13 May 2013

Sustainable is not a fad

...at least when it comes to the financial and operational sustainability of water systems.

That's what I learned when HM emailed this:
In your article on SSRN you concentrate on cost coverage efficiency and equity.*

In an expert meeting of WHO in 1989 the conclusion was that the minimum water rates should be such that financial liquidity needs are fully covered; the reason being that government subsidies are not reliable in the long run, while the financial system is not a suitable provider of liquidity because water supply and sanitation utilities are awkward debtors, especially in developing countries.

This point seems to have disappeared entirely from the discussion.

WHO/CWS/89.5 was prepared by a large group of very experienced consultants with hardly any damage by bureaucrats and politicians

WHO/CWS/90.10 Handbook of Financial principles and methods was prepared by World Health Organization. In successive stages the expert opinion on the importance of liquidity maintenance was diluted by politicians and bureaucrats.
I am on the one hand pleased to be giving "good advice" that conforms with best practices of over 20 years ago. On the other, I am sad that we've not made much progress in those 20 years.

Read the earlier report and tell me if the "shoe box" fits.

Bottom Line: Bad ideas don't die easily, but good economics are available to kill them.

* That paper uses an idea I had in a debate (Does full cost pricing help the poor?), which I attributed to a flash of brilliance:
Policies that reduce the price of water below the full cost of service are likely to increase unsustainable water consumption, causing stress on supplies; dependence on outside sources of financing and the political interference that comes with it; service interruptions due to underfunding of operating and capital costs; and inequality due to limits on service to outlying, informal and newly settled areas
Perhaps it was just a flash of obvious, but it does not seem so obvious to a lot of people in the water business bureaucracy. (My 2008 PhD dissertation falls into the same category as it was an update on another economist's 1955 dissertation. He was probably updating someone else.)