If we pay more, it will cost less

Published November 26th, 2009

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Insight from Christopher Gasson, GWI publisher

I was in Washington this week for the launch of the International Finance Corporation’s “Charting Our Water Future” initiative, developed in association with McKinsey. It is an interesting project: the management consultants analysed the gap in water resources that would arise over the next 20 years in four countries – India, China, Brazil and South Africa – then worked out the cost of all the possible solutions to closing that gap.

The main conclusion, which will be reported on in greater depth in December’s GWI, was that much of the gap could be closed by conservation measures which bring in money rather than require investment. There are also a number of low-cost ways to increase water resources before you get to high-cost approaches such as inter-basin transfers, water reuse and desalination. The idea is that governments will use the documents to pursue the lowest cost water resource strategies first.

In a perfect world, governments would start by addressing issues such as over-irrigation and water wastage in industry before opening their wallets to build desalination plants and divert rivers, but it tends not to happen like that. Large water infrastructure projects continue to proliferate.

That is because it is easier to change technologies than behaviour.

During the panel discussion after the report presentation, I asked John Briscoe, the ex-World Bank water expert who now heads the Water Security Initiative at Harvard University, why ending the policy of free electricity to pump water for irrigation was not considered the most cost-effective solution for closing India’s water gap? “Have you ever run for election in the state of Gujarat?” he replied.

That is the nub of it, and also the reason why Gujarat is considering a $129 million desalination plant in Kutch. It is one of the ironies of the water sector: because politicians are so unwilling to expose their electorate to the full cost of water, everyone ends up paying more for it.

Although the IFC/McKinsey report scrupulously avoids mentioning the necessity of raising tariffs as the first step towards a sustainable water future, it will become clear that the only way of accessing the lowest-cost solutions to water scarcity involves a change of behaviour. The most effective way of inducing this change of behaviour is to increase the cost of water.

From an industry point of view, driving water conservation through better water pricing does not mean the end of a lucrative market for large water infrastructure projects. It means the beginning of a rational water economy where the price of the product reflects the cost of delivering it. That is far more important to the long-term sustainability of the water industry than any fillip that might derive from politicians being too cowardly to face the electorate with the necessity of conservation.