Financing and pricing water: The roles of government policies, the private sector and civil society

GLOBAL FORUM ON SUSTAINABLE DEVELOPMENT
Financing and Pricing Water: The Roles of Government Policies, the Private Sector and Civil Society
 

Introductory remarks by Angel Gurría, OECD Secretary-General
Paris, 1-2 December

Ministers, colleagues, friends

It is a great pleasure for me to open this meeting on “Financing and Pricing Water: the roles of government policies, the private sector and civil society.”

This meeting comes at an important point in the OECD’s work on water and sanitation.

Before you is a report synthesising the results of work we carried out over the last two years in the OECD committees. Over the next two days you will discuss the policy conclusions and recommendations we have drawn. Your reactions to the report will be valuable input for us as we prepare the final version to be launched at the 5th World Water Forum in Istanbul next March.

Water is, and continues to be an essential issue in our agendas. Good water management is so fundamental to human and economic development, and to the maintenance of ecosystems, that we cannot afford to fail.

So how do we stand in addressing this issue?

In OECD countries, access to safe water supply and sanitation has largely been ensured following investment over many decades. But existing infrastructure will have to be rehabilitated to comply with more stringent environment and health regulations, and to maintain service quality over time. A recent OECD study shows that Japan and Korea may have to increase their water spending by more than 40 percent to maintain existing levels of service. The United States’ Environmental Protection Agency estimates that annual investment of USD23 billion will be needed over the next 20 years to maintain water infrastructure at current service levels given stricter standards.

The most critical challenges related to water supply and sanitation, however, are in the developing world. The most recent evidence suggests that almost 1 billion people still lack adequate access to drinking water, and 2.5 billion to adequate sanitation. These factors, and poor hygiene, account for 1.5 million preventable child deaths per year as well as other adverse health impacts. The WHO estimates that each dollar invested in water supply and sanitation generates between 4-12 dollars in health benefits alone.

Halving the proportion of people without access to safe drinking water and basic sanitation by 2015 – which is one of the Millenium Development Goals – means that developing countries would need to spend about USD 18 billion annually to increase access to water services, and USD 54 billion annually to maintain and renew existing facilities for already served populations. These are staggering sums, particularly in the context of the current financial and economic crisis.

But access is only part of the challenge of better water and sanitation management. Pollution and growing demand for water are reducing the available water sources in many parts of the world. In 2005, 2.8 billion people were living in areas under severe water stress [- where water withdrawals exceed 40 per cent of available water resources]. The OECD Environmental Outlook to 2030 estimates that without better policies this number will increase by about 1 billion people. This would mean that 3.9 billion people, nearly half of the world’s population, would be affected, with the majority living in South Asia and China.

Addressing the many challenges related to water and sanitation will require substantial additional resources. But money alone will not be sufficient. We also need urgent policy reforms as the ability to mobilize and allocate financial resources efficiently is strongly influenced by governance arrangements. The governance of the water and sanitation sectors, however, cuts across the responsibility of several ministries, and requires the involvement of national, regional and local authorities. And reforms to get the prices right, such as revising tariffs, reducing subsidies, engaging the private sector, or redefining property rights often generate political conflicts which explain why some governments are reluctant to act.

Sadly, the economic, social and environmental benefits of better water and sanitation policies are still not understood well enough. As a result, investment is insufficient, and its potential benefits are not realized. We must do a better job in documenting and communicating the benefits of more investment in water and sanitation – particularly to Finance Ministries. Water, toilets and hygiene are probably not as politically attractive as schools, hospitals or roads, but their development impact can be as large if not larger. We, and this is a call to all of you, must do better in getting this message across.

It is a sign of hope that some countries do assign a high priority to water and sanitation in their national development policies. For example Bangladesh, Georgia, Viet Nam and Guatemala. Their policies and experiences provide important lessons for other developing countries.

An important element of policy reforms will have to be the use of more market-based policy instruments. Without price signals, it will be difficult to provide water to households, farmers, and business in a sustainably efficient way. Public subsidies will remain essential to improve access to water and sanitation, at least in developing countries. OECD countries, however, are already showing a greater reliance on tariff revenue. In designing tariff structures, we must keep social objectives in mind. This does not mean that tariffs should be low for everyone. Instead, price structures should be designed in ways that ensure affordability for the poor.

Our work also shows that ownership is not as important as is often claimed. We should move beyond the “public versus private” debate in the provision of water and sanitation services, and examine the regulatory structure and other conditions for efficient and effective provision of water and sanitation. What is more, we need a combination of both, public and private to meet the financing gap.

Currently, policy-makers attention is focused on the financial and economic crisis. How will this impact on the advancement of the water and sanitation agenda? While the financial pressure will of course make it harder to secure resources, the crisis may also offer some opportunities to move the agenda forward.

First, we must ensure that the financial crisis is not used as an excuse to back-track on commitments. The members of OECD’s Development Assistance Committee have made an aid pledge, agreeing to maintain aid flows in line with earlier commitments despite the economic downturn. I believe that this will help to ensure that the financial crisis does not become an “aid crisis”, or a deepening “water crisis.” I am encouraged by the Doha Conference on Financing for Development, which reaffirmed such commitments. But we should not just be defensive. Many governments are launching major spending programmes to boost demand and to stimulate the economy. Investment in water and sanitation infrastructure, with the economic, social and environmental benefits it brings, is an attractive option. The Chinese government just announced a stimulus package that is reported to amount to over USD 600 billion over three years. A substantial allocation in this package has been earmarked for rural water supply and sanitation. This provides an excellent example of policy action to promote the green recovery of the economy.

In concluding, let me wish you every success in your work over the next two days. I have to leave shortly, but I am looking forward to re-joining the discussion tomorrow afternoon in the high-level panel.

Thank you.