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In Sri Lanka, the provision of water for drinking and irrigation on a sustainable basis is a national priority (Central Bank of Sri Lanka, 2005). Achieving sustainability requires economising on the usage and appropriate pricing to prevent wastage and over-exploitation. The annual consumption of pipe-borne water through individual services covering residential, commercial, industrial and institutional use has increased from 275 to 383 million cubic metres during the last decade (NWSDB, 2005). However, the pipe-borne water supply situation is deteriorating in terms of quality and quantity due to continuous population increase, lack of maintenance, improper pricing, poor spatial coverage and non-revenue water (Central Bank of Sri Lanka, 2005).

Two major factors which threaten the long-term sustainability of water resources in Sri Lanka are improper pricing and deficiencies in regulation. Pipe-borne drinking water is subject to a price with a subsidy segment, but other forms of water supply (agricultural or irrigation water and water directly drawn from reservoirs, streams, wells and lakes) are not subject to any form of pricing. This has led to over-exploitation and inefficient utilisation of water resources in Sri Lanka. The water resources can be managed efficiently by using cost-reflective pricing. This book focuses on the pipe-borne water sector in Sri Lanka and evaluates alternative pricing structures for pipe-borne water in terms of economic efficiency, equity and financial viability. This requires research to understand consumer behaviour and the impacts of cost structures of the water utilities. Therefore, this book undertakes empirical analyses of demand, cost and welfare to address issues related to pipe-borne water management in Sri Lanka.

A major problem faced by the water sectors in many countries is that prices are almost universally below the level of full-cost pricing (Renzetti, 1992b). Under-pricing of pipe-borne water results in over-consumption of water, reduces new investments, diminishes the quality and quantity of water delivered, slows spatial coverage of water (especially for poor settlements), and jeopardizes financial viability of water supplying entities. Household expenditure on water usually comprises a very small proportion of the household budget and, therefore, the significance of price to decrease water consumption is over-looked. Average household monthly consumption of 20 cubic metres of water corresponds to a water bill of Sri Lankan Rupees (SLRS) 117.50 (according to the 2005 water tariffs) and is less than 1 per cent of average household income (NWSDB, 2005). Twenty cubic metres of water per month for a household is about three times the lifeline standard set by the World Health Organization (WHO). The main reasons for inefficient pricing are; first, raw water is typically assigned no value, therefore, recorded expenditures are unlikely to equal the full economic costs of water supply (Renzetti, 1992b). Second, because consumer demand is considered exogenous, there is no recognition of the role played by prices to signal resource scarcity. Third, governments use water as a political tool to strengthen their power base. In order to overcome the inefficiencies in the pipe-borne water sector, water prices need to be raised to cover the full costs. The recent World Water Commission strongly endorsed the need for full-cost pricing of water services in both developed and developing countries (WWC, 2000).

Document Type: Research Article


Publication date: January 1, 2011

More about this publication?
  • Demand, Supply and Welfare Aspects of Pipe-borne Water in Sri Lanka
    This book identifies under-pricing as the major problem faced by the Sri Lankan pipe-borne water sector. Recently, the water authority in Sri Lanka restructured its pricing strategy for pipe-borne water with the objectives of reducing water consumption and expanding the network. However, the success of the current pricing structure in achieving these objectives is uncertain. Therefore, to overcome the problems, this study examines the use of cost-reflective alternative pricing strategies for pipe-borne water distribution services. The book evaluates current and alternative pricing strategies for water against the criteria of efficiency and equity while maintaining the financial viability of the national water utility.
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