Policy implications from water pricing experiences in various countries

Abstract

Water pricing can be used for improving water use efficiency. Prices, if accurately designed, give information to users, to make choices regarding water use. In practice water pricing schemes may be designed to meet many objectives, including political ones. This paper reviews water pricing experiences across 22 countries in various sectors and over time. The information shows that countries have different reasons for charging for water, including cost recovery, redistribution of income, improvement of water allocation and water conservation. The paper compares both the fixed and the variable rates for urban, agricultural and industrial sectors. Main findings are that fixed rates vary greatly between countries, while per unit rates are in a reasonable range. For urban and agricultural water, all developing countries, and some developed countries, set charges on the basis of average rather than marginal cost of supply. The willingness of countries to undertake water pricing reforms and successfully implement them cannot be solely explained by their water scarcity levels nor by the size of their budget deficits. However, high income countries are relatively more open to reforming water pricing policies.