Asia Pacific: Special Report - The cost of water

Increasing usage of a commodity in short supply, and which is under-priced, presents a challenge for the region.

by Michael Backman, World Business
Last Updated: 23 Jul 2013

Water is perhaps the commodity most subject to under-pricing in Asia. And this is a problem because Asia's populations are not just getting bigger, they're getting richer, which means they're consuming more water than ever before. Thus, usage has now overtaken the renewable rate and so the absolute quantity of fresh water is falling rapidly.

The problem is especially acute in China and Indonesia, and in India the challenge is urban water sanitation. Many big cities rely on the same river for drinking water and the disposal of raw sewerage. The solution will involve greater expense for business and investors, but there will also be opportunities for water engineering contractors.

The problem is most acute in China because it is surprisingly arid. Just 14.8% of China is arable (India, by way of comparison, is 48.8% arable); it has about 22% of the world's population, but just 8% of the renewable fresh water. Much of its grain is grown in the north, but most of the water is in the south. The aquifer beneath the grain-growing northern plain is falling by 1.5 metres a year. Some 400 major cities already face water shortages and restrictions.

China's water is getting more polluted too. Nearly 60% of the more than 400 sites along China's seven main rivers that were monitored for water quality in 2004 were found to be too polluted for human consumption. Clearly, China has some big problems and its government recognises that. The Ministry of Construction has just announced plans worth almost $126 billion over the next five years to upgrade waste water treatment plants and water distribution systems. Foreign companies such as Veolia Environnement and Suez, both of France, have already been awarded big contracts in this sector and more can be expected.

A separate proposal from a competing ministry, worth an estimated $59 billion, calls for diverting water from the south to the north via three massive canals, which will link four major rivers. The scheme would shift 50 billion cubic metres of water northwards each year. Again, the opportunities for outsider contractors are potentially enormous.

A related proposal would see water diverted from Tibet to northern China via a series of aqueducts, tunnels and reservoirs. A 300km waterway would be constructed to send up to 8 billion cubic metres of water a year into the Yellow River's upper reaches. But what each proposal lacks so far is a firm indication of how water consumers will be charged for their usage.

Water contamination is the big issue in India. Industrial pollutants are becoming more of a problem as the country industrialises, as is pollution from households. Only about 10% of all sewerage in India is treated. The rest from both domestic and industrial sources simply pours untreated into India's waterways. Water distribution is also a problem: ageing pipes laid down during the colonial era have not been well maintained. About 40% of the water distributed in New Delhi, for example, just leaks away.

Almost a quarter of Delhi households rely on ground wells for their water, in part or in whole. A quarter have no access to piped water and among those that do, more than a quarter receive water for less than three hours each day. Nearly two million households do not have a toilet. Most of the city's water supply comes from the Yamuna River.

The river originates in the Himalayas and arrives in Delhi in a relatively clean state. It leaves laden with filth. Almost 900 million litres a day is extracted by the Delhi water board to be pumped into the city's water system. In return, the city's residents pour into it about 3,500 million litres of raw sewerage. A government audit in 2005 found that the level of faecal coliform in the Yamuna was 100,000 times the level considered safe for bathing.

The problems are compounded by massive internal migration from rural to urban areas. In China, the millions who have left the countryside to find work in the cities over the past two decades represent the biggest mass migration in history. The problem is growing in India too. Mumbai, for example, is projected to have a population of 28.5 million people by 2020, as about 1,500 people arrive to live in the city each day.

In Indonesia, Asia's third most populous country at 245 million, the quality of water stocks is also diminishing. Indonesia has one of Asia's worst rates of sewerage and sanitation coverage. Less than 3% of Jakarta's residents are connected to a sewer system and many households rely on private septic tanks or dispose of their waste directly into rivers and canals. Many do not receive fresh water either and in any event a 2005 report found that 46% of water was lost by leakage.

Private wells are also used, but because the sewerage system is so poor, most of the groundwater is contaminated. A 2001 study found that 90% of Jakarta's shallow wells were polluted by domestic waste. Accordingly, the city faces frequent epidemics of gastrointestinal infections. The UK's Thames Water was part of a joint venture that won a 25-year contract to upgrade and distribute water in east Jakarta in 1998, but the government refused to allow water tariffs to rise sufficiently. Thames Water finally exited the venture in 2006.

Although traditionally seen as free, the reality is that water - and its distribution - has a cost. And that is the challenge for Asia's governments: aligning the price of water with the cost. Only then will they start to solve Asia's water crisis.

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