Towards a green economy

of supplying water to them is not known and probably cannot be determined reliably as water has played a central role in the political transformation of this country. Recently, the Constitutional Court of South Africa (2009) ruled that a local government could charge for access and use pre-paid meters as a means to do this.

Seeking empirical evidence in the Niger Basin, Ward et al. (2010) found that access to education and to clean water are the most consistent predictors of economic progress. Having analysed the data and, particularly, the high costs of delaying access because of revenue shortfall, one can observe that if countries cannot afford to make drinking water available at less than full cost of supplying it to all poor people, then an alternative approach is to focus on the efficient provision of water to all poor people at the cost of supply. From a green economy perspective, the strategy to pricing to adopt is the one that most speeds the transition.

Cross-subsidising (selectively taxing) water use In many countries, the water tariff regimes are used to cross-subsidise the cost of supplying water to the poor. In Jakarta, this is achieved by charging wealthier households and/or those who use large volumes of water more than the cost of supply and then using the resultant revenue to enable water to be supplied to the poor at less than full cost (Table 4). As a transitional strategy in countries with little other capacity to transfer wealth from the rich to the poor, a case can be made for the use of cross-subsidies, even though this approach

Volume of water used Code K2 K3A K313 K4A K413 Customer Type Low-Income Domestic Middle-Income Domestic

High-Income Domestic and Small Business

Non-Domestic Prices converted to US$ and rounded to 3 decimal places Table 4: Water Tariff Structure in Western

Jakarta, US$ per m3 Source: Adapted from Fournier et al. (2010)

distorts investment in water use. In developed countries, however, the use of a water charging regime to transfer income from one group of people or one region to another is extremely inefficient. For this reason alone, Beato and Vives (2010) conclude that subsidies should be targeted as tightly as possible and accompanied by a transparent strategy for their removal. The result is the emergence of a regime that encourages investment and innovation. Infrastructure is located in places where its

0-10 m3 $ 0.105 $ 0.355 $ 0.490 $ 0.683 $ 1.255

11-20 m3

$ 0.105 $ 0.470 $ 0.600 $ 0.815 $ 1.255 >20 m3 $ 0.158 $ 0.550 $ 0.745 $ 0.980 $ 1.255

Box 7: Recent experience of private companies providing water to households

Phnom Penh Water Supply Authority in Cambodia has seen major transformations between 1993 and 2009. The number of connections increased seven- fold, non-revenue water fell from 73 per cent to 6 per cent, collection efficiency rose from 48 per cent to 99.9 per cent, and total revenues increased from US$ 300,000 to US$ 25 million, with a US$ 8 million operating surplus. After receiving initial grants and soft loans from international financial institutions, the utility is now self-financing. Tariffs increased steeply in the early years, but they have been held constant at around US$ 0.24/m3

since 2001, because

the combination of service expansion, reduced water losses and high collection rates has guaranteed a sufficient cash flow for debt repayment as well as capital expenditure.

Balibago Waterworks Systems serves around 70,000 customers in a rural area of the Philippines. The business has grown by going out to adjacent towns and villages and asking each community whether they would like the Balibago to build a network that would enable them to supply piped water to it. When Balibago does this, it begins by showing the community its regulated schedule of tariffs. The community is then asked if they want access to piped water and are prepared to pay the scheduled price for access to it. Balibago is finding that in many cases, the result is judged as an attractive proposition for communities that might previously have relied on hand pumps and wells, and it makes good money for the company’s investors. Source: Adapted from Global Water Intelligence (2010)

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