Skip to main content

Published on: 05/03/2014

Accelerated resource depletion compounded by environmental pollution is leading to a progressive rise in marginal costs of drinking water provision, particularly in water-stressed economies. As the easiest and cheapest opportunities for capturing and distributing water have been accessed, it seems new schemes now cost several times more per unit of water supplied; unless there is a monumental advance in technology. 

 

Evidence shows that scale economies do not work well in drinking water, as small local schemes tend to be more productive than comprehensive large schemes.

The proponents for large schemes often argue that they are cost-effective on account of scale economies. But there is evidence from India  (WASHCOST, AP2012) that shows that scale economies do not work well in drinking water as small local schemes tend to be more productive than comprehensive large schemes. Clearly there are major gaps in our knowledge concerning the practical application of economic theory that are inter-twined in the socio-political economy of decision-making. Much less is known about the micro-circumstances and conditions which govern choices of scale. There are both physical and institutional variations in circumstances, but the factors governing this variation and the significance of it for good management of drinking water supply are insufficiently understood. 

Additionally,  pricing of water has rarely been efficient. Tariffs are often set below the average economic cost, which jeopardize sustainable delivery of water services. If water availability is limited, and competition for water among potential water users (households, industries, agriculture) is high, the opportunity cost of water (OCW) is also high. Scarcity rent occurs in situations where the water resource is depleting. OCW and depletion premium have rarely been considered in the design of tariff structures. If the water entity is not fully recovering the average cost of water, government subsidies or finance from other sources is necessary to ensure sustainable water service delivery.

The predictions on the death of a hand pump which is  synonymous to small versus large on the grounds of partially understood scale economies do not reveal the whole story unless growing local water insecurity that necessitate a shift to distant sources are  not adequately taken in to account.

Disclaimer

At IRC we have strong opinions and we value honest and frank discussion, so you won't be surprised to hear that not all the opinions on this site represent our official policy.

Back to
the top