table 25.A1). The rate factor In Haryana, India the irrigation department represents the relative value of bulk water sup- manages water supplies for irrigation, cities, ply to cities, rural villages, industry, power, and rural villages, industry, and power stations. It cattle ponds, and reflects the priority of services also delivers bulk water to New Delhi. The in times of shortage and the customer group's government is implementing a general policy to ability to pay. Thus municipalities pay twice as recover the costs of each of these services from much as rural village consumers, and industries the beneficiaries. The cost recovery plan con- pay four times as much. The figures presented sists of two steps. First analysts allocate to users in the table are based on preliminary estimates as precisely as possible their share of the costs. made during the preparation of the Haryana Second they quantify services either in terms of Water Resources Consolidation Project and are the annual volume supplied or the area benefit- being updated. These figures are used here for ing from drainage and flood control or other illustrative purposes only. Table 25.A1 Costs of water services in Haryana Quantity Total annual Rate New rate New total Existing rate (millions expenditure factor (US$/1,000 revenue (US$/1,000 cubic meters) (millions US$)a cubic meters) (millions US$) cubic meters) Bulk water supply Urban 330.57 0.32 2 1.76 0.60 0.53 Rural villages 414.45 0.40 1 0.88 0.38 0.53 Industry 211.00 0.23 4 1.76 0.85 0.88 Power plants 160.00 0.15 4 3.38 0.56 2.11 Subtotal 1,116.02 1.11 2.38 Agriculture Bhakra system Flow systems 5,666.00 7.48 1.22 6.95 0.40 Lift systems 118.00 0.16 0.62 0.07 0.21 Lift commands 71.50 0.09 1.22 0.09 0.40 Subtotal 5,855.50 7.73 7.12 Western Jamuna system Flow systems 4,530.57 6.64 1.36 6.17 0.37 Lift systems 232.00 0.34 0.68 0.16 0.18 Lift commands 256.50 14.83 53.75 13.79 0.37 Subtotal 5,019.07 21.81 20.11 Cattle ponds 182.55 0.19 1 0.96 0.17 0.17 Deliveries to New Delhi 413.20 0.38 4 3.46 1.43 Grand Total 12,586.34 31.22 31.22 a Projected, based on need. 160 References Small, Leslie, and Ian Carruthers. 1991. Farmer-Financed Irrigation. Cambridge, Gorriz, Cecilia, Ashok Subramanian, and Jose UK: Cambridge University Press. Simas. 1995. "Irrigation Management Subramanian, Ashok, N. Vijay Jagannathan, and Transfer in Mexico: Process and Progress." Ruth Meinzen-Dick (eds.). 1997. User Word Bank Technical Paper 292. Wash- Organizationsfor Sustainable Water Serv- ington, D.C. ices. World Bank Technical Paper 354. Johnson, Sam, and Peter Reiss. 1993. Can Washington, D.C. Farmers Afford to Use the Wells after Turn- Whittington, Dale, et. al. 1992. Household over? A study of Pump Irrigation Turnover Demand for Improved Sanitation Services: in Indonesia. International Irrigation Man- A Case Study of Kumasi, Ghana United agement Institute Short Report Series on Ir- Nations Development Programme-World rigation Management Transfer 1. Colombo, Bank Water and Sanitation Program. Water Sri Lanka. and Sanitation Report 3. Washington, D.C. Johnson, S.H., D.L. Vermillion, and J.A. Sagar- World Bank. 1983. "Haryana Water Resources doy (eds.). 1995. Irrigation Management Consolidation Project." Staff Appraisal Re- Transfer. Selected papers from the Intema- port 12813-IN. Washington, D.C. tional Conference on Irrigation Management . 1986. "World Bank Lending Transfer, Wuhan, China, September 20-24, Conditionality: A Review of Cost Recovery 1994. Rome: Food and Agriculture Organi- in Irrigation Projects." Operations Evalua- zation of the United Nations. tion Department Report 6283. Washing- Jones, William I. 1995. "World Bank and Irri- ton, D.C. gation." Operations Evaluation Division. . 1992. "Chile Irrigation Develop- Washington, D.C. ment Project." Staff Appraisal Report 10850-CH, October 16. Washington, D.C. 161 AUTlHORS' INFORMATION Ahmed M. Adam, Undersecretary for Irrigation, Ministry of Irrigation and Water Resources, P.O. Box 878, Khartoum, Sudan. Phone: (249) 11 780167 Fax: (249) 11 773838, 249 11 771680 Luis Gabriel T. Azevedo, Banco Mundial, SCN Quadra 02 - conj. 303/304, Ed. Financial Corporate Center, Brasilia, DF, 70900, Brazil. Phone: (55) 61 3291041 Fax: (55) 61 3291010 E-mail: LAZEVEDO0WORLDBANK.ORG Joao de Castro Caldas, Professor, Instituto Superior de Agronomia, Tapada da Ajuda, 1399 Lisaboa Codex, Portugal. Phone: 351 1 363 78 24 Fax: 351 1 362 07 43 Anne Marie del Castillo, Consultant, 9015 Honey Bee Lane Bethesda, MD 20815 Stefano Destro, Euro-In Consulting, Via Rampa Cavalcavia #28, Mestre Venice, 30171 Italy Phone: 39 41 531 6744 Fax: 39 41 531 9555 E-mail: euroinit@mbox.vol.it@internet Ariel Dinar, Senior Economist, World Bank, 1818 H St. NW, Washington, DC 20433, USA. Phone: (1-202) 473 0434 fax: (1-202) 522 1142 E-mail: ADINAR@WORLDBANK.ORG Theodore M. Horbulyk, Professor, Department of Economics, The University of Calgary, Calgary, Alberta, Canada T2N 1N4. Phone: (403) 220-5857 Fax: (403) 282-5262 E-mail: horbulyk@acs.ucalgary.ca Ching-kai Hsiao, Professor, Department of Agricultural Economics, National Chung Hsing University, Taichung, Taiwan (China). Phone: (886-4)287-3442 Fax: (886-4)287-3442 Pieter Heyns, Director, Resource Management, Ministry of Agriculture, Water and Rural Development, Republic of Namibia, Department of Water Affairs, Private Bag 13193, Windhoek, Namibia. Phone: (264-61)296-9111 Fax: (264-1)224-512 Ching-Ruey, Li-Ming Conservancy Engineering Consultants Co., Ltd., Taichung, Taiwan, R.O.C., 162 Josefina Maestu, Associate Lecturer, University of Alcala de Henares, Madrid, and Consultant, Ecotec, Research and Consulting Ltd., Modesto Lafuente 63, 6A, Madrid, 28003, Spain. Phone: 341-5350640/6332743 Fax: 341-5350640 Khalid Mohtadullah, Member and Managing Director (Water), Pakistan Water and Power Development Authority (WAPDA), Head Office, WAPDA House, Shahrah-i-Quaid-i-Azam, Lahore, Pakistan. Phone: 92 42 9202226 Fax: 92 42 6278837 E-mail: Info@wapda.brain.com.pk Marielle Montginoul, Economist, Irrigaiton Division - Cemagref Montpellier, 361 rue JF Breton, BP 5095, F-34033 Montpellier Cedex 1, France. Phone: (33 04 67) 04 63 48 Fax: (33 04 67) 63 57 95 E-mail: marielle.montginoul(cemagref.fr Mark Mujwahuzi, Professor, Institute of Resource Assessment, University of Dar-es-Salaam, P.O. Box 35097, Dar-es-Salaam, Tanzania. Phone: (255 51) 73733 Fax: (255 51) 43393 Warren Musgrave, Special Adviser in Natural Resources, Premier's Department, Level 31, Governor Macquarie Tower, 1 Farrer Place, Sydney, Australia 2000. Phone: (61-2) 228-4918 Fax: (61-2)228-3015 Hillary 0. Onek, Managing Director, National Water & Sewerage Corporation, P.O. Box 7053, Plot 39 Jinja Road, Kampala, Uganda. Phone: (256-41) 256761-3 Felix Rabemanambola, Comite de l'Eau et de l'Assainissement, Secretariat d'Etat a l'Economie et du Plan, B.P. 674 Antananarivo 101, Madagascar. Tel: (261-2) 304-64 Fax: (261-2) 285-08 Judith Rees, Professor, London School of Economics and Political Science, Houghton Street, Aldwych, London, WC2A 2AE. Phone: (44-171) 955-7607 Fax: (44-171) 955-7412 Abderrahmane Salem, Consultant-Member of the Conseil Superieur de l'Equipement, former Director of Planning at the Ministere de l'Hydraulique, R6sidence Clairbois 40 Ave. Mohammedi Bir Mourad Rais, Algiers, Algeria. Phone: (213-2) 54-15-88 Fax: (213-2) 91-28-77 163 R. Maria Saleth, Reader, Institute of Economic Growth, University Enclave, Delhi- 110 007, India Phone: (91-11)725-7288/7424/7365 Fax: (91-11)725-7410 E-mail: rms@ieg.ernet.in Frank Scrimgeour, Senior Lecturer, Department of Economics, University of Waikato, Hamilton, New Za- land. Phone: (64-7)838-4415 Fax: (64-7)838-4331 E-mail: SCRIM@waikato.ac.nz Geoffrey Spencer, Senior Water Resources Engineer, World Bank, 1818 H St. NW, Washington, DC 20433, USA. Phone: (1-202) 458 2642 E-mail: GSPENCER@WORLDBANK.ORG Ashok Subramanian, Senior Institutional Specialist, World Bank, 1818 H St. NW, Washington, DC 20433, USA. Phone: (1-202) 473 0359 E-mail: ASUBRAMANIAN@WORLDBANK.ORG Jane M. Thema, Senior Planning Officer, Planning Unit, Ministry of Mineral Resources and Water Affairs, Private Bag 0018, Gaborone, Botswana. Phone: (267) 3604600 Fax: (267) 372738 Richard W. Wahl, Researcher, Environment and Behavior Program, Institute of Behavioral Science, University of Colorado, Campus Box 468, Boulder, CO 80309, USA. Phone: (1-303) 499-8638 Fax: (1-303) 499-8638 E-mail: rwahl@colorado.edu Dan Yaron, Professor Emeritus of Agricultural Economics, Faculty of Agriculture, Department of Agricultural Economics and Management, Hebrew University of Jerusalem, Rehovot, 76100, Israel. Slim Zekri, Economist, Ecole Superieure D'Agriculture De Mograne, Dept. of Gestion De Development et de Analyses de Donnees, 1121 Zaghouan, Tunisia. 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Trends in Education Access and Financing during the Transition in Central and Eastern Europe. No. 362 Foley, Floor, Madon, Lawali, Montagne, and Tounao, The Niger Household Energy Project: Promoting Rural Fuelwood Markets and Village Management of Natural Woodlands No. 364 Josling, Agricultural Trade Policies in the Andean Group: Issues and Options No. 365 Pratt, Le Gall, and de Haan, Investing in Pastoralism: Sustainable Natural Resource Use in Arid Africa and the Middle East No. 366 Carvalho and White, Combining the Quantitative and Qualitative Approaches to Poverty Measurement and Analysis: The Practice and the Potential No. 367 Colletta and Reinhold, Review of Early Childhood Policy and Programs in Sub-Saharan Africa No. 368 Pohl, Anderson, Claessens, and Djankov, Privatization and Restructuring in Central and Eastern Europe: Evidence and Policy Options No. 369 Costa-Pierce, From Farmers to Fishers: Developing Reservoir Aquaculturefor People Displaced by Dams No. 370 Dejene, Shishira, Yanda, and Johnsen, Land Degradation in Tanzania: Perceptionfrom the Village No. 371 Essama-Nssah, Analyse d'une r6partition du niveau de vie No. 373 Onursal and Gautam, Vehicular Air Pollution: Experiences from Seven Latin American Urban Centers No. 374 Jones, Sector Investment Programs in Africa: Issues and Experiences No. 375 Francis, Milimo, Njobvo, and Tembo, Listening to Farmers: Participatory Assessment of Policy Reform in Zambia's Agriculture Sector No. 377 Walsh and Shah, Clean Fuelsfor Asia: Technical Optionsfor Moving toward Unleaded Gasoline and Low-Sulfur Diesel No. 382 Barker, Tenenbaum, and Woolf, Governance and Regulation of Power Pools and System Operators: An International Comparison No. 385 Rowat, Lubrano, and Porrata, Competition Policy and MERCOSUR THE WORLD BANK 1818 11 Street, N.W. 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