156
7 Water Pricing
defined the formulation mechanism and the tariff contents, formulation principle and
methods, and management authorities. Departing from the 1985 Methods, the 2003
Methods defines the water tariff as the commodity price, rather than an administrative charge. Considered independently, summarizing the lessons and experiences in
tariff reform after 1980, the Methods is well-designed legislation that considers both
the characteristics of water supply from hydraulic engineering and socio-economic
development. If it is effectively implemented, tariff regulation and management
would be greatly improved in China. After the national legislation, 22 provinces
issued the local methods before 2012.
In 2004, the tariff was increased to cover some parts of costs, requiring the
government to raise the non-agricultural tariff to realize cost recovery and ensure
profitability, while increasing the agricultural tariff gradually to cover costs after
cancelling irrational additional charges (such as family planning costs, etc.) and
reducing management expenditures (Office of the State Council 2004). With the
national policy transitioning from economic-focused to social-focused in the 2000s,
the water supply tariff was left unregulated for many years.
The 2013 Decision on Several Key Issues on Fully Deepening Reform required
the promotion of water sector pricing reform and deregulation of competitive prices
to fully reflect market demand and supply, resources shortage, and environmental
damage (Central Committee of CPC 2013). To implement the Decision, the MWR
promoted the development of a market-oriented water pricing formulation mechanism to reflect water shortages and water supply costs (MWR 2014). This approach
indicates a tariff transition toward water resources in addition to costs.
Since agriculture is the largest user of hydraulic engineering water supply, China’s
agricultural water tariff reform has been plagued by difficulties (see Chapter 15). In
1985, the tariff for grain production could only account for supply costs. The 1997
Water Sector Industrialization Policy did not alter this feature, although it was radical
in other aspects. After 2000, with institutional reform and under the environment
of the cancellation of rural taxes and fees, the country shifted toward subsidizing
agricultural water use. In 2002, the farmer’s ability to pay was considered and many
cost-reducing reforms were implemented, including the introduction of the WUA,
canal system and metering improvement, and additional charge cancellation and
management staff reduction (NDPC 2002). The 2003 Management Methods of Water
Supply Tariff from Hydraulic Engineering required agricultural prices to recover
water supply cost and expenditure, but did not account for profits and taxes (NDRC,
MWR 2003). In 2004, the agricultural water supply tariff was listed in governmental
pricing, and the end-user tariff was required to be implemented directly to farmers,
with a volumetric charge if possible (Office of the State Council 2004). Given the
increase of public finance resources and subsidies to farmers and the agricultural
sector, agricultural price policy remained unchanged for an extended period. In 2011,
the comprehensive agricultural water pricing reform was launched to promote saving,
reduce farmers’ expenditure, and guarantee the operation of irrigation and drainage
projects. The O&M costs were partly subsidized by government, and the under-quota
preferential tariff and quota-exceeding increasing block tariff were explored (State
Council 2011; MWR 2014).
7 Water Pricing
defined the formulation mechanism and the tariff contents, formulation principle and
methods, and management authorities. Departing from the 1985 Methods, the 2003
Methods defines the water tariff as the commodity price, rather than an administrative charge. Considered independently, summarizing the lessons and experiences in
tariff reform after 1980, the Methods is well-designed legislation that considers both
the characteristics of water supply from hydraulic engineering and socio-economic
development. If it is effectively implemented, tariff regulation and management
would be greatly improved in China. After the national legislation, 22 provinces
issued the local methods before 2012.
In 2004, the tariff was increased to cover some parts of costs, requiring the
government to raise the non-agricultural tariff to realize cost recovery and ensure
profitability, while increasing the agricultural tariff gradually to cover costs after
cancelling irrational additional charges (such as family planning costs, etc.) and
reducing management expenditures (Office of the State Council 2004). With the
national policy transitioning from economic-focused to social-focused in the 2000s,
the water supply tariff was left unregulated for many years.
The 2013 Decision on Several Key Issues on Fully Deepening Reform required
the promotion of water sector pricing reform and deregulation of competitive prices
to fully reflect market demand and supply, resources shortage, and environmental
damage (Central Committee of CPC 2013). To implement the Decision, the MWR
promoted the development of a market-oriented water pricing formulation mechanism to reflect water shortages and water supply costs (MWR 2014). This approach
indicates a tariff transition toward water resources in addition to costs.
Since agriculture is the largest user of hydraulic engineering water supply, China’s
agricultural water tariff reform has been plagued by difficulties (see Chapter 15). In
1985, the tariff for grain production could only account for supply costs. The 1997
Water Sector Industrialization Policy did not alter this feature, although it was radical
in other aspects. After 2000, with institutional reform and under the environment
of the cancellation of rural taxes and fees, the country shifted toward subsidizing
agricultural water use. In 2002, the farmer’s ability to pay was considered and many
cost-reducing reforms were implemented, including the introduction of the WUA,
canal system and metering improvement, and additional charge cancellation and
management staff reduction (NDPC 2002). The 2003 Management Methods of Water
Supply Tariff from Hydraulic Engineering required agricultural prices to recover
water supply cost and expenditure, but did not account for profits and taxes (NDRC,
MWR 2003). In 2004, the agricultural water supply tariff was listed in governmental
pricing, and the end-user tariff was required to be implemented directly to farmers,
with a volumetric charge if possible (Office of the State Council 2004). Given the
increase of public finance resources and subsidies to farmers and the agricultural
sector, agricultural price policy remained unchanged for an extended period. In 2011,
the comprehensive agricultural water pricing reform was launched to promote saving,
reduce farmers’ expenditure, and guarantee the operation of irrigation and drainage
projects. The O&M costs were partly subsidized by government, and the under-quota
preferential tariff and quota-exceeding increasing block tariff were explored (State
Council 2011; MWR 2014).