Analysis: The cost of water

In developing countries, over a billion people lack access to safe water. Over two billion people lack adequate sanitation. Those who are not connected tend to pay 10 times or more for the same amount of water than richer people. The ones who are connected pay on average less than a third of the costs of water. Many do not pay their bills, particularly public sector customers, and have no incentive to conserve scarce water. Governments often do not have the resources to invest in water systems or maintain and operate them adequately. Hence poor people remain unconnected and pay a lot. Better- off people receive variable qualities of service and tend to waste water. By Michael Klein

The case for privatisation
What to do? The biggest gains for most poor people come from providing access to water, not from lower user fees. That means more investment, better maintenance, good operations. To make this happen, someone has to pay for the costs of water pipes, treatment plants, maintenance, operations and so on. That means adequate user fees that customers actually pay. Where governments have the ability to subsidise water, they may do so to make it more affordable for poor people, but today most subsidy systems actually benefit those who are better off. Better targeting of subsidies is critical.

Water pricing
Recent experience all over the world shows that private water providers have typically performed well in technical matters. They invest and enhance access. They maintain and operate well. Controversy is typically not about this, but about price increases and alleged excessive profits. Yet, price increases are often unavoidable regardless of ownership, because otherwise there would be no resources to invest or run water systems. As for excessive profits, in most cases private companies have not made much money in the water sector. Today they are withdrawing from it, precisely because they are loosing. In the past, all over developing countries both public and private enterprises have been starved of funds due to the complicated politics of water pricing.

The result is: poor people remain disconnected and pay a lot.

Michael Klein is Vice-president for Private Sector Development jointly for the World Bank and the International Finance Corporation (ifc) as well as Chief Economist, ifc. His article, Analysis: The cost of water appeared in the bbc News online World Edition, Monday 2 June 2003.

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