The main source of water for Abu Dhabi City is desalinated seawater from the Arabian Gulf. The cost of water production through desalination is higher than other conventional methods of potable water production. In spite of all awareness campaigns to advise the consumers in Abu Dhabi of the importance of the water and its high cost, the average consumption rate is still one of the highest in the world (636 1/cap d). This means that, with respect to water, the worst combination of conditions are existing in Abu Dhabi (high consumption rate and high production cost). As a result, the Water and Electricity Department (WED) of Abu Dhabi (now it is a private company) which is the Department responsible for water production, transmission and distribution, has decided to change the pricing policy of water. The new policy is based on fixing meters in buildings and charging the consumers for the actual amount of water consumed, instead of a system which was based on a flat rate of 50 Dhs per month (1 US$=3.7 Dhs) irrespective of the amount of consumption. This paper attempts to evaluate the effect of introducing the new pricing mechanism in Abu Dhabi City, and compares it with the old flat rate tariff. The water consumption of randomly selected 90 households with different socio-economic levels were analyzed before and after introducing the new pricing system. As a result of the new pricing policy, 73% of the households in the sample reduced their consumption by an average of 29%. The calculated price elasticity of demand revealed an elasticity coefficient e=−0.1. The new price of water (2.2 Dhs/m 3) accounts for only 29% of the total cost to produce and supply the water to consumer taps.

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