Market News

 January 07, 2014
Prices to rise across China in bid to conserve water

 China plans to apply progressive water tariffs on all urban residents by the end of 2015 with top rates at least triple base prices in the latest move to encourage conservation.

The pricing system, already in place in cities including Shanghai, charges extra for consumption beyond "basic needs."

Local authorities should work out pricing systems that include at least three tiers, the National Development and Reform Commission and the Ministry of Housing and Urban-Rural Development said in a joint statement yesterday.

Consumption in the first tier, for which prices will remain flat, should be enough to cover 80 percent of local household use, the statement said. Prices should at least go up by 50 percent for volume in the second tier and at least triple for that in the third.

The price differences should be even greater in regions short of water, the statement said.

China is pursuing price reform on water, fuel, power and natural gas to better reflect scarcity of resources and encourage conservation, after a long period of low prices to keep inflation in check.

But tight controls have also led to a distorted market. For example, PetroChina Co says that it is losing money on every cubic meter of natural gas it imports due to higher prices in international markets.

Higher prices

The government expects the market-based price reforms to benefit China's sustainable development in the long run, though they are often unpopular among the public as reforms generally mean higher prices.

A Sina.com poll about the latest water price reform showed about 65 percent of participants thought the tiered system was "unreasonable" while 30 percent considered it "reasonable."

The remaining 5 percent chose the "I don't care" option.

More than 10,400 people had taken part in the poll by yesterday evening.

Yesterday's statement required local governments to make public local water costs and hold public hearings while introducing the new systems.

Last summer, Shanghai adopted a three-tier system that, as estimated by authorities, would translate into an average increase of 30 percent in prices but leave 85 percent of local households unaffected.

It was the first time the city had raised water tariffs since November 2010.

The move came amid mounting losses for water utilities as they continued to invest heavily in improving supplies and quality.

The new national plan calls on local governments to also consider what low-income families can afford when introducing new water tariff systems. For example, local authorities should increase subsidies or provide them with more volume under the basic first tier, the statement said.