Pressure grows for Saudi tariff reform

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The heavy subsidising of water supplies in the Kingdom has been accused of holding back development. Now, the water minister has given the clearest sign yet that change is on the cards.

An influential think tank with the ear of the Saudi Arabian government has become the latest voice to join the crowd calling on the Kingdom to cut unsustainable water supply subsidies.

The Al-Aghar Group partnered with the Saudi Water and Power Forum (SWPF) to put together a study into improving the efficiency of the water network and energy network in Saudi Arabia, both of which are coming under ever-increasing pressure due to population growth.

Top of the list of what it calls its “quickwin” recommendations is increasing the price charged for water, which is currently set by the government at one of the lowest levels in the world for municipal customers – the equivalent of less than $0.03/m3.

The author of the report, which is due to be presented to King Abdullah, said he believes that once the decision is made, cutting municipal water subsidies is a change that could be made overnight.

The Saudi minister for water and electricity, Abdullah Al-Hussayen, told GWI that while tariff reform is an obvious move for the country, it would not be a quick process. “It would be fantastic to realise quickly,” Al-Hussayen told us. “However, the implementation is another thing. It is a problem that all over the world we all have to work to convince the policy-makers that is it not against the consumer, but would actually help him. We tend to lower the tariff to protect the interests of the consumer, however it reduces investment in infrastructure and results in poor service. We in the Arab world are willing to spend 100 times more on mobile telephones than we are willing to pay for water.”

Mobiles cost users in Saudi Arabia an average of SAR200 ($53) a month, compared to the average monthly water bill of less than SAR1.00 ($0.27), and the minister added that this comparison would be used in a national advertising campaign to try to win over the public to tariff reform.

Saudi Arabia has some of the lowest consumer prices for water in the world. According to GWI’s global tariff survey, which was published last month, just five major cities in the world charge less than the Saudi municipal authorities for a cubic metre of water. While the subsidisation policy is popular with residents, critics say the subsidy is disproportionately taken by more wealthy citizens with higher volumetric usage, and takes away money that could be invested in improving services.

Dr Hussain Sindi, the project manager at the Al-Aghar group, said: “Tariff and subsidy is a very sensitive political, social and economical issue, so there will be an impact whatever you do when it comes to subsidy and to tariffs. But the status quo is unacceptable. I think there is consensus among high officials in the government that we need to become more efficient. It is beyond our capability to say how to implement this, but I don’t see any obstacle to it being put in immediately once a decision to implement has been made.”

Al-Aghar is a not-for-profit think-tank encompassing thinkers from both the public and private sectors. It was set up five years ago, and one of its first projects – a study into moving the Mecca and Medina areas towards a knowledge-based economy – was given approval by the government and incorporated into official policy.

The group put together its study into the water sector in collaboration with the Bushnak Academy. Dr Adil Bushnak, the chairman of the Bushnak Group and founder of the academy, called on the government to take notice of the survey in a speech at the SWPF. “Without a change in tariffs, there’s not much future for water in Saudi Arabia,” he said. “The tariff is the most serious water problem because the government is only recovering one or two percent of its costs, and the plans are benefitting the rich, not the poor. I want to get this across to the decision-makers.”

Other people at the forum calling for tariff reform in Saudi Arabia included Loay Al-Musallam, the head of the National Water Company, and a number of high-profile individuals from the private sector.