7.3 Water Supply Tariff from Hydraulic Engineering
155
In the 1990s, the establishment of market-based institutions bolstered China’s
efforts to hasten its economic reforms (Jiang 1992, 1997) and positively promoted
water sector reforms. In 1993, the MWR issued the Outlines of Water Sector Reform
and Development for the 1990s, defining the objectives and pathway for water
sector development. This document focused on increasing economic benefits and
strengthening operations and management to establish new water sector institutions
and operational mechanisms compatible with a market economy. To implement this
document’s proposals, five systems, including a diverse investment system, an asset
operation and management system, a pricing system, a legislative system, and a
service system, were developed by the MWR (Niu 1995). Among these, the pricing
system was the key to providing investment by some means and improving service
and asset management by others.
In 1997, the Water Sector Industrialization Policy was issued. As the most important water sector document of the 1990s in China, it aimed to clarify project characteristics and investment sources, define reasonable prices, and standardize tariff
collection (National Planning Commission 1997). The Policy developed the tariff
reform procedures, stipulating that the tariff for new-built projects should be formulated according to principles of cost recovery, payment for tax, returning loan, and
reasonable profits; that those for existing projects should be regulated to a reasonable level within 3 years according to principles of cost recovery and purpose-based
reasonable profits. At the same time, the tariff was required to be regulated with the
cost change. Moreover, the Implementation Detail of Water Sector Industrialization
Policy required the implementation of a tariff system with a volumetric charge and a
basic charge (MWR 1999). The reform was radical and progressive. Impacted by the
massive Yangtze Flood in 1998, which was to drive major water policy changes, the
Policy and the tariff reform were not effectively implemented. In 1999, the average
water tariff for central hydraulic engineering was 0.015 RMB/m
3 , with a deficit of
0.018 RMB/m
3 , while that for local engineering was 0.03 RMB/m
3 , with a deficit of
0.017 RMB/m
3 (NDPC 2000).
In 2000, therefore, understanding that the tariff was not an issue of water and
costs but linked to management institutions and instruments, the NDPC started to
promote institutional reform, while also regulating the tariff to promote water saving
and protection, reflect the value of water services, and consider social ability to
pay. The reform developed different capital sources to cover hydraulic engineering
costs and expenditures according to specific functions, stipulating that those associated with public interests, such as flood control, should be covered by governmental budgets, while others should be compensated by the tariff. Additionally,
the rural water supply management institution was reformed to promote end-canal
(village level) self-management by establishing WUAs. The farmer’s ability to pay
and the two-tariff system for under-quota use and over-quota use were considered
in agriculture (NDPC 2000). Thereafter, the reasonable pricing formulation mechanism was required to support hydraulic engineering management institutional reform
(Institutional Reform Office of the State Council 2002).
All these changes were incorporated into the 2003 Management Methods of Water
Supply Tariff from Hydraulic Engineering (NDRC, MWR 2003). This document
155
In the 1990s, the establishment of market-based institutions bolstered China’s
efforts to hasten its economic reforms (Jiang 1992, 1997) and positively promoted
water sector reforms. In 1993, the MWR issued the Outlines of Water Sector Reform
and Development for the 1990s, defining the objectives and pathway for water
sector development. This document focused on increasing economic benefits and
strengthening operations and management to establish new water sector institutions
and operational mechanisms compatible with a market economy. To implement this
document’s proposals, five systems, including a diverse investment system, an asset
operation and management system, a pricing system, a legislative system, and a
service system, were developed by the MWR (Niu 1995). Among these, the pricing
system was the key to providing investment by some means and improving service
and asset management by others.
In 1997, the Water Sector Industrialization Policy was issued. As the most important water sector document of the 1990s in China, it aimed to clarify project characteristics and investment sources, define reasonable prices, and standardize tariff
collection (National Planning Commission 1997). The Policy developed the tariff
reform procedures, stipulating that the tariff for new-built projects should be formulated according to principles of cost recovery, payment for tax, returning loan, and
reasonable profits; that those for existing projects should be regulated to a reasonable level within 3 years according to principles of cost recovery and purpose-based
reasonable profits. At the same time, the tariff was required to be regulated with the
cost change. Moreover, the Implementation Detail of Water Sector Industrialization
Policy required the implementation of a tariff system with a volumetric charge and a
basic charge (MWR 1999). The reform was radical and progressive. Impacted by the
massive Yangtze Flood in 1998, which was to drive major water policy changes, the
Policy and the tariff reform were not effectively implemented. In 1999, the average
water tariff for central hydraulic engineering was 0.015 RMB/m
3 , with a deficit of
0.018 RMB/m
3 , while that for local engineering was 0.03 RMB/m
3 , with a deficit of
0.017 RMB/m
3 (NDPC 2000).
In 2000, therefore, understanding that the tariff was not an issue of water and
costs but linked to management institutions and instruments, the NDPC started to
promote institutional reform, while also regulating the tariff to promote water saving
and protection, reflect the value of water services, and consider social ability to
pay. The reform developed different capital sources to cover hydraulic engineering
costs and expenditures according to specific functions, stipulating that those associated with public interests, such as flood control, should be covered by governmental budgets, while others should be compensated by the tariff. Additionally,
the rural water supply management institution was reformed to promote end-canal
(village level) self-management by establishing WUAs. The farmer’s ability to pay
and the two-tariff system for under-quota use and over-quota use were considered
in agriculture (NDPC 2000). Thereafter, the reasonable pricing formulation mechanism was required to support hydraulic engineering management institutional reform
(Institutional Reform Office of the State Council 2002).
All these changes were incorporated into the 2003 Management Methods of Water
Supply Tariff from Hydraulic Engineering (NDRC, MWR 2003). This document