Gulf looks to curb water usage

08 November 2010

The cost to the state of subsidising water is set to increase as consumption rises, leading governments to give serious thought to how to bring demand for water under control

Water in numbers

20-23per cent: Water lost through leakage in Bahrain

$2 a cubic metre: Cost of producing and delivering desalinated water

$19.5bn: Investment needed in new desalination infrastructure over the next decade

Source: MEED

The citizens of the Gulf states are used to paying very little, if anything, for their water supply. Governments have traditionally allocated a large portion of their budgets to providing subsidised water and other utility services to their people.

Low water rates typically encourage wasteful practices and the GCC states rank among the countries with the highest per capita usage in the world, despite being a severely arid region.

Average annual precipitation in the GCC is about 120 millimetres. Most rain falls between November and March and there are few entirely rainy days. There is less than 2,000 cubic metres of freshwater resources per resident a year in the Middle East and supplies are shrinking fast. By 2050, availability is expected to fall to below 500 cubic metres.

Gulf desalinated water

Most drinking water in the GCC is provided through desalinating seawater. Over the past 20 years, the region has invested billions of dollars in building new desalination plants. Desalination’s share of total water supplies ranges from about 60 per cent in Saudi Arabia to more than 90 per cent in Bahrain and the UAE.

A strong political will to reform the water sector has emerged in the Gulf and Middle Eastern region

Franck Le Baron, Suez Environnement

As an energy-intensive process, desalination is both costly and a drain on the hydrocarbon resources that could otherwise be sold on international markets. While water generated through non-desalination methods costs about $0.30 a cubic metre (for production and transmission), desalinated water costs about $2 a cubic metre.

The financial burden on governments is set to worsen in the years ahead as water consumption is rising, driven by rapid industrial development and population growth. As a result, some states are now giving serious attention to how demand can be brought under control.

One solution is improving asset management. Once produced, the water has to be distributed to consumers and there are always losses associated with this. But the GCC fares particularly badly in its non-revenue water (NRW) figures.

NRW is defined as the volume of water not billed to customers as a share of the total water produced. The lost water can be real, due to leaks, or apparent, because of unauthorised consumption or metering inaccuracies. NRW also includes authorised unbilled consumption, such as water used for firefighting or by mosques.

The GCC has much to gain from tariff reform – as the experiment in Dubai [shows] – but the issue is sensitive

In Bahrain, 20-23 per cent of water is lost in leakage and its NRW figure is 25-30 per cent once the non-physical losses are accounted for.  The government aims to bring this figure down to roughly 15 per cent. The UAE, by contrast, has low water-loss figures, largely because most of its infrastructure was put in place within the past decade.

“A strong political will to reform the water sector has emerged in the Gulf and Middle Eastern region,” says Franck Le Baron, development director at France’s Suez Environnement. “The reform is taking place through major investments to improve the effectiveness of the distribution network and to develop alternative resources. In the Middle East, roughly 37 per cent of the water distributed is lost.”

GCC Water Tariffs
Country Cost to end-user 
($ a cubic metre)
Oman1.1-1.4
Qatar1.2
Saudi Arabia0.03
Dubai1.8-2.4
Abu Dhabi14 a month (irrespective of usage)
Northern Emirates1.8-2.4
Bahrain0.07-0.53
Kuwait0.6
Source: MEED

Le Baron says asset management should be central to the solution. The type of water also should be adapted to its usage. For instance, “desalinated water, which is energy-consuming and costly, should be used for drinking water only, whereas reclaimed water can be used for agriculture and street cleaning,” he says.

Higher water prices for the Middle East

But the most effective measure to curb water usage would be to increase the price of water for end-users to levels that better reflect the cost of generating and delivering water to consumers. While a certain amount of subsidy may always be necessary, as the cost of water production is particularly high in the Middle East, raising the cost to end-users would encourage more sparing usage.

The idea of providing a certain volume of water free to consumers to cover their essential needs, and then charging for any additional water, is already gaining support in the region.

In the past couple of years, some GCC countries have introduced slab tariffs, whereby a sliding scale ensures customers are incentivised to conserve water. The effectiveness of a slab tariff depends on the level at which it is set. If it is set too low, it will fail to act as an incentive to conserve water.

Dubai Electricity and Water Authority (Dewa) applied such a tariff on consumption in early 2008. For domestic consumption of up to 6,000 gallons a month, it set a rate of $0.008 a gallon, increasing to $0.0010 a gallon between 6,000-12,000 gallons a month, and further to $0.0011 a gallon for higher usage.

At the time, Dewa said the tariff was introduced to “motivate and urge Dewa’s clients to rationalise consumption.”

“I think [the slab tariff] was successful to some extent,” a source at Dewa says. “I cannot say that there was a huge impact, but it met the objectives we set out.”

Water tariff success in Dubai

Statistics suggest that the change in tariffs has been effective in curbing demand in Dubai. There was a notable slowdown in the rate at which water consumption increased in the emirate, following the introduction of the new system. Demand rose by 2.6 per cent in 2008-2009, compared with 12.4 per cent between 2005 and 2006.

The financial crisis and its effects on the emirate’s population size could explain the slower growth. But, according to Dewa, its total number of water consumers climbed 19.5 per cent between 2008 and 2009, despite the global recession. Between 2005 and 2006, its customer base increased by 10.8 per cent.

The change in tariffs only applied to the expatriate community in Dubai, which accounts for some 90 per cent of the emirate’s population. Moves to increase tariffs for GCC nationals have been met with resistance in the past and governments are only too aware of the political costs of making citizens pay for the water they consume.

Kuwait’s Ministry of Electricity and Water has been examining the potential for introducing a slab tariff since 1993. The state subsidises about 89 per cent of the cost of water to consumers, spending KD690m ($2.49bn) on water subsidies in 2008-09.

While the cost of producing, transmitting and distributing 1,000 million gallons of water is KD 7.219 ($25.70), end-users currently pay only 800 fils per 1,000 million gallons.

The ministry has presented different scenarios for tariff reform to the Council of Ministers and the National Assembly (parliament), but a decision has yet to be taken.

“Unfortunately, no decision has been made and we are not sure when it will change,” says a source at the Ministry of Electricity and Water. “We are still fighting with this and maybe in a couple of years it will change.”

In the long-term, the policy of heavy subsidies for water will become an unsustainable burden on the public purse. Governments will not be able to maintain the expense as populations increase. Saudi Arabia is a case in point. Consumers in the kingdom are believed to pay around a tenth of the cost of desalination. With a population growth rate in excess of 1.5 per cent a year, the government will strain to meet this increasing demand without greater contributions from end-users.

MEED’s research division MEED Insight estimates some $19.5bn-worth of investment will be needed to develop new desalination infrastructure over the next 10 years. GCC desalination capacity will need to rise by almost 90 per cent to 5,550 million gallons a day (g/d). Of the 2,600 million g/d of new capacity, Saudi Arabia will account for about 700 million g/d, followed by Abu Dhabi with 540 million g/d and Kuwait with 409 million g/d. In relative terms, Oman faces the greatest challenge – the sultanate needs to more than double its installed capacity, from around 140 million g/d today.

These increases are necessary as there is no buffer between supply and demand. At present, water demand is constrained by production; however much desalinated water is produced it can always be consumed, either in replacing existing water resources or supplying new areas.

As a result, annual growth in peak desalination demand is generally linked to how much new capacity becomes available in any one year. In 2009, this was highlighted in Oman, where the commissioning of the Sur desalination plant and the Barka 2 complex saw peak demand grow by 25 per cent.

Extra revenue for Gulf

Along with reducing the need to invest in new capacity, curbing usage would also mean less power is consumed to meet domestic demand for water. Fuel not used to make power to desalinate water could otherwise be sold, generating additional revenues for governments to spend on public infrastructure works.

The GCC has much to gain from tariff reform – as the experiment in Dubai demonstrates – but the issue is sensitive. Access to low-cost water is now viewed as a right by citizens. Most government officials recognise the need for change in private, yet few are willing to sanction tariff reform in public. This is far from surprising. The last time Riyadh hiked tariffs in 2000, it had to make a hasty retreat following an outcry from consumers.

In the absence of tariff reform, states have made other efforts to control demand for water. Most utilities have, or are planning to introduce, water metering, along with strategies to cut NRW and promote public awareness.

But without a material incentive to use less water, the GCC will continue to struggle to keep pace with demand and pay for the water infrastructure it needs.

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