Valuing Water Resources

Water is an essential commodity that has economic value, so the value of a small/basic amount for survival is infinite—people would pay any price.  Water is a commodity that has an economic value when people are willing to pay for it, rather than go without. However, after basic needs are met, people buy water based on its price compared to other goods they might buy. Water’s value is then refers to willingness for the people to pay for water. It is observed when people make a choice between different products: How much will a household pay for drinking water? How much will a farmer pay for irrigation water? How much will a factory pay for clean water? 

Water value provides critical information for decisions about efficient and equitable allocation of water among competing users, both within the present generation and future generation. SNA (System of National Accounts, a conceptual framework that sets the international statistical standard for the measurement of the market economy), values water at price of transaction.  However the price charged by water suppliers—if any—often unrelated to value of water, too low. Water price often does not even reflect full costs of water supply!

Water is not supplied by competitive markets due to natural characteristics necessary for human survival and its natural monopoly of public good. Thus there are several concerns about using economists’ ‘non-market valuation’ techniques in valuation of water resources when we want to determine the accuracy of water values because the requirements are very high, so valuation is costly, the value is often uncertain, very sensitive to assumptions, the results are often presented as a range of values rather than a point estimate, a single value.

The concepts of value that is consistent with the SNA is the concept that measures market values, or sometimes cost of production. Water values highly site-specific, dependent on local uses, as well as season, water quality and reliability. Thus, if the State Government of Selangor plans to restructure the public water tariff for the treated water, it has to be studied carefully and debated exhaustively taking into considerations the SNA concept and approaches.

The water tariff in all the States in Malaysia were developed based on common intent and purpose, although it differs in the quantum and absolute amount. If one is to look into it carefully and objectively, the existing water tariff structure that are multi-tiers serves to create awareness and provide education as well as developing prudent water consumption. The existing water tariff structure is also a platform for corporate and social responsibilities by the organization managing the water supply. The charge in some of the multi-tiers water tariff structure is much lesser than the cost of procuring the treated water to the consumers. Thus it provides regulated water subsidy especially for the poor. The existing water tariff structure is also a platform for providing efficient services to the consumers.

It is therefore may not be sensible to restructure the existing water tariff in the State of Selangor especially  with a quantum reduction as it is already has a balanced objectives between recovery of costs; enhanced consumer services; community and social contribution; and reserves for future development and viable ROI. Any disruption in this equilibrium will cause severe impact on any of each component that make the balanced objectives.