sábado, 21 de noviembre de 2009

Water, Business & Sustainability

Stop wasting: Farmers under the spotlight

In Europe, irrigation, urban areas and manufacturing industries are the main areas driving the demand for water. According to the European Commission, water consumption at EU level is divided among the following sectors:

  • Agriculture: 69%
  • Public water supply: 13%
  • Industry: 10%
  • Energy (cooling in power plants): 8%

In Southern European countries, irrigation in the agriculture sector is the single biggest consumer of water, accounting for more than two-thirds of total use, according to the European Environment Agency (EEA). In Nordic and Central European countries, water is predominantly used for cooling in energy production, industrial production and public water supply.

But it is agriculture which sucks up the largest amount of water and in some countries, the official figures are in fact clouded by illegal withdrawals, says the global conservation organisation WWF.

"Illegal, unregulated and unmetered water abstraction is rife. For example, in Spain up to 45% of all groundwater pumped to irrigate crops, golf courses and urban developments is taken illegally," the WWF said in a joint statement with the European Environmental Bureau (EEB).

"Agricultural water-users are rarely charged the full cost of their water. There are also various explicit and implicit subsidies which privilege agriculture over industrial and domestic users. Today there are few incentives to make farmers use water efficiently," the NGO claims.

According to the Organisation for Economic Cooperation and Development (OECD), farmers are even encouraged to waste water due to subsidies which make prices "significantly lower for agriculture" than for other sectors. "While pricing structures for municipal and industrial water services increasingly reflect the full costs of providing the services, agricultural water use – primarily for irrigation – remains heavily subsidised, which encourages inefficient use of often scarce resources," writes Tom Jones, an OECD official, in a 2003 article for the OECD observer.

However, Jones admits that comparisons between sectors are not entirely fair because quality standards for water used in agriculture are lower than those applicable to drinking water.

Setting water efficiency targets?

But agriculture is not the only sector causing headaches for policymakers. In cities, poor or outdated infrastructure is also responsible for significant water losses. "In London, leakage and loss is estimated at 300 Olympic-size swimming pools daily due to ageing water mains," the WWF pointed out in a report, entitled 'Rich countries, poor water' and published in 2006.

The problem led Ofwat, the water and sewage regulator, to propose setting targets requiring water companies to reduce individual water usage to 130 litres per person per day, down from around 150 litres currently. The targets would run initially for five years, starting in 2010.

The proposal, put forward in June 2008, is still at the consultation stage but reflects growing concern about the issue. Companies, Ofwat said, will be expected to deliver real savings by providing household and business customers with information on how to use water sensibly and promote the use of water-saving devices.

"The new approach to water efficiency targets that we are proposing will be challenging for companies but will help to reduce wasteful use of water," said George Day, Ofwat's director of network regulation. "This should mean lower costs, lower customer bills and good news for the environment."

Water pricing: Making users pay

At EU level, the Water Framework Directive, adopted in 2000, requires EU countries to impose pricing policies by 2010 in order to encourage users to consumer water more efficiently.

While pricing policies have already been introduced in many EU states, others have no tradition of it. This is particularly the case in the former communist countries of Central and Eastern Europe, where water used to be subsidised and came entirely free of charge.

The price of water reflects services provided by water companies, including:

  • Infrastructure investment and maintenance;
  • Transportation from the source to the user (a process which can consume huge amounts of energy, especially if the water needs to be pumped up to cities at a high altitude – e.g.: Mexico), and;
  • Collection and treatment (including sewage, waste water treatment or desalination).

Prices are also a reflection of other factors, such as:

  • The integration of environmental costs such as reduced water levels and pollution discharges into rivers and lakes which may harm ecosystems and affect human health (polluter pays principle), and;
  • Subsidies that make water more affordable to some sectors of the populations or industry (e.g.: farming).

In order to recover those costs, the EU Water Framework Directive requires national authorities to conduct an economic analysis of water use, including its environmental and resource costs, stating that this must be done "in accordance with the polluter pays principle" (Article 9).

But EU countries are slow to implement the rules, with only a handful of them having incorporated economic analyses in their water management plans. By mid-2007, only 14 member states had provided information on the recovery of water costs for households. The picture is worse for industry and agriculture, with as many as 17 EU countries not providing any information on the level of cost recovery of water services in agriculture (see implementation report on the WFD, p.34Pdf external ).

Water 'not a commercial product'

However, putting a price on water does not mean considering it like any other commodity. This is the chief principle referred to in the Water Framework Directive. In its first paragraph, it says: "Water is not a commercial product like any other but, rather, a heritage which must be protected, defended and treated as such."

This is particularly true when it comes to ensuring water is delivered to all, irrespective of their income levels. "Private households," the Commission said in a recent communication on water scarcity and drought, "should, irrespective of their available financial resources, have access to adequate water provision".

In legal terms, this means that the supply of water services is treated under EU law as "a service of general economic interest," defined in a specific Commission communicationexternal . According to the text, this means that "public authorities can decide to carry out the services themselves or they can decide to entrust them to other entities, which can be public or private, and can act either for-profit or not for-profit."

Access to safe drinking water: A basic human right?

But the Human Rights Council of the United Nations went further than this. In March 2008, it set up an independent expert group to explore the feasibility of making access to safe drinking water and sanitation a basic human right.

The expert group will have three years to hand over its report. It will compile best practices and carry out an assessment of human rights obligations related to non-discrimination in access to safe drinking water and sanitation.

The resolution to launch the UN expert group was sponsored by Spain and Germany and is part of a trend that appears to be picking up steam in Europe. Shortly before the group was set up, Dutch Minister of Foreign Affairs Maxime Verhagen announced that the Netherlands would recognise water as a human right.

The UK had already shown the way in November 2006 by announcing its decision to recognise the human right to water. The announcement came in response to a UN report entitled 'Beyond scarcity: power, poverty and the global water crisis,' and was accompanied with a proposed Global Action Plan on water, which called for more investment in water and sanitation in developing countries.

International Development Secretary Hilary Benn stated: "In many developing countries, water companies supply the rich with subsidised water but often don’t reach poor people at all. Recognising the right to water will help change this and allow all citizens to demand more of their governments."

Financing water: Public vs. private?

In this context, the devolution of water distribution services to private companies in Europe and across the world has raised much controversy. "Privatised water services have been heavily promoted by international agencies, including the World Bank, IMF and even the European Union, as a solution to increased investment needs in water services," say the Corporate Europe Observatory and the Transnational Institute in a joint campaign.

But "the tide now seems to be turning," according to the two NGOs. "Increased tariffs and a failure to deliver promised improvements have left water multinationals facing increasing opposition," they write on a website tracking the 'remunicipalisation' of water services across the globe.

According to their findings, around 40 municipalities in France alone have taken water services back into public hands over the last ten years. In Paris, water services will return to public management at the end of 2009 when current contracts expire. "Even France, once known as the heartland of water privatisation, is embracing a return to public management," the two NGOs write.

However, local governments, especially in the developing world, are not always in a position to finance expensive water and sanitation infrastructure. Often, they will need other means, including private sector funding and expertise.

In 2003, former IMF chief Michel Camdessus chaired an international panel which explored options to finance water infrastructure. The 'Financing Water For All' report, published in March, stated that investments in the water sector needed to roughly double if countries were to halve the proportion of people without access to safe drinking water and sanitation by 2015, one of the key UN Millennium Development Goals.

However, it said "no single source will be large enough to fill this gap alone". The money, it said, would need to come from a variety of sources: financial markets, water authorities through tariffs, multilateral financial institutions (MFIs) and governments.

On the private versus public controversy, the panel’s judgement was reserved. "Many [private] projects in the water sector, though initially successful, have been beset by difficulties," it said, pointing to currency crises in countries such as Indonesia, the Philippines and Argentina, which have brought some companies financial distress.

But the panel also said it was generally "convinced of the vital importance of private sector disciplines, know-how and management skills" in reforming the water sector. "Most private operations have achieved real progress in efficiency and, when required by the authorities and as part of their contracts, affordably served poor suburbs."

In the end, the panel concluded that opting for private or public financing "takes a pragmatic view of the costs and benefits" in each case and noted that there are "many different kinds of private involvement".

Indeed, full privatisation in Europe has only happened in the UK, where the government handed the water infrastructure to the private sector in 1989. In contrast, France has opted for a system whereby the state and local town halls remain in charge of setting tariffs and defining public service obligations of water services which may be delegated to private operators.

Corruption 'at the root' of the problem

Other governance issues have been singled out in a recent reportexternal by Transparency International, published in June 2008. The report, compiled by over twenty experts, found that corruption in the water sector is the "root cause" of water shortages, particularly in developing countries.

As an example, the report estimates that corruption adds 25% to the cost of irrigation contracts in India, meaning higher water prices and lower yields for farmers, which in turn further exacerbates the global food crisis. In China, the NGO estimates that bribery is responsible for pollution in some 90% of aquifers in cities and 75% of urban rivers.

Transparency International says the phenomenon affects both public and private water services and is apparent in both rich and poor countries. To limit corruption, it suggests a number of basic principles for good water governance:

  • Strengthening independent regulatory oversight;
  • Ensuring fair competition for water contracts, and;
  • Promoting transparency and participation in water policies.

Climate change: Further motivation to save water

In a July 2007 communication, the Commission sought to open the debate on how to deal with water scarcity and drought, which are becoming ever more frequent due to climate change (EurActiv 16/07/07).

Although it believes "a combination of options" is likely to deliver better results, the Commission said water pricing should be "at the heart" of policy measures to deal with the issue. To that end, it proposes introducing compulsory metering programmes to "put an end to needless losses or waste" of water.

Water saving is in fact identified as the main area where a lot of improvement can be achieved in the EU. "While it is estimated that approximately 20% of the water available is wasted, recent data indicate that it could go up as high as 40%," the Commission said.

Furthermore, it suggested introducing a clear "water hierarchy" to allocate water use between different economic sectors. Along this principle, building additional infrastructure to bring more water to dried-up areas should be considered only after other options have been exhausted, including water pricing and metering, the Commission said.

"It is clear that public water supply should always be the overriding priority to ensure access to adequate water provision," the EU executive said.

Further measures are expected as part of the Commission’s strategy on adaptation to climate change.


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