Water Rates May Go Down 10% Next Year

Water Authority due to kick off the process this week, but strong interest group opposition may block the plan.

Hagai Frid

The price of household water is due to drop by 10% at the start of next year, the Water Authority said on Sunday. The authority’s governing board is due to discuss the planned reduction at a meeting on Thursday.

The move comes amid growing political pressure in recent weeks by the finance and national infrastructure minsters, as well as Knesset lawmakers, to rein in the authority’s powers or even reverse the reforms of the water sector that saw municipal water works spun off into state-owned companies.

Nevertheless, the Water Authority still faces a tough political battle with interest groups that want to see the reductions implemented. To help preclude pressure, Sunday’s announcement contained few details that would enable opponents to begin mounting campaigns against it.

The rate cut would be the second in a row, after a 5% reduction last January lowered the household rate to 8.80 shekels ($2.33) per cubic meter. The rate for heavy usage of more than seven cubic meters a month was reduced to 12.90 shekels a cubic meter from 14.30.

Nevertheless, it will only go part of the way to reversing the 40% increase in water rates between the time the reforms went into effect in 2010 and their record high in July 2013.

“After major investments amounting to billions of shekels, a stabilization of the water sector and a significant improvement of regulatory mechanisms, the trend is now reversing and water rates will be going down in a professional, considered and consistent way,” said Alexander Kushner, director of the Water Authority and chairman of its board.

In fact, the reasons for the planned rate cut are more technical than anything connected with increased efficiency.

Up to four percentage points of the 10% cut will derive from planned reductions in the subsidies that industry and growers enjoy on their water rates. Another two to three points will come from the water companies, which will have to cut operating expenses, reduce the rate of depreciation they can incorporate into their rates and learn to live with a smaller return on their capital.

More savings on water will come from accounting measures that will on a technical basis reduce the price of high-cost desalinated water, even though the government is committed to buying 1.6 billion of the water next year, 400 million shekels-worth more than in 2014.

Under a 2009 agreement with the Manufacturers Association, the trade group that represents big industry, water rates for factories were supposed to gradually rise to the ordinary rate by 2015. That means the final rise of 4.5% will occur this January, which means there will be extra money available to help finance cuts for the public.

Amir Hayek, director of the association, declined to comment until he had seen the details of the Water Authority’s plans. Nevertheless, he hinted the organization would oppose the cut. “It’s true we signed an agreement, but the state of industry and its competitive ability have changed entirely since then,” he told TheMarker.

Growers, which now pay a rate of 2.60 shekels a cubic meter, a third of the consumer rate, are also likely to fight the rate cut. They also agreed five years ago to a gradual rise in water rates over the years 2010 to 2017, but the two sides have fought over the pace of the rise. The Water Authority was to impose a sharp 12% increase in 2015, which would bring the rate to 3.20 a cubic meter. The growers will accept no more than 2.80.

Dubi Amitai, president of the Farmers Union, said a 12% increase would violate the spirit of the agreement. “It’s very easy to say you want to lower the price of water for towns at the expense of farmers, but it doesn’t work that way,” he said. “You can’t complain about the high cost of living and at the same time raise the cost of out inputs.”

On the other hand, the municipal water companies are unlikely to put up a fight because they are already under heavy political pressure.

In spite of the lobbying the Water Authority can expect over the next several weeks, Kushner expressed confidence on Sunday that the proposed rate reduction would not only go through but would not be the last. “We are working to ensure that next year we have put into place conditions to make all parts of the water industry more efficient and enable us to make an additional tariff cut for the consumer,” he said.

One way Kushner said he hopes to achieve that is through a planned cut in electricity rates in the first quarter of next year. The reduction of between 12% and 16% will reduce the energy costs involved in piping water and desalinating it. That alone could justify a cut in water rates of 3% to 4%, Kushner said.