Frederick Lee and James Nickum
South China Morning Post
April 27, 2015
Frederick Lee and James Nickum say subsidies need to be replaced by direct payments to improve the Water Supplies Department’s financial health.
Hong Kong residents are used to plentiful water of good quality. But this comes at a price. Photo: Jonathan Wong
The Dublin Principles of 1992 stated that water is an economic good. Someone forgot to tell the citizens of Dublin. Tens of thousands have poured out onto the streets in recent months to protest against a proposal by the government to charge people for water according to the amount they use. Currently, they don’t pay anything.
The problem, it seems, has more to do with trust and accountability than water. Like Greece, citizens of Ireland are being asked to tighten their belts and shed government protections in the name of austerity. Being presented with a bill for their water is the last straw. They do not trust the government to charge them for water, while ironically they do trust it to provide it for free.
Hongkongers, unlike Dubliners, have long had water meters and have paid according to usage. Before 1995, water prices covered the costs of delivering water. Since then, however, fee levels have remained unchanged, despite increases in the costs of providing water. This cannot continue, and the longer a rate increase is delayed, the more difficult will be the inevitable adjustment.
Costs climb, and not just because Guangdong province is charging more for the water from the Dongjiang, our largest source. Wages rise. Ageing systems cost more to maintain. And delivery to new and ever more remote development sites adds to the bill.
Yet the Legislative Council has consistently refused to increase water tariffs. The result: the Water Supplies Department has run an operating deficit for the past 20 years.
For the average user, the true cost of water is hidden. In 2013-14, revenues paid directly by users from water fees accounted for only one-third of current costs. The remainder comes from property rates and government subsidies.
Last year, as a side-effect of a booming local property market, for the first time, more than half of the department’s revenue came from rates payments. All this money comes indirectly from the people of Hong Kong. But its opacity means that some people end up paying for others, regardless of water usage, purpose or habit.
So what is the problem, as long as the money comes from somewhere? First, with such a large proportion of the revenue dependent on a property market bubble, the water agency’s operation is at risk. Second, it means the Water Supplies Department has to go to the government with cap in hand, much to the growing displeasure of the Audit Commission, which is pushing for public services such as water to be self-funding.
Water is essential to life, and some must be provided as a right, even to those who genuinely cannot afford it. But the remainder of those who use water should pay its costs, whether they are households or business. Holding the water charge at a level that does not reveal its true cost is a political decision that ultimately can politicise water unnecessarily. Hong Kong does not need a Dublin phenomenon.
Hong Kong residents are used to plentiful water of good quality. But this comes at a price.
Consumers have a right to know that water is being provided without a lot of expensive add-ons. Rate setting needs to be taken out of the political process and made transparent and accountable to the public, through oversight commissions, full cost disclosure and public hearings.
There are many successful examples internationally of how to make transparency work to ensure accountability. Replacing the indirect payments with direct payments is a necessary step towards improving the Water Supplies Department’s financial health, as well as ensuring that our water system is one that a global city deserves.
Dr Frederick Lee is director of the Water Governance Research Programme in the Faculty of Social Sciences at the University of Hong Kong. Dr James E. Nickum is adviser to the same programme.
