Water pricing (I)

The issue of water shortage has picked up steam, enough to become a regular feature in primetime TV news cycle every night. With interventions from state institutions and regular commentary in press, it appears that the severity of the challenge has been felt sorely enough that we might already be at the verge of resolving the problem altogether.

But consider this: Chairman Wapda Muzammil Hussain announced that given adequate funding, it will take nine years to construct Bhasha Dam, the supposed cure-all of Pakistan’s water shortage. That’s 2027! What until then?

Oversimplified solutions to technical problems always have populist appeal. And it appears that Pakistan has learned little from the electricity crisis. Last government tried to resolve load shedding by adding 11,000 MW to the power grid, paying little attention to complex problems such as transmission line losses and theft. The problem refuses to go away.

Similarly, while the need to add capacity of water reservoirs is undebatable, it is neither the only challenge nor the exclusive solution. A cursory review of research literature of Pakistan’s water economics reveals that a large part of the problem could be removed by addressing the structural inadequacies of our water pricing regime.

No, that is not to say that drinking water should be priced across Pakistan the same as tankers in DHA, Karachi. Safe drinking water is a recognized as a universal right according to Millennium Development Goals of which Pakistan is a signatory. As this column has often stressed, domestic consumption of water only accounts for 5 – 10 percent of total water consumption. The call to price water appropriately is to address its wastage in irrigation.

In this regard, researchers from University of Agriculture, Faisalabad in collaboration with University of Zurich have published an interesting case study in MDPI, a UN Global Compact partner science journal based out of Basel, Switzerland. This space shall discuss in detail several alternatives discussed for water pricing in literature over the course of several columns, but broad strokes are presented below.

Firstly, research literature declares without mincing words that Pakistan’s irrigation system is financially unstable as “water pricing is independent of the actual volume of water supplied to the farm land.” This is a classic case of tragedy of the commons, a term first used by Adam Smith for shared-resources such as common grasslands for grazing which due to unregulated access leads to overexploitation. When nobody owns the resource, everyone takes the most of it while it lasts.

While spending exchequer money on creating public awareness is surely one way to go, human beings respond to incentives, and perverse incentives dictate that if water used in irrigation is priced according to available supply, demand should reduce.

In this respect, researchers have discussed several modes of pricing, from no irrigation fees at all, to area-based pricing (fixed rate per unit of farm), and crop-based water pricing mechanism which defines a variable rate per hectare, depending on the type of crop irrigated. As the water intensiveness of each crop type varies substantially, based on data accumulated the MDPI paper found the last method most economic.

Of course, pricing water differently for each crop will have a cascade effect not only on farmer’s income, but also for commodity prices and to some extent, the country’s export. Watch this space for a comprehensive discussion of various pricing methodologies proposed, and the possible mitigable step for their fallout for Pakistan’s farming economy.