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Understanding Water Tariff g in the PRC

Jingmin Huang Urban Development Specialist East Asia Urban & Social Sectors Division Email:
19 February 2010

Scope of Todays Presentation

Overview of Urban Water Supply and Wastewater Management PRCs Water Tariff: Current and Proposed Adjustments Adj stments

Overview: Urban Water Supply and Wastewater Management U b W t S l d W t t M t

Water Supply Coverage W S l C (2007)
94% urban population served (350 million) 81% t t l county total t population served (102 million)

Wastewater Management W M
34%treatment ratio in 2000 63% treatment ratio in 2007 treatment capacity of 71m m3 per day for 883 municipal WWTP in 2007

Largest water supply and second largest wastewater treatment in the world

Urban Water Supply Status pp y

400 350 300 250 200 150 100 50 0 Year 2000 Year 2007

domestic water consumption (100m m3) population not covered(m) population covered(m)

Year 2007

Urban Wastewater Treatment Status

400 350 300 250 200 150 100 50 0 Year 2002 Year 2007

un-treated Urban wastewater(100m m3) treated urban wastewater(100m m3)

Water Supply Facilities Status 2002-2007

water supply plants from 1450 to 1852 by 27% water production capacity from 122 m to 154 m p p y m3/day water pipes from 194 thousand to 336 thousand km leakage of 6 bn m3 per year from 16.7% to 17.6% of total non revenue water from 4 9bn to 8 7 bn m3 4.9bn 8.7 The unit water production cost to 10% annually from 1998 to 2007

Existing Tariff
Average water tariff is 1.7 CNY/ m3 and 0.7 CNY / m3 for wastewater treatment for domestic usage Water expense is 1% of total family income vs. 2-5 % global average Gross profits decreased from -100m CNY to - 321m CNY (2002-2007) Net profit further decreased from -190m CNY to - 596m CNY Proposed tariff increase in 2008 postponed due to high consumer price index (CPI) There is an urgent need to adjust water tariffs in PRC. Th i t d t dj t t t iff i PRC

Why Increase Water Tariffs

Current level is low (not at full cost recovery level.) Water conservation in urban areas needs to be p promoted

Public Perception
People attribute water tariff increases to the high bidding p prices through which foreign companies gained ownership g g p g p Foreign companies operate about 10% of all urban water pp y p y, p p j supply capacity, 44m population with focus on major cities in PRC p p p p y p People are not prepared to pay more because of perceived inefficiencies, i.e. : Low operational efficiency High operational cost g p High Non Revenue Water (NRW) High salary of staff

Justifications for Tariff I J tifi ti f T iff Increase

Experts View p
PRC's water tariff level is lower than world average Water tariff has been increasing since 1990's, even before entry of foreign b f t ff i companies Low water tariff undermines sustainability and contributes to worsening water shortage especially in urban areas

Government s Governments View

Encourage water conservation and water use efficiency Charge proper tariff (at least recover full O&M cost as minimum) Improve services to urban areas

Is it OK to Increase Tariffs?
$2.5 billion in ADB water investments including , wastewater treatment - need to recover cost, at least for O&M pp ADB supports water tariff increases to achieve full cost recovery and sustainability g y PPP is not a golden key to tariff increase According to a WB study, there is no indication of tariffs g y moving closer to full cost-recovery levels under the private sector water industry operation