World Bank and OECD say water is a finite resource that must be valued at a higher price in order to repair old supply systems and build new ones
Juliette Jowit in Paris
guardian.co.uk, Tuesday 27 April 2010 17.32 BST
Major economies are pushing for substantial increases in the price of water around the world as concern mounts about dwindling supplies and rising population.
With official UN figures showing that 1 billion people lack access to clean drinking water and more than double that number do not have proper sanitation, increases in prices will be – and in some countries are already proving to be – hugely controversial.
However experts argue that as long as most countries provide huge subsidies for water it will not be possible to change the wasteful habits of consumers, farmers and industry, nor to raise the investment needed to repair old supply systems and build new ones. And price rises can be managed so that they do not penalise the poorest.
Last Friday, the World Bank held a high-level private meeting about water in New York, at which higher prices were discussed. Days before that the OECD, which represents the world's major economies, issued three water reports calling for prices to rise. "Putting a price on water will make us aware of the scarcity and make us take better care of it," said Angel Gurría, the OECD secretary-general. It has also been a key theme at this week's meeting of industry leaders in Paris, hosted by Global Water Intelligence.
The discussion at the World Bank was raised by Lars Thunell, chief executive officer of the International Finance Corporation. "Everyone said water must be somehow valued: whether you call it cost, or price, or cost recover," said Usha Rao-Monari, senior manager of the IFC's infrastructure department. "It's not an infinite resource, and anything that's not an infinite resource must be valued."
Concern about dwindling water supplies has been rising with growing populations and economies. And with climate change altering rainfall patterns, experts warn that unless changes are made, up to half the world's population could live in areas without sustainable clean water to meet their daily needs.
Global Water Intelligence's 2010 market report estimated the industry needs to spend $571bn (£373bn) a year to maintain and improve its networks and treatment plants to meet rising demand - more than three times this year's projected spending.
At the same time, a major report last year by consultants McKinsey, paid for by a group of water-dependent global brands including SABMiller and Nestlé, said that most of the estimated "gap" in water in 2030 could be met from efficiency savings such as better irrigation and new showerheads.
However, highly subsidised prices are hampering both investment and efficiency, because private and public companies cannot collect enough water, nor persuade farmers, homeowners and businesses to make - and sometimes pay for - changes to reduce their water use, say the experts.
"We were in a vicious cycle," says Virgilio Rivera, a director of Manila Water, which took over water and sewage services in the city when the Philippines government passed a National Water Crisis Act in 1997. "Lack of investment; poor service; government can't increase the water rates because customers are dissatisfied; they are not paying, so low cash flows; so the government can't improve the service."
Huge opposition to price rises is expected however, especially as so many prices are set by elected politicians.
Even in Washington DC there has been an outcry over calls for prices to double over the next five years to help the city raise money to spend on its 76-year-old network of leaking lead pipes.
Obstacles include a long term "legitimacy" from providing free or very cheap water; and vested interests, says Rao-Monari, who cites the example of water vendors in India making big profits from desperate households.
The biggest concern though is the impact on the poorest households. There is evidence that they suffer most from the bad services of poorly funded water companies, because often they are not connected at all or have such bad services they are forced to rely on even more expensive water vendors.
In Manila, Manila Water increased bills from 4.5 to 30 pesos per cubic metre. At first there was resistance but by 2003 the company doubled connections from 3m to 6m, including 1.6m of the poorest squatters, leakage had been cut drastically, and pressure and quality had improved, said Rivera, one of the company's directors visiting Paris. Bills for the poorest households are now less than one-tenth of when they relied on vendors, and payment in the slum areas is 100%, said Rivera.
Some say step pricing can be used to protect a basic water allowance for drinking, cooking and washing – either for very low prices or for free, as it is in South Africa.
"I fully agree the water we need of hydration and minimal hygiene are part of the Human Rights declaration, but this is 25 litres of water [a day], which is the smallest part," said Peter Brabeck-Letmathe, chairman of food giant Nestlé and one of the most prominent global business leaders campaigning on water. More than 95% of water is used to grow food, for other household needs and for industry, he added.
Food prices should not have to rise as higher water bills could be offset by efficiency improvements, from irrigation, to new seeds, or even a changing pattern of what is eaten to favour less water-intensive ingredients, said Brabeck-Letmathe.
Others favour separating water supply from government's duty to take care of the most vulnerable. "Ideally utilities should not make any distinction between rich and poor," said Prof Asit Biswas, president of the Third World Centre for Water Management. "The moment you subsidise [someone's bill] people don't use water prudently."