The Bottom Line / And now, laundered water
The Knesset Finance Committee, chaired by Avraham Hirschson, is expected to decide on the price of water tomorrow. This is a political matter in which economics plays only a small part.
The Knesset Finance Committee, chaired by Avraham Hirschson, is expected to decide on the price of water tomorrow. This is a political matter in which economics plays only a small part. In 2002, when we reached crisis levels, the government decided to institute a sweeping and proper reform - to raise the price of water for agriculture so as to end the absurd situation that allows farmers to pay 97 agorot per cubic meter for drinking water while cities and industries are charged NIS 1.83 a cubic meter.
But Ariel Sharon decided to block the reform, setting up a committee (via Avigdor Yitzhaki) to fulfill this design. The Finerman panel submitted a report that attempted to re-write the laws of economics.
From the committee's perspective, the farmers do not need to pay the marginal price of producing the water, but rather only NIS 1 per cubic meter.
The perpetual "suckers" who live in the cities, on the other hand, do need to pay the marginal cost, which today is NIS 1.6 per cubic meter and will soon reach the cost of desalinated water - NIS 3 per cubic meter.
The recommendation of the Finerman committee leads to additional distortions. The low price of water for agriculture (below its marginal cost) creates excess demand.
As a result, it will be necessary to continue the system of quotas that discriminate between those close to the reins of power and those less well-connected.
The result will be that whoever is not close to the trough will not get enough water, despite their ability to grow crops profitably - even with high-priced water.
Similarly, there will be no incentive for farmers to switch to treated waste water, since its price is relatively high (60 agorot per cubic meter) compared to the subsidized water - and it harms the environment.
In order to overcome the inefficient distribution of water, the committee proposes allowing farmers to buy and sell water quotas.
No kidding. That is, to launder the black market. Thus, some of the farmers will buy cheap water from the state and sell it at a high price to those who need it, making a neat profit of several tens of thousands of shekels a year, at the expense of the taxpayers.
That is, the public gets screwed four times. First, the farmers receive compensation for the fact that their quota has been cut from a billion cubic meters to 530 million.
Second, city dwellers pay an exorbitant price for water, higher than its production cost, since someone must fill the coffers of the Mekorot Water Company.
Third, urban and industrial users will soon begin to pay NIS 3 per cubic meter, because wastefulness in agriculture created the artificial need for desalination.
Fourth will be the trade in water quotas, which is the biggest scandal of all - profiting at public expense.
Economic and social justice dictates that the Finance Committee should decide tomorrow to raise the price of water for agriculture alone.
But the concern is that the agricultural lobby will be able to push through the opposite policy - the price will again be raised for urban and industrial consumers. This is because there is no one to defend 97 percent of the public, which continues to pay without saying a word.