On water pricing

In well structured irrigation system, consumers pay cost of efficient operations, maintenance, replacement of assets.

Pakistan is a water-stressed country. Current per capital water resources stand at about 1200 cubic meters per person per year. Given our increasing population and food supply demands, water is becoming increasingly scarce. Despite this scenario, it’s strange how little people know about this precious commodity, available in plastic bottles from priced at Rs15.

Water is consumed in several ways in Pakistan. Over 90 per cent of our water resource — consisting of glacial melt and seasonal rains — is consumed in agriculture. Only a fraction is consumed by the domestic sector and some is consumed in various industrial processes. In order to understand the price of water, it is necessary to understand the pricing system around these types of consumption.

Consumers of canal irrigation water pay an abiana charge levied under the Canal and Drainage Act, 1873, which states that “The rates to be charged for canal water supplied for the purposes of irrigation to the occupiers of land shall be determined by the rules to be made by the provincial government and such occupiers shall pay for it accordingly”. Provincial governments publish water rates. In Punjab, until 2003, there were sporadic increases in water charges. Now the government has applied a flat rate system of Rs85 per cropped acre during the kharif season and Rs50 per acre during the rabi season.

In Khyber-Pakhtunkhwa, the flat rate system was introduced in 2008, and increased in 2009, to Rs200 per acre for food crops and Rs250 per acre for other crops. In Sindh, there are different water rates for different crops in different canal commands. For example, Rs93 per acre for cotton and Rs120 per acre for sugarcane. In Balochistan, water rates have been subject to an annual 13 per cent increase and are different for different crops. For example, Rs89 per acre for cotton and Rs181 per acre for sugarcane.

In a well structured irrigation system, consumers pay the cost of efficient operations, maintenance and replacement costs of the irrigation assets. There are various ways to price irrigation water. In some systems, the cost of water is the marginal cost of adding another consumer to the system. In others, the cost of water is based on full-cost recovery of the operation and maintenance costs of the irrigation system. In still others, the rule of thumb is to collect a replacement and maintenance sum amounting to three per cent of the capital stock of water infrastructure.

The Punjab Irrigation Department, for example, manages an estimated US$20 billion in water infrastructure. According to water expert John Briscoe, “this would imply that the cost of replacement and maintenance of Punjab’s stock of water resource and irrigation infrastructure would be US$0.6 billion a year” and that accordingly, the Government of Punjab should be investing about US$0.3 billion a year in replacement and maintenance. As of 2006, the Government of Punjab’s budget for maintenance was about 6.5 per cent of that benchmark. In no way is this abiana pricing in Punjab sustainable. It doesn’t even cover operation and maintenance costs.

Let me take Lahore’s Water and Sanitation Agency (WASA), to illustrate water pricing for domestic consumers. In an excellent paper on pricing in Lahore, Tamkinat Rauf and M Wasif Siddiqi explain that the WASA has been given the power to collect rates, fees and charges for water supply. The last time water charges were changed in Lahore was in 2004, when the provincial government approved tariffs for metered and unmetered connections (no unmetered connections have been given since). For metered connections using up to 5,000 gallons per month (gpm), Rs12.88 per 1,000gpm, Rs20.86 per 1,000gpm for consumption between 5001—20,000 gallons and Rs27.30 for consumption above 20,001 gallons per month. For unmetered connections, the tariff is linked to the annual rental value (ARV) of the premises. The tariff is Rs98.77 per month for properties of ARV of up to Rs400 and Rs747.32 per month for properties with an ARV of up to Rs2299. For properties with an ARV of above Rs4500, the tariff is Rs747 per month.

Domestic water is usually priced under block-rate schedules established to ensure the efficient use of the resource, as well as to achieve equity, environmental conservation, cost recovery and public participation. Rauf and Wasif note that WASA has kept tariffs below cost recovery levels, forcing a deficit and reliance on provincial government grants and loans. The WASA can scarcely recover its overhead and maintenance costs. Since 2004, the former has applied to the Government of Punjab for an escalation of tariff. Each application has been rejected.

Studies show that there is an excess demand for water in Pakistan: people demand more quantities of water than they would if they were to pay the true environmental and supply cost of water. As water becomes more scarce in Pakistan, there could be skirmishes over water hegemony in the country. And unless we realise that we are wasting our resource by not paying for it, the entire game will be sized upon by corporate. Whether this is good or bad is anyone’s guess. My point is that the people of Pakistan will not have their say in how they have access to life’s most precious resource.

Published in The Express Tribune, February 16^th, 2012.