Water Threatens Asia's Urbanization, Prosperity - By Andy Mukherjee

Posted by ProjectC 
By Andy Mukherjee
December 3, 2007

Dec. 4 (Bloomberg) -- The commodity that poses the biggest threat to long-term prosperity in Asia isn't oil, it's water.

It isn't so much the likelihood of Asian cities running out of fresh water that should bother the region's policy makers as the bigger danger of being overwhelmed by waste water.

The capability to treat discharged water before it is allowed to flow into lakes, rivers and oceans isn't growing quickly enough. Unless this crucial shortcoming is immediately tackled, it may end up being a deterrent to urbanization.

``Continuation of the present trend will make available water resources increasingly more contaminated and will make provision of clean water more and more expensive as well as more complex and difficult to manage,'' the Manila-based Asian Development Bank said in a report this month.

The countries that rise to the challenge will create more livable cities for their people as well as exciting, new opportunities for investors; those who squander the initiative will pay a heavy price.

The problem would have been easier to tackle had it been restricted to a few large cities.

That, however, isn't the case.

Between now and 2025, Asia's urban population will swell by 60 percent. A big chunk of this growth will take place in agglomerations of 500,000 people or less.

The technology, financing, expertise and political support required to manage water resources prudently may be relatively easier to muster in Dhaka, Karachi, Mumbai and Jakarta than in the smaller urban areas that are growing four times faster than Asia's mega cities.

`Strange Anomaly'

``It's a strange anomaly that these smaller centers are receiving conspicuously less attention from national and international policy makers,'' notes the ADB study.

``Unless the present policy and focus change radically, these centers are likely to be major water and waste-water `black holes' of the future,'' it says.

The first step toward efficient management of water is to price it correctly. It's also the most difficult thing to do.

``There is no question that the era when drinkable water could be provided to everyone free or at highly subsidized rates on a long-term basis is now over,'' says Asit Biswas, president of the Mexico City-based Third World Centre for Water Management and one of the authors of the ADB report.

Anti-Poor Subsidies

Subsidized water does nothing for the poor.

The utilities that aren't able to recover the cost of their services can't raise money to expand their networks or improve the management of wastewater. After a while, they even fail to maintain their existing service standards.

The urban rich may be able to invest in expensive storage and purifying systems that convert intermittent, low-quality supplies into a steady source of drinkable water. It's the poor who don't have such choices and suffer the most from politicians' penchant to treat water as a charitable good.

At the behest of the government in Beijing, cities in China have shown a willingness to improve the pricing.

Between 1949 and 1985, the municipality of Tianjin in northeast China charged residents an unchanged fee of 0.08 yuan -- or about 3 U.S. cents, those days -- per cubic meter of water.

Once the city understood these heavily subsidized rates were a hindrance to both producing and conserving water, it raised the tariff eight times over the next 20 years.

Slow Journey

This has seen Tianjin win much-needed investments in water treatment and distribution. In September, Paris-based Veolia Environnement SA, the world's biggest water company, won a 30- year, 2.65 billion euro ($3.9 billion) contract to supply drinking water to 3 million people in the city.

Hyflux Ltd., Singapore's largest water treatment company, is building a plant in Tianjin to recycle wastewater.

Merrill Lynch & Co. has a China Water Index. It comprises companies likely to benefit the most as profits in the Chinese water-supply industry improve and more of the business is opened to non-state-owned service providers.

These goals aren't going to be achieved in a hurry: Only a handful of Chinese cities have raised tariffs to a point where investors can recover their full cost. On the whole, though, China is on the right track.

India, which will need $37 billion over the next decade to give city dwellers access to safe water and sanitation, is also aware of the need to make tariffs more realistic.

Implementation of good intentions is, however, caught in a political quagmire.

Political Posturing

In advocating the state-owned utility in New Delhi allow the private sector to use its infrastructure to deliver water in the city, the World Bank recommended that tariff increases be linked to improvements in service.

The project never took off; in fact, it became a rallying point for social activists to condemn the World Bank for pushing privatization through the back door.

But what other option is there? How does one even begin to fix a state-owned utility that distributes only 60 percent of the piped water it produces and collects just 80 percent of the bills it issues? And without such efficiency gains, how does one win popular support for price increases in a city where the utility can at best supply water for a few hours every day?

The time to answer these questions is now.

The very survival of Asian cities is at stake.

(Andy Mukherjee is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Andy Mukherjee in Singapore at amukherjee@bloomberg.net .
Last Updated: December 3, 2007 15:50 EST