Supplying water is costly but dealing with its waste is even more so. Realistic pricing means taking rates up 20 times!
How will India supply drinking water in cities? Many would argue that the problem is not so much that of inadequate water as it is of the lack of investment in building infrastructure in cities and the lack of manegerial capacities to operate the systems, once created. This then logically leads to policy reform, to invite private investment and hand over public water utilities to private parties to operate.
As a result, private-public partnerships have become the buzzword in water-management circles. The problem is that this strategy assumes too much, knows too little. It has no clue about the political economy of water or sewage in India (and other similar countries). It, therefore, makes a simple assumption that if water is ‘correctly’ priced — what is known as full-cost pricing — it would facilitate investment from the private sector and provide a solution to the water crisis being faced by vast regions of the developing world.
In India, municipal water reforms have become synonymous with the World Bank-promoted scheme of 24x7 supply of water so that pressure in water pipes reduces leakage from adjoining sewage pipes which would reduce the enormous health burden caused by dirty and polluted water. In the 24x7 water distribution scheme, governments hive off parts of the city water distribution to private contractors. The key presumption is that the contractor will reduce water distribution losses — these are currently estimated to be 40-50 per cent of water supplied in our cities.
The reasoning is impeccable but it forgets the cost of the system has to be affordable so that it can be sustainable. In India, few municipalities compile the water and sewage accounts. Our recent research under which we compiled city-level data shows a pattern that is difficult to miss.
Almost all cities — of the 72 we surveyed — are struggling to balance their accounts and are failing. The one expense that is killing them is the cost of electricity — to pump water from long distances to the city and then to pump water to each house and to drain off the waste from the house to the sewage treatment plant. Bhubaneshwar, for instance, brings its water from Mahanadi, some 30 km from the city, and 56 per cent of total costs are on electricity. Pune, which has invested in creating a citywide water distribution network spends roughly Rs 25 crore annually to pump roughly 800 million litres per day of water it supplies to its people.
What is clear is that when a city searches for new sources of water, it rarely considers what this will cost. The plan is sold as an infrastructure project. The costs are paid for as capital expenditure. But what is not considered is how the project and the length of the pipeline — or canal — will impact the city’s finances, and indeed if the city can spend month after month on its electricity bill to pump the water. What is also not considered is how the city, which spends higher and higher costs of electricity, will pay for on the repair and maintenance of the pipeline. And if it cannot afford to do that, will it be able to supply water to all? In other words, can it afford to subsidise all and not just the water-rich?
This is also half of the sum. The other half involves, not water, but the waste that the water will create. The agency will have to price the cost of taking back the waste — the more the water supplied the more the waste is generated — conveying it and then treating it will cost more.
But even this is not the full story. If the agency cannot pay for the sewage disposal system, its waste will pollute more water — either the water of its downstream city or its own groundwater. Remember also, that we all live downstream. The cost of pollution makes water economics more difficult. For instance, Agra, located downstream of Delhi and then Mathura, spends huge amounts of its water budget on buying chlorine to clean water. Now it wants to get another source of water — how long will that stay ‘clean’ is another question.
The fact is that no municipality can do what economists preach — raise prices to capture the full costs. Instead, they spend money on supply and as costs go up, they have to increase the subsidy to the users or supply less to most. On an average, Indian cities charge Rs 2-3 per kilolitre (kl), when they should be charging Rs 8-10 per kl. And if their distribution losses are taken into account, charge Rs 10-14 per kl. If we add sewage costs, then the bill increases by roughly five times the cost of water supply. In this case, the family that pays Rs 2 -3 per kl will pay Rs 40-50 per kl. How feasible is this?
In answering that, you will learn the political economy of water and excreta, where the rich and not the poor, are subsidised in urban India.
In spite of the RBI's rate cut and the Centre's reforms, any recovery will only be half-hearted