Water Pricing

WATER PRICING: ACHIEVING A SUSTAINABLE FUTURE

Water pricing in SpainA case studyA case study

Madrid, 19 de Enero de 2012

Enrique Cabrera, ITA (UPV) and OA

Madrid, May 22, 2012

Water pricing in SpainA t dA case study

1. INTRODUCTION

2. WATER COSTS IN THE WORLD AND IN SPAIN

3. THE FULL COST RECOVERY PRINCIPLE

4. COSTS TERMS

5 FIXES AND VARIABLE TERMS5. FIXES AND VARIABLE TERMS

6. CASE STUDY

7. CONCLUSIONS


1.- INTRODUCTION

INTRODUCTION

From the sustainability point of view, water price is a key issue.

Probably the most important one, because experience shows

that it is rather impossible to be sustainable with subsidies.

Full cost recovery (FCR) has been widely accepted as the best

economic approach (WFD) In theory nobody discuss iteconomic approach (WFD). In theory, nobody discuss it.

Economic water policies just should act on water rates

Water costs terms are very well identified, and then…

Water average cost is rather well defined. An additional data to

calculate water costs are the standards of service.

INTRODUCTION

Standards of service will affects the technology to be used and, to some extend, the rehabilitation strategies and the renewal periods of h diff f h bthe different components of the urban water system.

O th “b d diti ” ( t d d f i ) h bOnce the “boundary conditions” (standard of service,…) have been defined, the final costs are affected as well by the personal skills and qualification of the staff.

From a water management perspective it is very convenient to split costs in fi ed and ariable It ill allo to identif the best strategiescosts in fixed and variable. It will allow to identify the best strategies to improve the management.

It is crucial THE role OF A WATER REGULATOR BODY

INTRODUCTION

FROM THE SUSTAINABILITY POINT OF VIEW, WATER PRICE IS A KEY ISSUE. C d C t T t l R (CCTR)C d C t T t l R (CCTR)Curva de Costes Totales a Recuperar (CCTR)

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Curva de Costes Totales a Recuperar (CCTR)

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ECONOMIC LEVEL OF LEAKAGE

INTRODUCTION

EFFICIENCY IS CRUCIAL ,…, ANDWATER PRICE IS ESENTIAL TO BE EFFICIENTWATER PRICE IS ESENTIAL TO BE EFFICIENT

INTRODUCTION

FULL COST RECOVERY IS AN ECONOMIC APPROACH

WIDELY ACCEPTED…

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INTRODUCTION

Water average cost can be rather well calculated The additionalWater average cost can be rather well calculated. The additional

requirements comes from the standards of service.

QUALITY STANDARD: ¿No residual chlorine at tap? ULTRAVIOLET TREATMENT

QUANTITY STANDARDQUANTITY STANDARD:

PRESSURE STANDARD:

LEAKAGE STANDARD:

METERING STANDARD:METERING STANDARD:

INTRODUCTION

Water QUALITY STANDARD

BENCHMARKS examplesPRESSURE STANDARD: AVERAGE PRESSURE VALUES

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INTRODUCTION

THE CASE OF AUSTRALIA

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ríos y m asas de agua





Asesora sobre política, tarifación y

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THE CASE OF AUSTRALIA

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calidad del servicio ríos y m asas de agua

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controla su rendim iento

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el acceso a los m ism os

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controla su rendim iento

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Regula las quejas, inform es de gestión y niveles de servicio

F ija los requisitos

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H ealth D epartm ent

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depuración

Purity of W ater C om m ettee


Purity of W ater C om m ettee


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G estiona sum inistro de agua, riego, drenaje y

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WATER COSTS IN THE WORLD

AND IN SPAIN

2 - WATER COSTS IN THE2.- WATER COSTS IN THE

WORLD AND IN SPAINWORLD AND IN SPAIN


AND IN SPAIN


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AND IN SPAIN

DRINKING WATER = 0 88 €/M3

SUMMARY:

DRINKING WATER = 0.88 €/M3

0.88/1.42 = 0.62 (≈ 2/3)highest

LESS SUBSIDIZED

SOU

RC

DRAINAGE AND DEPURATION= 0.54 €/M3

E:INE, 2

0.54/1.42 = 0.38 (≈ 1/3)

011

STRONGLY SUBSIDIZEDaverage


AND IN SPAIN

CITY TO CITY COMPARISON : EVEN WORST

We need a water body agency: COMMON DENOMINATOR


AND IN SPAIN

Water cost is a policy issue. Prices cannot rise easily,…, but:

W b l (f )Water bottle costs (for users):

150 l/cy = 45 €/year

(average consumption. ANEABE)

Tap water for users costs:

149 l/cd = 48 €/year

(average consumption and cost INE)(average consumption and cost. INE)


3.- THE FULL COST RECOVERY PRINCIPLE

THE FULL COST RECOVERY PRINCIPLE

With subsidies With full cost recoveryThe user always pays all BUT:a) Directly throughout water rates

The user always pays all but just throughout water ratesa) Directly throughout water rates

b) Indirectly throughout public founds (taxes). throughout water rates

Greater inefficiency Greater efficiencyCentralized system (top – down decisions) Decentralized management (decisions

taken on site)Higher total cost Lower total costgAt the end, more costly for the citizen At the end, cheaper for the citizenLess rational: the consumer that waste the water at the end pays less per cubic meter

With an appropriate tarification, much more solidary with weak economieswater, at the end pays less per cubic meter. more solidary with weak economies.

WE ARE PAYING THE WEIGHT OF THE HISTORY andTHE LACK OF ENVIRONMENTAL AWARNESSTHE LACK OF ENVIRONMENTAL AWARNESS


FULL COST RECOVERY (1999). UESPAIN(2009). UE (all urban cycle)

2

2,50.149 m3/cd = 78 €/year

1,5

2 Ten years later,…SPAIN(2009)

0,5

1 per capita GNP = 22886 €

0Portugal Grecia Irlanda España Francia Reino

UnidoAlemania Dinamarca

= (78/22886)x100 ≈ 0.3%

A i PIGS t i

water cost/per capita GNP Water cost required/per capita GNP

Again PIGS countries


DENMARK

4,0

4,5

Highest water price cost in the world

DENMARK

3,0

3,5

/ m3 )

1 5

2,0

2,5

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0 5

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1,5Pre

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0,5

1972 1977 1982 1987 1992 1997 20029 9 98 99 00

AñoSoon take the decision


Natural water cycle Urbanization effects

Higher Lessgevapotranspiration

Less runoff

Lessevapotranspiration

Higher runoff

Higher aquifer recharge Less aquifer recharge


Water costs (Berlin)GERMANY

price per m³ (2009)

Water

Price per m³ 2,038€/m³

Tax 7% 0,143 €/m³ *

Total 2,181 €/m³ *

Waste water (no purchase tax)Waste water (no purchase tax)

Price per m³ 2,543 €/m³ *

Rainwater

per m² draining area/yearly 1,840 €m²/a *

Tap water cost <<< <<< t t + i t<<< waste water + rainwater

(conversely than in Spain)


4.- COSTS TERMS

Costs terms

Social costs

Environmental costs

Resource obtention

Capital costs

O&M costs

Costs terms

Valencia urban water cycle:

Capital costs: VERY IMPORTANT (SUBSIDIZED)

O&M costs: Recovered

Resource obtention ≈ 0

Environmental costs = 0

Social costs = 0Social costs = 0


5.- FIXES AND VARIABLE TERMS

FIXES AND VARIABLE TERMS

FIXES COSTS : Not linked to water production (i.e. Human resources)

VARIABLE COSTS : Linked directly to water production (energy andVARIABLE COSTS : Linked directly to water production (energy and environmental costs)

IN GENERAL FIXED COSTS >>> VARIABLE COSTS (with exceptionsIN GENERAL, FIXED COSTS >>> VARIABLE COSTS (with exceptions as in a Water Treatment Plant, a fact that explain why municipalities does not manage them properly).

Although intrinsically both costs are linked, some faces of the management are more sensible to one block of costs.

Water consumed by users depend on both

Water losses are very much dependent on variable costsy

No body (neither users nor utilities) takes profit from water losses.

FIXES AND VARIABLE TERMS

UNDERSTANDING LIFESPAN WATER COSTS (LCA analysis)

THE IMPORTANCE OF A GOOD ASSET MANAGEMENTGOOD ASSET MANAGEMENT

VERSUS THE LIFE SPAN

UNDERSTANDING LIFESPAN WATER COSTS (LCA analysis)FIXES AND VARIABLE TERMS

UNDERSTANDING LIFESPAN WATER COSTS (LCA analysis)

Energy Energy Energy Energy

Material production Material pipe manufacturing

Pipe transport and instalation

Fabrication stage

Energy EnergyEnergy

Energy

Energy Energy

O ti ( i f i ti

Pipe recyclingPipe disposalLandfill

Operation (pumping, friction, recovery)

R i / h bilit tiRepair /rehabilitation

Maintenance/cleaning

Disposal stage

Pipe replacement(transport, excavation)

EnergyMaintenance/cleaning

Use stage

FIXES AND VARIABLE TERMSFIXES AND VARIABLE TERMS

FIXES VARIABLES, depending on:

STRUCTURAL LIFESPAN RESOURCE ENERGY LIFE SPAN

RESOURCE OBTENTION C = SPRESOURCE OBTENTION ‐ ‐ C13 = SP ‐ ‐

OPERATION AND MAINTENANCE

C21 = T ‐ C23= T C24 = T( i )

‐‐MAINTENANCE (metric)

CAPITAL COSTS C31= T C32= T ‐ ‐ C35= T

ENVIRONMENAL COSTS C41= T &SP(Complex metric)

C42= T &SP(Complex metric)

C43= SP C44= SP C45 = T &SP(Complex metric)

SOCIAL COSTS Cs

FIXES AND VARIABLE TERMSFIXES AND VARIABLE TERMS

FIXES VARIABLES

UNDERSTANDING WATER PRICES DIFFERENCES

STRUCTURAL LIFESPAN RESOURCE ENERGY LIFE SPAN

RESOURCE OBTENTION ‐ ‐ C = SP ‐ ‐RESOURCE OBTENTION C13 = SP

OPERATION AND MAINTENANCE

C21 = T ‐ C23= T C24 = T(metric)

‐‐MAINTENANCE (metric)

CAPITAL COSTS 0 €/m3

to over3

C32= T ‐ ‐ C35= T

3 €/m3

ENVIRONMENAL COSTS C41= T &SP(Complex metric)

C42= T &SP(Complex metric)

0 €/m3

to/ 3

C44= T&SP C45 = T &SP(Complex metric)

0.84 €/m3

SOCIAL COSTS Cs


6.- CASE STUDY

CASE STUDY( )(water supply)

Population: 200.000 habitants

Source: groundwater (17 wells)

Tanks: 9

Water supply network: 760 km

Pipe connections: 30.000

O&M costs = 7.000.000 €/year

Water billed = 10 000 000 m3/yearWater billed 10.000.000 m /year

Average water price = 0.81 €/m3 ≈ 0.88 €/m3 (average in Spain)

No other costs are considered

CASE STUDY( )

ASSETS

(water supply)

ASSETS

Groundwater wells + equipment = (9.8 + 8.4) x 106 €

(life average period = 100 years and 20 years, respectively)

Tanks = 8 55 x106 € (45 106 €)Tanks = 8.55 x106 € (45 106 €)

Pipes = 181 x 106 € (life average period = 50 years)

Connections = 9.66 x 106 € (life average period = 50 years)

Electromechanical devices = 4 x 106 € (life average period = 20 years)( g p y )

Capital costs = 1.14 €/m3 O&M costs = 0.71 €/m3 Total costs = 1.85 €/m3

Similar to BERLIN:

= 2.181 €/ m3 (- 0.310 €/ m3 environmental costs) = 1.891 €/ m3 )

CASE STUDY( )(drainage + waste water plant)

Population: 200.000 habitantsp

Water Treatment Plant for 200.000 people 45 106 € (l.a.p = 20 and 30 y)

Urban drainage network: 500 km 220 106 € (l a p = 50 y)Urban drainage network: 500 km 220 10 € (l.a.p 50 y)

Drainage connections: 40.000 20 106 € (l.a.p = 50 y)

Urban tanks (rainwater modulation) 25 106 € (l a p 50 y)Urban tanks (rainwater modulation) 25 106 € (l.a.p = 50 y)

Rain water pumping stations 15 106 € (l.a.p = 20 y)

Particular paved surface = 10 x 106 m2

CASE STUDY( )(water supply)

URBAN DRAINAGE COSTS

O&M costs Capital costs TOTAL

Rainwater drainage 0.059 €/m3 1.506 €/m3 1.565 €/m3

Water treatment 0.423 €/m3 0.318 €/m3 0.741 €/m3

TOTAL 0 482 €/ 3 1 824 €/ 3 2 306 €/ 3TOTAL 0.482 €/m3 1.824 €/m3 2.306 €/m3

Or (split water charge)Or (split water charge)

0.741 €/m3 + 1.409 €/m2 year

CONCLUSIONS

In Spain capital costs are not at all included in the water charges

In Spain environmental costs are not at all considered

Urban drainage and water treatment plants are much more subsidized thanUrban drainage and water treatment plants are much more subsidized than

tap water. If no action is taken problems with Water TP will arise soon.

We will face a very serious problem in coming years: we will have not moneyWe will face a very serious problem in coming years: we will have not money to renew urban water infrastructures

Actually water charges represent about 0.4 % of the per capita GNP

Actually we are not sustainable: A water bubble can explode in coming years

Alth h f d t l th th IRRIGATION i th hi tAlthough fundamentals are rather the same, IRRIGATION is another history

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Water Pricing