OECD Water Programme

1. OECD Water Programme Pillar 1, Output 1 “Pricing Water Resources and Water & Sanitation Services” World Water Week Stockholm, 16-22 August 2008

2. Overview • Objectives and scope of the Report • Expert Meeting of 14-15 Nov. 2007 • Progress to date • Draft outline of the Report • Conceptual framework • Data: The WATSAN pricing survey • Next Steps

3. Objectives and Scope of the Report Questions addressed are related to HWP policy questions • How to improve the use of water pricing for water service provision to ensure financial sustainability of providers and access by all to affordable services • How to improve the use of water pricing and other economic incentives to encourage management of water resources (and associated watersheds) that is both economically efficient and environmentally effective Scope was defined based on feedback by experts • Provide updated survey of current state of the art in pricing literature • Identify key challenges and role of pricing in addressing them • Identify obstacles faced by policy-makers in designing pricing strategies • Develop conceptual framework to help policy-makers address trade-offs • Collect and analyse reliable data and case studies (OECD and non-OECD) • Provide guidance to improve the effectiveness of water pricing strategies

4. Expert Meeting of 14-15 Nov. 2007 Around 50 participants. Geographic & background diversity. Expert recommendations regarding the Report: • Take this opportunity to clarify key concepts • Focus on multiple policy objectives and trade-offs between them • Look beyond the pricing of water services • Look beyond prices. Focus on their determinants, e.g. costs • Address the political economy of reform • Contextualise results and policy guidance In addition, the experts suggested the following: • OECD as a “Water Observatory” • Broad consultation strategy on the Report 4

5. Progress to Date Since the Expert Meeting of Nov.2007, the Secretariat: • Defined a conceptual framework and draft outline • Collected data on water and wastewater tariffs for domestic and industrial users • Identified information gaps • Launched consulting contracts for studies (more needed) • Ensured coordination within the HWP • Carried out extensive external coordination and consultation, aimed at validating & disseminating results

6. Draft Outline of the Report • The policy context • Key threats and challenges • Where des the policy debate stand? • The conceptual framework • Multiple policy objectives and the trade-offs between them • Experiences from OECD & non-OECD countries • Investment needs and costs of operation, maintenance, replacement • Pricing policies and trends • Policy analysis • Performance of pricing strategies to address policy objectives, tradeoffs • From theory to practice: The political economy of reform • Institutional, political and implementation issues • Implementing pricing policy reforms: towards the virtuous circle • Policy conclusions

7. Conceptual Framework • Water as a multi-faceted commodity: Need to tailor pricing • Natural vs. man-made capital • Different types of WATSAN services • Key policy challenges • Water resources availability and quality • Sustainable and affordable access to adequate WATSAN services for all • Conflicting policy objectives: 4 sustainability dimensions • Ecological, economic, financial and social sustainability • Understanding the trade-offs • Implications for the design of water pricing policies • Different conceptions of “pricing” in relation with the four sustainabilities • Understanding the water value chain This framework also informs the scoping paper for the Pricing Strategies topic of the Finance Theme for the 2009 World Water Forum

8. Data: The WATSAN Pricing Survey • A survey of 171 OECD and 85 non-OECD utilities was carried out in collaboration with Global Water Intelligence (GWI) • A consultant, working within the Secretariat, collected publicly available data on pricing for domestic and industrial users • Information gaps were identified on, among other issues: • Costs: levels, components, efficiency, cost recovery levels • Institutional framework aspects • Ongoing work aimed at minimizing work for country experts and maximising utility of collected information for use in the Report • Main challenges: • Closing the information gaps, especially on costs/efficiency • Relevant geographic level of data collection and analysis, aggregation • Experts’ recommendation: OECD as a “Water Observatory”? Possible synergies with existing OECD databases

9. Thank you!! www.oecd.org/water/

10. Linkages between pricing, financing and the role of stakeholders

11. Transactions along the value chain of the water sector

12. The service provider and the 4 markets

13. Economic and financial flows in WS&S Taxation Public budget Owner of property rights on water resources Responsible entity Dividends Capital gain Royalties Transfers Water taxes Bulk supply operators Ear-marked subsidies Lease canons Asset ownership Private partner Investment Maintenance Renewal Extension Dividends Operator Industrial costs Financial costs Transfer prices Tariffs Consumers Industrial costs Financial costs Fiscal I market Direct cost of self-supply Industrial costs Financial costs II market Market for goods, services, labour & capital III market IV market

14. Sustainability in 4 objectives

15. Ecological constraints Desired Environmental functions Stakeholder 3 ... … Stakeholder n Stakeholder 2 Stakeholder 1 Available Environmental Functions Water Management Infrastructure Institutional constraints Environmental and Economic Sustainability Indicators Stakeholders satisfaction Indicators The conceptual framework for Carrying Capacity Governance Issues Taxes / subsidies Price / cost

16. Subsidies Public budget WMS1 WMS2 WMSn … Taxes Water charges Water users Public budget WMS1 WMS2 WMSn … Water users

17. Ear-marked subsidies (contribution to investment) Regional water agencies Ear-marked taxes WMS1 WMS2 WMSn … Water charges Water users Bulk prices (equal) Bulk suppliers WMS1 WMS2 WMSn … Water charges Water users