The government has just announced that the price of water will go up 11.3% beginning in January for household use. At first, this price increase appears economically sensible, since water is scarce and over-consumption is widespread in Israel. A price increase will reduce demand and save water. But the logic stops here, because the farmers who consume more than 60% of the national water will see their water bill go up by only 2.5%. Apparently, political interests and lobbying strength replace economic logic and trump market efficiency.
Government policy that artificially lowers the price of water to farmers leads to higher water consumption and increased damage to the environment. As far back as December 1990, Israel's state comptroller published an extremely critical report about the government's water management. Among the conclusions of that report were that “Irresponsible management of the water supply for 25 years has caused the destruction of water reserves of Israel and serious damage to water quality.”
This is the result of the monopolistic control on water resources in Israel. As long as Israel's water system is entirely managed by a government-owned monopoly, and the farmers hold a significant political clout, the water policy is doomed to get worse further harming the environment and the Israeli consumer.
Inefficiency and bad management at Mekorot National Water Company is no secret. Over-inflated salaries (Mekorot workers make 2.5 times the average national salary) and nepotism have been reported in state comptroller reports for decades.
Why should Israeli families have to suffer an extra price increase to support bloated salaries and bad management? They shouldn't. But they will -- unless Mekorot, the national water company, is privatized and real competition is introduced in the water distribution market.
As acknowledged in the Arlozoroff Report, published in 1997: “In the last decade, many states in the world, including developing countries, reached the conclusion that the services provided by Government companies suffer from many shortcomings, and that at least some of the functions connected with the supply of water, and sewage should be transferred to the private sector.”
It is time for Israel to follow the international example. In arid California alone there are over 433 privately operated water systems. In the United Kingdom, the water system is completely private and even in France, while the infrastructure remains publicly-owned, the distribution is efficiently run by private firms.
While the desalination plant was built by an Israeli company an important first step Israeli firms are world leaders in water technology and clean tech. The power of private industry has already been shown to be more efficient than government distribution. It's time to encourage opening the market in water distribution to Israeli and global firms, for the sake of environmental protection, and to ensure that consumers in all sectors pay fair market prices, instead of propping up a wasteful monopoly. Currently, people are paying for water that they don't use, while heavy users aren't paying for everything that they are using. Besides being significantly environmentally damaging as heavy users waste millions of gallons of water it is unfair for the average Israeli who has to pay for something he or she isn't using.
Competition in the water distribution market will lead to more efficient allocation of the water and lower prices for households. Let's hope that the public will make itself heard when the Water Authority holds public hearings on December 5.
Think about this the next time you get your water bill. How much of your salary is being poured down the drain?
Avi Hein is the Director of Programs at the Jerusalem Institute for Market Studies. He is an independent commentator, and his views do not necessarily represent those of "Globes" .
Published by Globes [online], Israel business news - www.globes-online.com - on November 25, 2007
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