Water

Implications: Costs & Cost Recovery

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• How does this policy address cost recovery in agriculture and water supply?
• How does this policy address the issue of subsidies?

How does this policy address cost recovery in agriculture and water supply?

Water is a vulnerable and scarce economic good. Our policy therefore promotes water's conservation and sustainable use. We will advise to include cost recovery principles in national water policies and strategies.

In water supply
We will promote tariff reforms to reward conservation and penalize waste. Capital costs for water services should be funded mainly from within the sector, by accessing debt markets and developing appropriate tariff structures. Consumers should expect to meet the full operating and maintenance costs of water facilities and service provision in urban and rural water supply and sanitation schemes.

In irrigated agriculture
We will start by promoting full cost recovery of irrigation services, starting with the operation and maintenance costs. The evidence shows that farmers, including poor farmers, are willing to pay for irrigation services that are efficient and reliable.

We will also promote the inclusion of environmental externalities and the recovery of resource management costs in tariff and service fee systems adopted by the developing member countries.

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How does this policy address the issue of subsidies?

Subsidies are a controversial issue in the water sector. We will support subsidies for water services in the following circumstances

• where treated water uses have beneficial external effects in preventing health problems
• where the transaction costs of measuring usage are very high
• where a limited quantity of treated water for the poor is regarded as a basic human need

Taken together, these circumstances may justify a limited lifeline element in tariff policy. Other forms of subsidies, such as cross-subsidization between systems, will be reviewed to ensure that targeting is efficient and transparent. However, in the long term, governments and regulatory agencies will be persuaded to phase out subsidies as economic conditions improve.

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