Xinhua

November 18, 2006
Whisky is for drinking, water is for fighting over, as Mark Twain observed. It is true.  Having found itself more often on the losing side of the battle to provide sufficient clean water to the vast and arid northern region, Chinese government resorts to market-driven water pricing to cure its water shortage headache.

The National Development and Reform Commission (NDRC) released a new regulation on the supervision of water pricing on Nov. 13 to clarify what can be included in the cost of water supply and what should not.

The regulation suggested that the price of water should be based on the costs of water supply, which comprise the costs of tapping the water resources, providing the running water, constructing the pipes and treating the sewage.

In addition, it imposed quotas on expenditure on office buildings, salary rises, staff benefits and hospitality expenses, which were also included in the costs of water, and could become uncontrollable if no specific limit was imposed.

The regulation stipulated that the hospitality expenses should not account for more than 5 percent of the annual net profit for companies whose annual net profit is less than 15 million yuan (1.8 million U.S. dollars), and for companies whose annual net profit is above 15 million yuan (1.8 million U.S. dollars), the hospitality expenses should be limited within three percent of the total.

For staff salary of water suppliers, it cannot surpass the 1.2 times of amount of average salary of employees of other sectors, as the regulation required.

“It is essential to work out a proper pricing regulation to provide clear accounting standards for water suppliers,” said Dr. Li Yuanhua, deputy director of the Department of Rural Water Management of the Ministry of Water Resources.

“This will make the price of water match its real cost, remind the public that China suffers from constant water shortages and cultivate awareness of water efficiency among all residents,” he said.

Although possessing the fourth-largest fresh water reserves in the world, China, by virtue of its population, has the second-lowest per capita water holdings in the world, averaging about 2,222 cubic meters of water per person, a quarter of the world average.

The unequal distribution within the country makes the situation far more serious: 42 percent of China’s population — 538 million people –in the northern region have access to only 14 percent of the country’s water, according to the United Nation’s 2006 Human Development Report released in China on Nov. 14 entitled Beyond scarcity: power, poverty and the global water crisis.

Beijing has been suffering droughts since 2000. The urban expansion and economic development have resulted in the city’s shortfall of an average of 400 million cubic meters of water a year. For 2006 alone, Beijing is short of 794 million cubic meters of water and the figure may climb to 1.182 billion cubic meters by 2010, according to Zheng Qiuli, an official with the municipal water authority.

Under-pricing water has been considered a major cause of China’s water over consumption. The current prices of water consumed in China’s urban area are tinted with a strong touch of welfare and public good, and have seriously deviated from its real value, said An Fenglong, president of Beijing-based Haoda Anbo Water Resources Exploitation Co., Ltd.

“The unreasonably low price of water means losses for water supply and sewage treatment companies and contributes to the public’s low awareness level of the need to save water,” he said.

In the past 15 years, Beijing municipal government has raised water rates nine times. The current price is 3.7 yuan (46 U.S. cents) per cubic meter, which registered the highest water price in China, more than 30 times the price of 0.12 yuan (1.2 cents) in 1991.

Nationwide, the cost of residential water use rose by 42 percent from 2000 to 2005, according to a survey of 36 cities by the National Bureau of Statistics.

However, the average household water expenditure in 2004 still only accounted for 1.8 percent of the household income in Beijing. The upper limit of this ratio set by the World Bank for the developing countries is 5 percent.

Thus, pricing and demand management now plays a growing role in water governance in China. “Citizens should pay more money for the water they use. So should they for the cost of treating the wastewater they produce and the cost of building facilities for exploring water resources,” said Zhang Kunmin, vice-president of Chinese Association on Sustainable Development.

He said the water price in Shanghai in the 1970s was 0.5 yuan (6 U.S. cents) per cubic meter against the average 50 yuan (6 U.S. dollars) monthly income. “So my mother-in-law valued each drop of water by mopping the floor with the water used to wash face,” he said. However in Beijing, the water price by then was 0.05 yuan (0.6 cents) per cubic meter, “it is common to see water dripping from the pipes in the public.”

While the authority believes the NDRC pricing regulation can help to supervise the water cost and save water, the public doubts about what is behind the rises.

“I am wondering the relation between the rise of my water bill and that of the staff salary of water utilities,” said Kuang Fei, a 37-year-old civil servant in Beijing. “Although the welfare and hospitality cost are imposed quotas in the regulation, I am afraid those ‘swollen costs’ are not truly necessary for water supply and maybe shifted secretly to other costs, which in the end are shouldered by us consumers,”he said.

Average wage income of workers in China’s monopoly sectors, such as telecom, finance, tobacco and water industries, has reached three times the national average, while non-wage income of workers in these sectors enlarged the gap with the national average up to 10 fold as much, according to the Ministry of Labor and Social Security.

Dr. Shen Dajun, research fellow with China Institute of Water Resources and Hydropower Research, agreed that the consumers need transparency for the money collected from their water bills.

“They need to be told that the fees they have paid for treating the wastewater have indeed been used for that purpose and the money to build facilities for the more efficient use of water resources has really been used in that area,” he said.

He noted that a good regulation alone would not solve all the problems. An independent auditing is indispensable and cost information should be made available to the public to prevent water suppliers from manipulating pricing, he said.

Ma Jun, an environmental consultant and the author of the book “China’s Water Crisis, believes most people could afford water at a realistic price, and they would use the resource more prudently and efficiently if it came at a higher cost.

But these solutions presuppose vast expenditures of capital, and such solutions “do not automatically address the needs of the poor, who are unable to pay for that capital,” he said.

His worry was echoed in the 2006 Human Development Report, which emphasizes an increased financing and a reorientation of public spending to find viable ways of getting potable water to those who can least afford to pay.

The report advocates for all governments to go beyond vague constitutional principles in enabling legislation to ensure the human right to a secure, accessible and affordable supply of water. At a minimum, this implies a target of at least 20 liters of clean water a
day for every citizen — and at a very low price or at no cost for those too poor to pay.

Dr. Li Yuanhua with the Ministry of Water Resources was glad to see 67 million rural populations had been provided with clean water by the end of 2005, with a government assistance of 402 yuan (50 US dollars) for each.

“In 2006, the government plans to invest 12 billion yuan (1.5 billion US dollars) to solve the water shortage problem of more than 29 million rural population. In 2007, the target population is 32 million. In 2015, the situation for all the 379 million rural population who
suffered from water shortage will be improved,” Dr. Li said.

In the urban areas, the water price may continue to rise by 50 to 100 percent over the next five years to curb the squandering of scarce water resources, according to Qiu Baoxing, vice construction minister.

But Qiu said the rise of water prices would be gradual. He noted that water costs of 5 U.S. dollars per cubic meter in Boston, or 2.5 euros in France, would not work in China.

“People’s income in China is very low, and we have to think about their ability to accept (a price rise),” Qiu said. “We are not preparing for a large price increase.”

Nevertheless, the work has paid off, at least from a consumption standpoint. Beijing used 4.06 billion cubic meters of water in 2001, but in 2005 the figure dropped to 3.45 billion cubic meters.