World Bank bets on ‘socially responsible’ water pricing

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This article is part of our special report Delivering water in the 21st century.

Making users pay for water should be part of any policymakers' toolkit to manage scarcity, says Lars H. Thunell of the World Bank's International Finance Corporation. But with safe drinking water now officially recognised as a human right, this has to be done in "a socially responsible way," he argues.

With the world population growing from 7 billion to around 10 billion by 2050, water scarcity is fast becoming a top political concern for decision-makers around the globe.

"We really have a problem," said Lars H. Thunell, a Swedish national who was appointed in 2006 as executive vice-president of the International Finance Corporation (IFC), part of the World Bank Group.

"The whole issue is you’ve got scarcity and there are only two ways to resolve it," Thunell told EURACTIV in an interview.

"One is either you have to start rationing, which isn’t a very effective solution, which also has side effects. Or you’ve got to raise the price but you’ve got to do it in a socially responsible way."

Water as a human right

Whichever way you look at it, growing water stress around the world means that policymakers will have to put a price on the scarce resource, the Swede says.

And since safe drinking water is now officially recognised as a fundamental human right by the United Nations, this means businesses and farmers will have to foot the bill.

"We have to recognise that a certain amount of water every day is a human right. And that’s a fact of life. But we should remember that only about 1.5% of all the water that is used is used for those purposes," Thunell said.

The consequence is that pricing measures will have to be introduced to manage the remaining 98.5% of water resources that are used for other purposes – mainly agriculture, home and industrial purposes.

"In a world where you have scarcity, you have to have a price on things. But you also have to take the social dimension into consideration," said Thunell.

"I like, for example, the South African model where they say that you get a certain amount of free water every day but if you want to use it for industrial purposes or filling a swimming pool or taking ten showers a day, you have to pay for it."

No one-size fits all solution

However, Thunell insists there should be no one-size-fits-all solution. Because water cannot be moved around easily, solutions have to be found locally at the level of each "river basin".

This is precisely what the EU has tried to do with its Framework Water Directive. Adopted in 2000, the WFD for the first time introduced a model for water management based on 'river basins', or geographical areas, rather than on administrative or political boundaries. The directive provides that, for each river basin, a "river basin management plan" should be established and updated every six years by relevant national authorities working in co-operation.

One key aspect of the EU directive is a requirement for countries to introduce pricing policies. Those should aim at encouraging a more efficient use of water and recover the cost of essential services – such as the treatment of used waters and maintenance of pipe systems.

However, the way governments or private companies recover those costs is a highly political question that needs to be addressed at local level – including the social issues they raise.

"One has to understand that [water pricing] may create hardship for people," Thunell underlined. "On the other hand we have to also conclude that investment in water [infrastructure] has been totally lagging. Many of the water systems in the major cities around the world, including the developed world, have losses of 30-40%. And that’s not viable, we have to make sure that we invest."

Private-sector involvement

This is where Thunell believes investors such as the IFC have a role to play – by financing public-private partnerships on water infrastructure around the world.

With public development aid budgets squeezed by financial and economic crises, Thunell believes the IFC can help mobilise the necessary private funds to invest in water and sanitation infrastructure.

But he rejects suggestions that private water companies are a guarantee of good management. "No I don’t think that’s a guarantee," he said stressing that decisions on public or private ownership need to be taken locally.

The IFC's involvement in water projects in countries like the Philippines has proved controversial, with critics denouncing attempts to privatise water distribution in impoverished states.

Thunell himself accepted that some IFC-funded projects could have been more successful. "I know we have a project in Manila where half of the water for the city was privatised, and half was lost."

But he says this should not be a reason to dismiss private-sector involvement altogether.

"One solution among several solutions is to involve the private sector," Thunell says. "It is not the silver bullet," he insists, "you have to keep the balances straight.

"These are emotional and very political issues and one has to look in the individual cases."

Click here to read the full interview with Lars H. Thunell

In 2006 and 2007, the European Commission carried out an in-depth assessment of water scarcity and drought in the European Union.

According to a Commission-backed study (see part 1 and part 2), water efficiency in the EU could be improved by nearly 40% with technological improvements alone. Changes in human behaviour or production patterns could further increase savings, it noted.

Ideas put forward in a follow up policy paper included improving land-use planning to take account of water issues, introducing more widespread use of pricing and metering technologies – in households and agriculture – as well as promoting water-efficient devices.

  • Nov. 2012: European Commission to table 'Blueprint for Safeguarding Europe's Water' (see non-paper).

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