Water: Towards a Culture of Responsibility

2: New Economic and Financial Models

II. NEW ECONOMIC AND FINANCIAL MODELS Technical solutions and new sources of water, however efficient and promising they may seem, will not be enough to overcome all the challenges facing global water management. Economic models also need to be changed in response to new objectives, sometimes contradicting the old ones. We need new tools to deal with and to adapt better to new constraints in water management. Our present model reflects the preoccupation with “hygiene” inherited from the beginning of the twentieth century. Public health is historically linked to the development of the trades and professions connected with water, and to their economic model. It was in the general interest to increase household consumption of water in order to make noticeable improvements in hygiene. The economic model as it was then defined – and which we still use today – was in line with this preoccupation with public health. It aimed to encourage operators to increase the volume of water consumed. Water services were paid according to the volume of water sold, while their costs were mainly fixed. This model has largely reached its objectives: the health revolution enjoyed by the great cities of Europe in the nineteenth century, and which in fifty years added ten years to average life expectancy, was closely linked to the collection of waste water via drains and to the supply of safe drinking water. Now, though, several factors lead us to consider revising this economic positioning of water services. First, the increasing scarcity of freshwater resources runs completely counter to the economic logic of water services, which drives the operator to increase the volume of water consumed so as to be paid more. Next, in most towns and cities in developed countries, a pincer effect between cost increases due to regulations and the steady decline in the volume of water charged for undermines the financial stability of the services, leaving no option but to raise the price per unit of water, which many elected representatives refuse to do. In France, for example, consumption fell by 4 % in 2007. On the other hand, people now expect much more from the water services than they used to. They have been burdened with additional tasks, which may include rainwater treatment, cooperation with other agencies, improvements on roads and railways, river maintenance, etc. These additional tasks increase expenditure without any adjustment having been made in the economic equation. Finally, like other public activities, 141 financing water services has a systematic problem. It is an industry with fixed costs, whose product, water, is charged for by volume; 80 % of its costs are fixed while 80 % of its receipts are variable. This payment method undermines the financial stability of the service when water consumption drops. While gains in productivity partly compensate for the lack of income, they have mainly come from private operators, and they can only be taken so far. This raises another paradox: the more water-saving policies bear fruit, the more prices per unit must go up to cover the costs. Thinking of new models is not a minor issue. We must build an economic structure, and consequently a payment system which is not out of kilter with the general interest of the community, nor with the cost structure of water services. The recent necessity to limit quantities abstracted from nature overturns the financial logic for water companies : far from seeking to sell more, the water service must now seek to sell less, even though its income still comes from sales! In order to reconcile the environment with water service finance, the water service must be paid in such a way as to conserve water resources, but without the danger of sacrificing health benefits to environmental protection. Already, the growing scarcity of water has led many services to give more weight to informing and teaching the public. They invite their users to reduce their water consumption. But they have to go farther, to revise, and even reconstruct whole sections of the economics of water. No economic activity can last if it runs counter to the long-term interests of the community and the land where it is carried out. The issue then is to rethink the economic equation of water services while at the same time retaining its public health objectives. MIXED FUNDING BETWEEN SERVICE USERS AND TAXPAYERS There are several different ways that the economic model for water could be re-established in France and in some other developed countries. The first would be to evolve towards mixed...