This document presents an analysis of experience in irrigation water charging, drawn from published literature and a series of six case studies. These sources provide a broad spectrum of experience from less-developed to more-developed countries. The aim has been to make an assessment of the claims concerning irrigation water charging as a tool for cost recovery (achieving financial sustainability) and demand management (achieving resource sustainability).
The findings should be of value to national policy-makers, donor agencies and researchers who formulate or advise on irrigation policy. The full data and material which form the basis of this document are to be found in two reports [1] [2] which are outputs from a DFID-funded project "Irrigation Charging, Water Saving and Sustainable Livelihoods".
Policies of water pricing affect, and in turn, are affected by a large number of other important issues in the irrigated agriculture sector, for example, operation and maintenance needs; turnover and Water User Associations; rehabilitation and modernisation of systems; increasing competition for available water with other sectors/users; international trade and commodity pricing. Much attention has been devoted elsewhere to these matters. In contrast, although much theoretical work has been done on the economics of irrigation water pricing, there is still considerable lack of understanding generally as to what impacts can be realistically expected from water pricing policies in practice, despite early reports such as that of FAO (1986). In order to focus attention on such a fundamentally important point, it was decided to confine the scope of this document to charging for defined objectives in irrigation, principally, for cost recovery and for limiting demand for water. The review of literature is confined to reports of field experience of irrigation water charging; it does not attempt to summarize the large body of economic theory relating to water resource allocation. Associated issues, including the ones set out above, are identified in the text but are generally not dealt with in detail. An extensive bibliography is provided to help the reader interested in the broader background to the subject.
The focus is on charging for irrigation water. Some might argue that this is a narrow perspective because agencies that provide irrigation water often provide closely related services, e.g. agricultural and storm drainage, domestic and commercial water supply, sewage disposal, flood control and groundwater management. Each of these services has its own financial dimensions. The nature of these services and their beneficiary groups are often different, so that trying to compile a comprehensive integrated description of the water charging issues across these various activities would encompass too many variables. Interest in irrigation charging is often focused directly on the two issues of financial sustainability of irrigation systems, and the problem of excessive water consumption in irrigation or resource sustainability. Therefore, this review focuses specifically on irrigation water charging and does not address charging for non-irrigation services, although it is recognized that charging for these services may be a legitimate means of achieving financial sustainability.
For much of its rationale, the current interest in private sector participation in irrigation service delivery in general depends on the recent trend towards various forms of private management of municipal and industrial (M&I) water supply utilities. This review addresses water use in agriculture as it is the dominant consumer of water in most developing countries. However, it is important to understand the approach taken in the M&I sectors, distinguishing between those issues that are relevant to the irrigation sector and those that are not.
Six case studies of irrigation schemes in five countries were carried out to supplement the literature review, to identify the realities of charging in practice, to obtain more secure basic data and to detect social, financial, institutional and technical factors which may constrain the effective implementation of pricing policies. The countries and schemes were selected to obtain a spread of experience from nations at different stages of economic development, characterized by varying degrees of water scarcity, with differing agricultural and water management practices.
The case studies refer to:
Two areas of India: Haryana, a relatively prosperous state with a long history of publicly-managed surface irrigation; and northern Gujarat, where private exploitation of deep aquifers has been developing rapidly over the past 20 years.
Sindh Province in Pakistan, where the underlying legislation and infrastructure are identical to Haryana, but where the institutional environment differs.
Four government surface schemes on the Terai in Nepal, supplemented by information from two further schemes elsewhere, one of them a groundwater development.
Two schemes in Morocco, both surface irrigated and including privately-owned wells.
Schemes in the Former Yugoslav Republic of Macedonia originally constructed by the government but now in a process of transfer to water user organizations.
The information from farmers on these schemes provides a snapshot of conditions at a particular time (2002). However, reference to other local studies and data sources made it possible to draw wider conclusions as to: whether the systems are stable, improving or declining; the nature of policies governing irrigation development; and the role of charging to fund operation and maintenance (O&M) and influence demand for water. Chapter 4 provides details of the findings from the case studies.
A wide range of terms and definitions are used in the literature to describe payments made for irrigation services, and the costs incurred in providing such services. A literature review must respect the definitions of the authors, but implicit in the variety of concepts applied by authors is a similar diversity in what readers may assume a term to mean in the absence of a specific definition. Below, the definitions applied to the case studies are set out, which also provides a framework to interpret the usage of other authors.
The term “water charges” includes the totality of payments that a beneficiary makes for the irrigation service - fixed, volumetric, crop-based, etc. A water charging system embraces all of the policies, practical actions and mechanisms required to set the level of recoveries, decide the basis on which a charge will be levied, levy the charge, and collect the revenue. In some cultural or political contexts it is unacceptable to place a price on water and therefore other terms such as irrigation service fee (ISF) are used, with the emphasis being that the charge is made for the service of supplying water to the user, not for the water itself.
Water pricing is sometimes used in the literature to be synonymous with charging. More commonly, as here, it has the restricted connotation of price per unit quantity of water. The concept is clear in the case of volumetric pricing but where pricing is not volumetric, an implicit price can be derived by dividing the charge by the volume of water delivered. The actual or implicit price is useful when compared to the productive value of water (commonly referred to as the ‘shadow price’), and the marginal cost of providing an extra unit of water.
The cost of water must be carefully distinguished from the price (though for the farmer, the cost is exactly equal to the price). Cost, in the literature and in the case studies tends to relate to the direct expenses incurred in providing the irrigation service. It is important to emphasise that the costs to an individual farmer will be very different from the total costs to society based upon a total economic valuation (TEV), for instance. This more general basis for establishing the ‘cost of water’, is set out, for example, by the Global Water Partnership (GWP) (2000a). This includes a full analysis of the different cost elements that may be factored into a calculation of the cost of supplying water - operation and maintenance, capital depreciation and replacement, opportunity costs (that is, benefits foregone when water is not applied to its most beneficial use); social costs; and environmental costs. The GWP identifies three types of costs, referred to as: full supply cost; full economic cost; and full cost (Figure 1). The full supply cost includes the costs associated with the supply of water, without considering externalities (externalities are the indirect consequences or side-effects of supplying water to a particular user or sector, that are not directly captured as costs in the accounting system). It includes the costs of O&M of irrigation infrastructure and capital investment. The full economic cost is therefore taken to include the full supply costs plus opportunity costs and economic externalities. Opportunity costs reflect the fact that water used in one role is not available to another user. Where the alternate use has a higher socio-economic value, then, from a classical economic point of view, there are corresponding costs to society arising from ‘misallocation’ of resources or inefficient use.. Externalities arise where costs or benefits associated with extraction and use of the resource are imposed on third parties. Externalities, both positive and negative, are an important component in costs related to irrigation water use.
Despite this all-embracing typology, the GWP definitions are not always adhered to, and some authors may use the same terms with different definitions. Even where terms do correspond, there is no universal agreement on what level of cost it may be practical to recover through water charging. In some countries that are members of the Organisation for Economic Co-operation and Development (OECD), 'full cost recovery' refers to O&M costs only, whereas in others it is the recovery of O&M and capital costs (OECD, 1999). In the European Union (EU), the term incorporates scarcity values and environmental externalities, a formulation similar to the GWP definition. It is unclear whether capital costs should include the costs of replacing equipment at current prices, the historical costs of existing equipment or some intermediate figure. Commentators mention both historical and current cost approaches. In the case of transfer of assets from public to private ownership, capital values may often be written down by using the historical construction costs rather than present day replacement value.
“Cost recovery” concerns full supply costs only (costs that can be defined fairly readily), whereas “efficient water allocation” within a country or basin context requires consideration of opportunity costs and externalities. These are valid concepts, but setting an agreed numerical value on them is a difficult process. In the words of one report: “information concerning opportunity costs is difficult to obtain, they vary by place and season, and even sophisticated research studies cannot estimate them in a way that is universally accepted” (ICID, 1997). Briscoe (1996) claims that estimated values of opportunity costs are crude and inexact, and depend widely on factors such as use, location, season, time, quality and reliability of supply. Their definition or estimation is important in the planning of resource allocation between sectors, but they seldom play a role in defining the price or price structure that applies to a given group of water users.
FIGURE 1
Components of water cost
Source: Global Water Partnership (2000a).
An additional complexity is that opportunity costs change dramatically as relatively small quantities of water move between sectors. The quantity of water required to meet full domestic demand is generally a small fraction of irrigation demand. Once that demand is met, the opportunity cost falls to the value of the residual consumer, i.e. irrigation.
It is therefore important to appreciate that in practice, the decision on precisely what values to incorporate in a cost calculation may be political rather then economic.
Irrigation services can be charged for in various ways. Sometimes a combination of charges is applied. Table 1 categorizes these systems in order of complexity.
Each of the systems in Table 1 provides different levels of incentive to irrigators to reduce consumption, and different structures of income to the service provider. In the case of flat-rate charges (types 1 and 2), the marginal price of water (the cost of an additional unit of water) is zero. Farmers take what water they can towards their needs, but the cost is unaffected by the amount taken.
Under a charging system within category 3, the marginal price the farmers pay is equal to the price per unit of water. The irrigators will pay more if they take an additional unit and less if they take less. In economic terms, this form of pricing provides an incentive to save water that is not provided by the flat-rate systems. For this reason, irrigation pricing based on the volume diverted has the potential to reduce consumption.
With rising block tariffs (RBTs), type 3(b), it is usual to apply low rates for substantial, initial entitlements combined with very high rates for additional water beyond a set threshold. This results in a low total cost and a high marginal price, because the marginal price is the price of the last unit consumed. By contrast, a high crop-based charge (type 2) represents a high total cost with zero marginal price.
Finally, a system of water allocation or rationing may be used to bring supply and demand into balance. In this situation, where the farmers receive less than they can use productively, they perceive the value of water in terms of potential crop output and income. This valuation is the opportunity cost of water to the irrigators. Because of the opportunity cost to the irrigators, where water is scarce and rationed, farmers will use water carefully even though the marginal price to them may be zero. This higher value is of course applicable only at the farm level, and affects irrigation technology and crop choice: society may place an even higher value on the water in some alternative use, but an additional mechanism is required to realise that value.
TABLE 1
Bases for irrigation water charges
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Type |
Detail |
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1. Area-based |
1. (a) A fixed rate per hectare of farm, where the charge is not related to the area irrigated, the crop grown or the volume of water received. It is usually part of a "two-part" tariff designed to cover the fixed costs of the service. Different tariffs may be used for gravity and pumped supplies. |
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1. (b) A fixed rate per hectare irrigated. The charge is not related to farm size, type of crop grown or actual volume of water received (except that a larger irrigated area implies a greater volume of irrigation water). |
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2. Crop-based |
2. A variable rate per irrigated hectare of crop, i.e. different charges for different crops, where the charge is not related to the actual volume of water received, although the type of crop and area irrigated serve as proxies for the volume of water received. |
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3. Volumetric |
3. (a) A fixed rate per unit water received, where the charge is related directly to, and proportional to, the volume of water received. |
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3. (b) A variable rate per unit of water received, where the service charge is related directly to the quantity of water received, but not proportionately (e.g. a certain amount of water per hectare may be provided at a low unit cost, a further defined quantity at a higher unit cost, and additional water above this further quantity at a very high unit cost). This method is referred to as a rising block tariff. |
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4. Tradable water rights |
4. The entitlements of users in an irrigation project, or more widely, other users, are specified in accordance with the available water supply. Rights holders are allowed to buy or sell rights in accordance with specified rules designed primarily to protect the rights of third parties. Sales require authorization by a licensing authority (as in the Murray Darling Basin Authority, Australia, and most western states in the United States of America), or may require court approval (e.g. Colorado, the United States of America) without reference to any specified authority. |
The common perception is that raising prices will force irrigators to consume less or irrigate more efficiently and productively. In practice this ‘neat’ theory of economic demand rarely holds, but the basic economic theory is worth considering if only to establish where such perceptions arise.
Without going into detail on the economic valuation and allocation of water (which is covered in detail elsewhere c.f. FAO [2004]), Figure 2 presents a conventional economic relationship between price and demand. This predicts that demand for water (or any other commodity) will fall as price rises under perfect market conditions. If the sustainable quantity of irrigation water available is Q0, then for any price below P0 demand will exceed the available supply. When the price of water is higher than P0, then there will be more water available than is demanded by irrigators at that price. In practice, the marginal price of water to irrigation users is often very low or zero. The situation of a low marginal price is represented by P1 and the associated demand by Q1. Demand exceeds the available supply substantially. Starting from P1 and Q1, and using pricing as a demand management tool, any increase in price would reduce demand towards Q0. The hypothetical example represented by P2 and Q2 shows a substantial fall in demand (about half) achieved through a substantial increase in price (about double). Nevertheless, demand remains substantially higher than the available supply, and additional measures would be needed to ensure that sustainability is achieved and consumption is reduced to the sustainable level, Q0.
FIGURE 2
Demand for water compared with
marginal price
The relationships illustrated here are hypothetical, but they point to the issues that determine the effect of pricing as a tool for demand management. The issues are:
Is the current, or proposed, price close to the value or opportunity cost of water? If not, demand will exceed supply, probably by a large margin.
Does the price needed to achieve an objective such as cost recovery relate to the value of water? If the price required for full cost recovery is still much lower than the value of water, which is usually the case in agriculture, it will do little to achieve the separate objective of reducing demand to a sustainable level.
The continuous relationship between price and demand in Figure 2 implies additional factors. Price only has the effect shown if it is related directly to quantity. If the charge for irrigation services is fixed per hectare, and hence the marginal cost of the water is zero, farmers will take as much water as they feel is useful, so long as they can make a profit.
Similarly, crop-specific charges (that is, a fixed charge per hectare of crop, perhaps set higher for more water-consuming crops) will only make farmers switch to less water-consuming crops when the irrigation charges are sufficient to make those less water-consuming crops relatively more profitable.
In both these cases, an increase in price eventually causes a fall in demand. However, the relationship is more like a switch (from full demand to no demand, or from high demand to low demand) than the smooth relationship implied in Figure 2. Establishing this direct link further requires that each purchaser be able to decide independently how much water to buy at the offered price (and on the assumption that this desired level of supply can be delivered individually to the purchaser which implies sophisticated water management and distribution infrastructure).
It is also important to distinguish between direct volumetric water pricing and tradable water rights. In the case of direct volumetric pricing, each user decides how much water to buy for the quoted price, and plans the cropping accordingly. The total cost of water to the farmer will then be price multiplied by volume purchased. In this case, the water market is between the farmer and the water supply agency, in the same way that consumers buy electricity from their electricity utility.
Under a system of tradable water rights, each user’s entitlement to water is specified as a volume, and the user will pay a fee for that right, usually related to the O&M cost rather than the economic value of the water. Collectively, those with water rights are allowed to trade water among themselves - and those who are more productive users (including commercial, industrial and domestic users) will buy the rights of less productive users, thus increasing the overall average productivity of water. In this case, the market is among rights-holders, a buyer will pay the holder of the water entitlement for the right to use the water, and the water service provider for the service provided.
As water rights are generally allocated so that their sum is equal to Q0 (i.e. the quantity of water available on a sustainable basis) in Figure 2, this approach leads directly to an equilibrium between supply and demand. The total charge paid by an individual user will be the user fee, payable to the supplying agency, plus the cost of any water rights purchased from others.
The distinctions between tradable water rights and direct or volumetric water pricing are important:
Where pricing is used directly to constrain demand, all farmers face higher charges for water (in order to balance supply and demand).
Where tradable water rights are introduced, farmers can continue to farm as before, paying the irrigation service charge (ISC) associated with their operations. Only those entering the water market will pay (or receive) the additional charges associated with purchase (or sale) of water entitlements.
Under a system of tradable water rights, the balance between supply and demand is ensured through the specification of the water rights (i.e. Q0 is defined) rather than by price. Formal water trading is only feasible where water rights have been established, based on an accurate assessment of the available water resources (Q0), and where these rights can be delivered and enforced effectively. This requires strong institutions and infrastructure capable of measuring and controlling delivery to holders of individual entitlements.
Without going into detailed analysis of the institutional implications of water markets (Gaffney, 1997) and the experience that has been gained in the United States and Australia, for instance, it is sufficient to note that these basic conditions may not be present in most developing countries which are typically coping with thousands, if not millions of irrigation water users and incomplete conveyance and trading infrastructure.
Water charging has been a policy issue since the Dublin International Conference on Water and the Environment in 1992. Whereas the call for self-financing and recovery of O&M costs has a longer history, the Dublin Conference established the concept that water itself is an “economic good”. The principle, one of four agreed at the conference, suggested that full cost pricing, however defined, could be a potent instrument for water management, besides being a sound business principle.
Since the Dublin Conference, water pricing has been a focus of attention, sharpened by documents such as the water resource management policy paper of the World Bank (1993) and the water policy paper of the Asian Development Bank (Arriens et al., 1996). The Dublin Principles made explicit reference to water as a social good only with regard to domestic water supply, viz., “within this principle, it is vital to recognise first the basic right of all human beings to have access to clean water and sanitation at an affordable price.” The UN Conference on Environment and Development, Rio de Janeiro, 1992, added a social emphasis: “water is an economic and social good”.
At the Second World Water Forum in The Hague, in March 2000, the Declaration of the Ministerial Conference made “full cost water pricing” one of the seven challenges to resolving the perceived water crisis. The World Water Vision (World Water Commission, 2000) stressed the importance of the 'user pays' principle and promoted full cost water pricing. The Framework for Action (Global Water Partnership, 2000b) stressed the difference between water value (for deciding on alternative uses of a scarce resource) and water pricing (as an instrument to recover costs and provide incentives for efficient water use). It called for pricing that would facilitate full cost recovery and encourage careful use.
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BOX 1 Dublin Principle No. 4 “Managing water as an economic good is an important way of achieving efficient and equitable use, and of encouraging conservation and protection of water resources.” |
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BOX 2 Statement from the Bonn International Conference on Freshwater “Water service providers should aim for financial sustainability through receiving sufficient income from their customers to finance operation, maintenance and capital costs. Balancing this, however, cost recovery objectives should not be a barrier to poor people’s access to water supply and sanitation...Efforts to recover cost should focus on those customers who use most water. The authorities that set tariffs should be willing to charge the full cost to users that can afford to pay...Transparent subsidies can be applied where appropriate and necessary to preserve ecosystems.” |
The Bonn International Conference on Freshwater of December 2001 was more cautious. It played down the possible contribution of water pricing to water management, and instead focused on the recovery of operational and financial costs. This caution stemmed partly from the debate on “water as a human right” over the previous two years, which advocated that no one should be denied access to water. This suggests that agricultural water users (the customers who use most water) should be charged fully for operational and financial costs, whereas financial support to poor domestic users could continue (Box 2).
It is worth contrasting the global policy discussion since the Dublin Conference with water charging policies in practice. It appears that most headway has been made towards self-financing of domestic water supply. Less has been achieved in cost recovery and water pricing in irrigation services, or in financing other water services, such as wastewater treatment, drainage, flood protection and river basin management.
There has been substantive discussion in several major irrigating countries, such as India, Pakistan, Egypt, Thailand, Viet Nam, China and Indonesia, on the introduction of 'full cost' irrigation charging (usually referring to full supply cost). However, there has been little effective implementation. In some areas, there has been a reverse trend, where water charges have been abolished (Taiwan Province of China, Poland and Punjab, India), recovery rates have decreased (Eastern Europe and Pakistan) or the introduction of irrigation charges has stalled (Indonesia). A major exception to this development is the EU Water Framework Directive that aims at full cost water pricing in all member states by 2010 (Box 3).
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BOX 3 EU Water Framework Directive, Article 9 Member states shall ensure that by 2010:
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Source: European Union (2000).
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BOX 4 Pricing and water rights: principled pragmatism “Principled” because economic principles such as ensuring that users take financial and resource costs into account when using water, are very important. And “pragmatism” because solutions need to be tailored to specific, widely varying natural, cultural, economic and political circumstances, in which the art of reform is the art of the possible. The general arguments are illustrated by focusing on two major users - farmers and cities. Four issues are addressed:
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Source: World Bank (2003).
Savenije and van der Zaag (2002) make an important distinction in the interpretation of the Dublin Principle and subsequent statements. They identify two schools of thought: “The first school maintains that water should be priced at its economic value. The market will then ensure that the water is allocated to its best uses. The second school interprets ‘water as an economic good’ to mean the process of integrated decision-making on the allocation of scarce resources, which does not necessarily involve financial transactions.” The second principle means that economics, properly understood, is about how best to meet all human wants: to treat water as an economic good is to be concerned with more than its allocation to highest value use.
Most recently, the World Bank’s Water Resources Sector Strategy (2003) has introduced the concept of principled pragmatism, recognizing that water resource management is more complex and nuanced than first suggested in the call for “full cost pricing”. Box 4 shows an abstract from the document and the issues that are to underpin the World Bank’s pragmatic approach. The document signals a significant move away from what some saw as a belief that “full cost recovery” could bring about equitable and sustainable service delivery and an optimal distribution of water between competing demands in all cases.
The World Bank strategy document (2003) identifies the difference between agricultural and urban water users in terms of the markets in which they operate. Policies of pricing and subsidy in one urban centre are said to have no material effect on what is an ‘appropriate’ price in another urban centre. However, in the irrigated sector, because products are traded nationally and internationally, pricing policies in one location can have a significant impact on what can be charged elsewhere. The document stresses the difference between the actual financial costs of service delivery and the opportunity cost of water in the two sectors. In the urban sector, the financial costs are high, while the opportunity cost - the value of the water used in the ‘next best use’ - is low. The reverse is generally true in agriculture, where the unit cost of delivering very large volumes of untreated water is relatively low but the opportunity cost can be very high if water is scarce. Translating these theoretical costs into incentives to guide the utilisation of water by irrigators raises severe practical difficulties.
The experience of the water supply sector in the United Kingdom since privatization in 1989, indicates the similarities and differences between urban and agriculture sectors in terms of cost recovery and opportunities for pricing to be used for demand management.
The regulatory system for water supply companies in the United Kingdom defines three categories of costs:
operating costs, such as plant, labour and materials;
capital costs of new and replacement works (ie current and future capital costs, not historical costs);
the cost of obtaining the capital needed to build new and replacement works.
A water utility sets charges so that income matches these costs plus a proper return on capital. The tariff can be structured to distribute the burden of the costs across the users as required. However, water utilities are almost always monopolies - consumers cannot choose among competing suppliers. In an unregulated monopoly, there are dangers of insufficient capital maintenance, allowing deterioration of the assets, or excessively high charges. Therefore, a regulator has to police the proper performance, determine reasonable costs, ensure that the capital value remains appropriate and decide the appropriate level of return to investors.
Within the tight relationships between costs and charges, there is limited scope for setting tariffs that might influence the behaviour of the water users. However, as water prices began to rise in the United Kingdom in the 1990s, many manufacturing and process businesses commissioned water audits and reduced their use significantly. However, domestic customers take two-thirds of the water supplied and are less inclined to cut consumption, as water is not generally a large part of the household bill. In consequence, the regulators and the industry are promoting water-efficient devices, such as smaller toilet cisterns and more efficient washing machines. Much research has been done on the components of water use and many appliances are now more water efficient. Thames Water, which supplies 2 000 Ml/day, claimed savings in 2001 of 0.1 Ml/day from the introduction of efficiency measures (a saving of 0.005 percent). However, it is difficult to assess whether the small reduction actually represents a true reversal of an otherwise rising trend. Furthermore, these “efficiency” measures are only water saving in the sense that the water passing through the household is reduced: the vast majority of water delivered to a house is taken back for treatment and re-use. Unlike in irrigation, where the purpose of water use is to consume it through evapotranspiration, domestic use is non-consumptive - for washing and flushing waste. Utilities encouraging lower water use in the domestic sector are attempting to ensure that their infrastructure is adequately sized to deliver, recover and treat water; they are not trying to reduce consumption
When water is scarce, the surest and most common way to make customers use less is to limit supply. First, use of hosepipes is banned and thereafter water is made available only through standpipes. Experience in Yorkshire, the United Kingdom, in 1995 shows that this approach is only acceptable in the rarest of circumstances - possibly once in a 100 years or so. Apart from these rather drastic measures, effective signals can only be given through a volumetric tariff. This process requires reliable meters on every consumer connection, which is not universally seen as an economic investment.
However, if metering is in place, tariffs can be arranged, within the total revenue profile, to give signals to high users or protection to the needy. This is particularly true in a monopoly, where competitors will not undermine the structure with opportunistic bids. Rising Block Tariffs do send clear signals to users but there are associated problems. More sophisticated meters would be needed to measure high use at specific times periods; meters would have to be read, not just estimated, as is commonly done at present. In domestic supply, it is difficult to distinguish between profligate high consumption and high consumption by large families or for medical reasons - so tariff volumes would need to be negotiated on a household by household basis, while at present less than 15% of household water deliveries are metered. A simple option would be to charge punitively for any use greater than the annual average, thereby penalizing anything but steady consumption. Some pilot studies were carried out in the United Kingdom about 12 years ago to establish use patterns; metering as well as a few RBT and seasonal tariff systems were included. The main conclusion was that households use some 5-15 percent less water on first being connected to a meter; the impact of other tariff systems was less conclusive.
This brief overview of the M&I sector highlights important and intuitively predictable similarities with irrigation services:
the components of the service cost - O&M, rehabilitation and improvement, capital costs;
the need to identify appropriate levels of expenditure clearly;
the need to identify sources of funds for these costs, and appropriate charging strategies;
demand is not very price sensitive provided the cost is small in relation to overall budgets.
In the United Kingdom, metering of domestic use is currently limited to 23 percent of households nationally.
Metering is politically sensitive and not enforced, even at the “regional” level of a large residential complex.
Sophisticated metering for a commodity priced at about US$1.4/m3 is not financially viable (the corresponding value in irrigation is less than 10 percent of this figure).
The “capital cost recovery” in M&I is substantive for current and future investments, but very limited in respect of historical investments.
A critical difference between M&I services and irrigation is that the dominant proportion of the total cost of providing the M&I service (typically US$1.4/m3) is treatment and operational costs, capital maintenance and replacement. In irrigation, treatment costs are essentially zero, and other costs per cubic metre are low given the very large volumes of water delivered through very simple infrastructure - the total service cost may lie in the range US$0.02 - 0.04/m3.
The implication is that a resource charge on water sufficient to influence demand in the M&I sector would render irrigated agriculture completely unprofitable. Essentially, these are two markets that barely intersect, except for supplementary irrigation of very high value crops. The M&I sector is a high-cost, low-volume market, whereas irrigated agriculture is a low-cost, high-volume market. In sum, the lessons from the M&I sector are clear as regards recovery of costs, and indeed which costs can be recovered, but they offer no great insights in relation to demand management in irrigation.
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[1] Bosworth B et al .Water
Charging in Irrigated Agriculture: Lessons from the Literature. HR Wallingford
Ltd. [2] Cornish GA , Perry CJ (2003) Water Charging in Irrigated Agriculture: Lessons from the Field. HR Wallingford Ltd. |
