WATER PRICING: ACHIEVING A

SUSTAINABLE FUTURE
Water pricing in Spain
A case study A case study
Madrid, 19 de Enero de 2012
Enrique Cabrera,
ITA (UPV) and OA
Madrid, May 22, 2012
Water pricing in Spain
A t d A case study
1. INTRODUCTION
2. WATER COSTS IN THE WORLD AND IN SPAIN
3. THE FULL COST RECOVERY PRINCIPLE
4. COSTS TERMS
5 FIXES AND VARIABLE TERMS 5. FIXES AND VARIABLE TERMS
6. CASE STUDY
7. CONCLUSIONS
Water pricing in Spain
A t d A case study
1.- INTRODUCTION
INTRODUCTION
From the sustainability point of view, water price is a key issue.
Probably the most important one, because experience shows
that it is rather impossible to be sustainable with subsidies.
Full cost recovery (FCR) has been widely accepted as the best
economic approach (WFD) In theory nobody discuss it economic approach (WFD). In theory, nobody discuss it.
Economic water policies just should act on water rates
Water costs terms are very well identified, and then
Water average cost is rather well defined. An additional data to
calculate water costs are the standards of service.
INTRODUCTION
Standards of service will affects the technology to be used and, to
some extend, the rehabilitation strategies and the renewal periods of
h diff f h b the different components of the urban water system.
O th b d diti ( t d d f i ) h b Once the boundary conditions (standard of service,) have been
defined, the final costs are affected as well by the personal skills and
qualification of the staff.
From a water management perspective it is very convenient to split
costs in fi ed and ariable It ill allo to identif the best strategies costs in fixed and variable. It will allow to identify the best strategies
to improve the management.
It is crucial THE role OF A WATER REGULATOR BODY
INTRODUCTION
FROM THE SUSTAINABILITY POINT OF VIEW, WATER PRICE IS A KEY ISSUE.
C d C t T t l R (CCTR) C d C t T t l R (CCTR) Curva de Costes Totales a Recuperar (CCTR)
Costes
Fijos
Costes
Totales
Curva de Costes Totales a Recuperar (CCTR)
Costes
Fijos
Costes
Totales
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CCTR
Costes
Variables
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Costes
Variables
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ECONOMIC LEVEL OF LEAKAGE
INTRODUCTION
EFFICIENCY IS CRUCIAL ,, AND
WATER PRICE IS ESENTIAL TO BE EFFICIENT WATER PRICE IS ESENTIAL TO BE EFFICIENT
INTRODUCTION
FULL COST RECOVERY IS AN ECONOMIC APPROACH
WIDELY ACCEPTED
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INTRODUCTION
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INTRODUCTION
Water average cost can be rather well calculated The additional Water average cost can be rather well calculated. The additional
requirements comes from the standards of service.
QUALITY STANDARD: No residual chlorine at tap? ULTRAVIOLET
TREATMENT
QUANTITY STANDARD QUANTITY STANDARD:
PRESSURE STANDARD:
LEAKAGE STANDARD:
METERING STANDARD: METERING STANDARD:
INTRODUCTION
Water QUALITY STANDARD
BENCHMARKS examples
PRESSURE STANDARD: AVERAGE PRESSURE VALUES
p
(The Netherlands)
INTRODUCTION
THE CASE OF AUSTRALIA
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Minister for
Water Resources
Ministro de
Recursos Hdricos
Asesora sobre
poltica, tarifacin y
lid d d l i i
Asesora sobre
recursos hdricos,
ros y masas de agua
Minister for
Water Resources
Ministro de
Recursos Hdricos
Minister for
Water Resources
Ministro de
Recursos Hdricos
Asesora sobre
poltica, tarifacin y
lid d d l i i
Asesora sobre
recursos hdricos,
ros y masas de agua
W
THE CASE OF AUSTRALIA
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Water and Rivers
Commission
Comisin para el
Agua y los Ros
calidad del servicio ros y masas de agua
Office of Water
Regulation
Oficina de
l d l A
Office of Water
Regulation
Oficina de
l d l A
Recursos Hdricos Recursos Hdricos
Water and Rivers
Commission
Comisin para el
Agua y los Ros
Water and Rivers
Commission
Comisin para el
Agua y los Ros
calidad del servicio ros y masas de agua
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Regulacin del Agua
Agua y los Ros
Protege los recursos hdricos
y concede las licencias para
el acceso a los mismos
Concede las licencias a
gestores del servicio y
controla su rendimiento
Regulacin del Agua Regulacin del Agua
Agua y los Ros Agua y los Ros
Protege los recursos hdricos
y concede las licencias para
el acceso a los mismos
Concede las licencias a
gestores del servicio y
controla su rendimiento
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Water Utilities
Abastecimientos
Health
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Departamento
de Sanidad
P it f W t
Regula las quejas,
informes de gestin
y niveles de servicio
Fija los
requisitos
para el agua
potable
Water Utilities
Abastecimientos
Water Utilities
Abastecimientos
Health
Department
Departamento
de Sanidad
P it f W t
Health
Department
Departamento
de Sanidad
P it f W t
Regula las quejas,
informes de gestin
y niveles de servicio
Fija los
requisitos
para el agua
potable
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Purity of Water
Commettee
Comit para la
Pureza del Agua
Concede las licencias
para la explotacin de
plantas depuradoras
Gestiona suministro de
agua, riego, drenaje y
depuracin
Purity of Water
Commettee
Comit para la
Pureza del Agua
Purity of Water
Commettee
Comit para la
Pureza del Agua
Concede las licencias
para la explotacin de
plantas depuradoras
Gestiona suministro de
agua, riego, drenaje y
depuracin
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Community
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Department of
Environmental Protection
Departamento de
Proteccin Medioambiental
Community
Comunidad
Community
Comunidad
Department of
Environmental Protection
Departamento de
Proteccin Medioambiental
Department of
Environmental Protection
Departamento de
Proteccin Medioambiental
R
M
WATER COSTS IN THE WORLD
AND IN SPAIN
2 - WATER COSTS IN THE 2.- WATER COSTS IN THE
WORLD AND IN SPAIN WORLD AND IN SPAIN
WATER COSTS IN THE WORLD
AND IN SPAIN
WATER COSTS IN THE WORLD
AND IN SPAIN
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AND IN SPAIN
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WATER COSTS IN THE WORLD
AND IN SPAIN
DRINKING WATER = 0 88 /M
3
SUMMARY:
DRINKING WATER = 0.88 /M
3
0.88/1.42 = 0.62 ( 2/3)
highest
LESS SUBSIDIZED
S
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DRAINAGE AND DEPURATION
= 0.54 /M
3
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0.54/1.42 = 0.38 ( 1/3)
0
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STRONGLY SUBSIDIZED
average
WATER COSTS IN THE WORLD
AND IN SPAIN
CITY TO CITY COMPARISON : EVEN WORST
We need a water body agency: COMMON DENOMINATOR
WATER COSTS IN THE WORLD
AND IN SPAIN
Water cost is a policy issue. Prices cannot rise easily,, but:
W b l (f ) Water bottle costs (for users):
150 l/cy = 45 /year
(average consumption. ANEABE)
Tap water for users costs:
149 l/cd = 48 /year
(average consumption and cost INE) (average consumption and cost. INE)
Water pricing in Spain
A t d A case study
3.- THE FULL COST RECOVERY PRINCIPLE
THE FULL COST RECOVERY PRINCIPLE
With subsidies With full cost recovery
The user always pays all BUT:
a) Directly throughout water rates
The user always pays all but just
throughout water rates a) Directly throughout water rates
b) Indirectly throughout public founds (taxes).
throughout water rates
Greater inefficiency Greater efficiency
Centralized system (top down decisions) Decentralized management (decisions
taken on site)
Higher total cost Lower total cost g
At the end, more costly for the citizen At the end, cheaper for the citizen
Less rational: the consumer that waste the
water at the end pays less per cubic meter
With an appropriate tarification, much
more solidary with weak economies water, at the end pays less per cubic meter. more solidary with weak economies.
WE ARE PAYING THE WEIGHT OF THE HISTORY and
THE LACK OF ENVIRONMENTAL AWARNESS THE LACK OF ENVIRONMENTAL AWARNESS
THE FULL COST RECOVERY PRINCIPLE
FULL COST RECOVERY (1999). UE
SPAIN(2009). UE (all urban cycle)
2
2,5
0.149 m
3
/cd = 78 /year
1,5
2
Ten years later,
SPAIN(2009)
0,5
1
per capita GNP = 22886
0
Portugal Grecia
Irlanda
Espaa Francia
Reino
Unido
Alemania Dinamarca
= (78/22886)x100 0.3%
A i PIGS t i
water cost/per capita GNP
Water cost required/per capita GNP
Again PIGS countries
THE FULL COST RECOVERY PRINCIPLE
DENMARK
4,0
4,5
Highest water price cost in the world
DENMARK
3,0
3,5
/

m
3
)
1 5
2,0
2,5
e
c
i
o

(
e
u
r
o

/
0 5
1,0
1,5
P
r
e
0,0
0,5
1972 1977 1982
1987
1992
1997 2002 9 9 98 99 00
Ao
Soon take the decision
THE FULL COST RECOVERY PRINCIPLE
Natural water cycle
Urbanization effects
Higher
Less
g
evapotranspiration
Less runoff
Less
evapotranspiration
Higher runoff
Higher aquifer recharge Less aquifer recharge
THE FULL COST RECOVERY PRINCIPLE
Water costs (Berlin)
GERMANY
price per m (2009)
Water
Price per m 2,038/m
Tax7%
0,143 /m *
Total
2,181 /m *
Waste water (no purchase tax) Waste water (no purchase tax)
Price per m
2,543 /m *
Rainwater
per m drainingarea/yearly
1,840 m/a *
Tap water cost <<<
<<< t t + i t <<< waste water + rainwater
(conversely than in Spain)
Water pricing in Spain
A t d A case study
4.- COSTS TERMS
Costs terms
Social costs
Environmental costs
Resource obtention
Capital costs
O&M costs
Costs terms
Valencia urban water cycle:
Capital costs: VERY IMPORTANT
(SUBSIDIZED)
O&M costs: Recovered
Resource obtention 0
Environmental costs = 0
Social costs = 0 Social costs = 0
Water pricing in Spain
A t d A case study
5.- FIXES AND VARIABLE TERMS
FIXES AND VARIABLE TERMS
FIXES COSTS : Not linked to water production (i.e. Human resources)
VARIABLE COSTS : Linked directly to water production (energy and VARIABLE COSTS : Linked directly to water production (energy and
environmental costs)
IN GENERAL FIXED COSTS >>> VARIABLE COSTS (with exceptions IN GENERAL, FIXED COSTS >>> VARIABLE COSTS (with exceptions
as in a Water Treatment Plant, a fact that explain why municipalities
does not manage them properly).
Although intrinsically both costs are linked, some faces of the
management are more sensible to one block of costs.
Water consumed by users depend on both
Water losses are very much dependent on variable costs y
No body (neither users nor utilities) takes profit from water losses.
FIXES AND VARIABLE TERMS
UNDERSTANDING LIFESPAN WATER COSTS (LCA analysis)
THE IMPORTANCE OF A
GOODASSET MANAGEMENT GOOD ASSET MANAGEMENT
VERSUS THE LIFE SPAN
UNDERSTANDING LIFESPAN WATER COSTS (LCA analysis)
FIXES AND VARIABLE TERMS
UNDERSTANDING LIFESPAN WATER COSTS (LCA analysis)
Energy Energy Energy Energy
Material production
Material pipe
manufacturing
Pipe transport
and instalation
Fabrication stage
Energy Energy
Energy
Energy
Energy Energy
O ti ( i f i ti
Pipe recycling
Pipe disposal
Landfill
Operation (pumping, friction,
recovery)
R i / h bilit ti Repair /rehabilitation
Maintenance/cleaning
Disposal stage
Pipe replacement
(transport, excavation)
Energy
Maintenance/cleaning
Use stage
FIXES AND VARIABLE TERMS FIXES AND VARIABLE TERMS
FIXES VARIABLES,depending on:
STRUCTURAL LIFESPAN RESOURCE ENERGY LIFESPAN
RESOURCE OBTENTION C = SP RESOURCE OBTENTION C
13
=SP
OPERATION AND
MAINTENANCE
C
21
=T C
23
=T C
24
=T
( i )

MAINTENANCE (metric)
CAPITALCOSTS C
31
=T C
32
=T C
35
=T
ENVIRONMENALCOSTS C
41
=T&SP
(Complexmetric)
C
42
=T&SP
(Complexmetric)
C
43
=SP C
44
=SP
C
45
=T&SP
(Complexmetric)
SOCIAL COSTS C
s
FIXES AND VARIABLE TERMS FIXES AND VARIABLE TERMS
FIXES VARIABLES
UNDERSTANDING WATER PRICES DIFFERENCES
STRUCTURAL LIFESPAN RESOURCE ENERGY LIFESPAN
RESOURCE OBTENTION C = SP RESOURCE OBTENTION C
13
=SP
OPERATION AND
MAINTENANCE
C
21
=T C
23
=T C
24
=T
(metric)

MAINTENANCE (metric)
CAPITALCOSTS 0 /m
3
to over
3
C
32
=T C
35
=T
3 /m
3
ENVIRONMENALCOSTS C
41
=T&SP
(Complexmetric)
C
42
=T&SP
(Complexmetric)
0/m
3
to
/
3
C
44
=T&SP
C
45
=T&SP
(Complexmetric)
0.84/m
3
SOCIAL COSTS C
s
Water pricing in Spain
A t d A case study
6.- CASE STUDY
CASE STUDY
( ) (water supply)
Population: 200.000 habitants
Source: groundwater (17 wells)
Tanks: 9
Water supply network: 760 km
Pipe connections: 30.000
O&M costs = 7.000.000 /year
Water billed =10 000 000m
3
/year Water billed 10.000.000 m/year
Average water price = 0.81 /m
3
0.88 /m
3
(average in Spain)
No other costs are considered
CASE STUDY
( )
ASSETS
(water supply)
ASSETS
Groundwater wells + equipment = (9.8 + 8.4) x 10
6

(life average period = 100 years and 20 years, respectively)

Tanks =8 55 x10
6
(45 10
6
) Tanks = 8.55 x10
6
(45 10
6
)
Pipes = 181 x 10
6
(life average period = 50 years)
Connections = 9.66 x 10
6
(life average period = 50 years)
Electromechanical devices = 4 x 10
6
(life average period = 20 years) ( g p y )
Capital costs = 1.14 /m
3
O&M costs = 0.71 /m
3
Total costs = 1.85 /m
3
Similar to BERLIN:
= 2.181 / m
3
(- 0.310 / m
3
environmental costs) = 1.891 / m
3
)
CASE STUDY
( ) (drainage + waste water plant)
Population: 200.000 habitants p
Water Treatment Plant for 200.000 people 45 10
6
(l.a.p = 20 and 30 y)
Urban drainage network: 500 km 220 10
6
(l a p =50 y) Urban drainage network: 500 km 220 10 (l.a.p 50 y)
Drainage connections: 40.000 20 10
6
(l.a.p = 50 y)
Urban tanks (rainwater modulation) 25 10
6
(l a p 50 y) Urban tanks (rainwater modulation) 25 10
6
(l.a.p = 50 y)
Rain water pumping stations 15 10
6
(l.a.p = 20 y)
Particular paved surface = 10 x 10
6
m
2
CASE STUDY
( ) (water supply)
URBAN DRAINAGE COSTS
O&M costs Capital costs TOTAL
Rainwater drainage 0.059 /m
3
1.506 /m
3
1.565 /m
3
Water treatment 0.423 /m
3
0.318 /m
3
0.741 /m
3
TOTAL 0 482 /
3
1 824 /
3
2 306 /
3
TOTAL 0.482 /m
3
1.824 /m
3
2.306 /m
3
Or (split water charge) Or (split water charge)
0.741 /m
3
+ 1.409 /m
2
year
CONCLUSIONS
In Spain capital costs are not at all included in the water charges
In Spain environmental costs are not at all considered
Urban drainage and water treatment plants are much more subsidized than Urban drainage and water treatment plants are much more subsidized than
tap water. If no action is taken problems with Water TP will arise soon.
We will face a very serious problem in coming years: we will have not money We will face a very serious problem in coming years: we will have not money
to renew urban water infrastructures
Actually water charges represent about 0.4 % of the per capita GNP
Actually we are not sustainable: A water bubble can explode in coming years
Alth h f d t l th th IRRIGATION i th hi t Although fundamentals are rather the same, IRRIGATION is another history