COST ASSESSMENT &
PRICING OF WATER
SERVICES IN CYPRUS
- SUMMARY -
GIVE US YOUR OPINION!
WATER FRAMEWORK DIRECTIVE
2000/60/ΕC
March 2010
INTRODUCTION
Water is a valuable resource and, at the same time, a source of life. Our country’s
water reserves are limited, rendering necessary their correct and sustainable use.
The Water Framework Directive (2000/60/ΕC), from hereafter “Directive”, enables –but
also obliges- us to manage our water resources in a correct, sustainable and
cooperative manner.
This summary report is about cost assessment and pricing of Water Services in our
country, as they were analyzed and formed in the context of a study, which was
conducted according to the requirements of the Directive. For further information,
you may review the complete informative report on the Water Development
Department’s website.
We need to know your opinion as well, since it is valuable for future decisions
on our country’s water management and pricing.
This report has been authored by the Consortium consisting of ENVECO S.A., I.A.CO
Environmental and Water Consultants LTD, Draxis S.A. and D. Argyropoulos &
Associates, with the Water Development Department of the Ministry of Agriculture,
Natural Resources and the Environment as the Contracting Authority.
A FEW WORDS ABOUT THE EUROPEAN WATER FRAMEWORK DIRECTIVE
« Water is not a commercial product like any other but, rather, a heritage
which must be protected, defended and treated as such» (Water Framework
Directive Οδηγία 2000/60/ΕC)
The Directive has been designed in order to protect and contribute to the improvement
of the status of aquatic ecosystems in the European Union. Therefore, it applies to all
water bodies of Cyprus – rivers, lakes (including dams and reservoirs), coastal waters
and groundwater. The Directive came to force on December 22nd of 2000. The
Directive’s main purpose is to prevent further deterioration and to protect and
enhances the status of aquatic ecosystems by 2015.
DIRECTIVE ARTICLE 9 – COST ASSESSMENT & PRICING OF WATER SERVICES
The Directive’s Article 9 aims at the effective and sustainable use of water through the
application of appropriate pricing policies, which will give motives to all of us to
use water wisely.
The pricing policies, which have to be implemented until the end of 2010, must be
based on the principles of sustainability and correct use of our country’s waters, in
order to achieve protection of our water resources, so as to hand over this priceless
heritage to our future generations.
COST ASSESSMENT AND PRICING OF WATER SERVICES REPORT
-2-
BASIC PRINCIPLES OF COST ASSESSMENT AND PRICING
OF WATER SERVICES – APPLICATION ON CYPRUS
WATER SERVICES
A Water Service represents an intermediate link between the natural
environment and water use itself.
Water Services in Cyprus have been specified as follows:
Drinking Water Supply
Service
Irrigation Water Supply
Service
Sewage and Waste Water Treatment Service
(up to secondary treatment)
Recycled Water Supply Service (tertiary
treatment and supply for irrigation)
WATER SERVICE PROVIDERS
Each water service has providers. These providers are organizations that manage all
procedures and infrastructure for supplying these services. Examples of such providers
are, among others, the Water Development Department, the Water Supply Council and
Sewerage Boards, the Municipalities and Communities etc.
WATER USE
Water Use is an activity which poses potentially significant pressures and has,
therefore, impacts on water bodies.
Water Use in Cyprus has been classified as: 1) drinking water – household use, 2)
agriculture, 3) tourism, 4) livestock, 5) industry.
ANALYSIS SCALE – SUPPORTIVE ACTIONS
Drinking
and
Irrigation
Water
Supply
Services
are
provided
either
through
Government Water Projects (GWP) or outside them. The cost analysis, as well as
the pricing policies analysis took this difference into account.
The analysis was based on the annual average of 2005-2007 (costs, quantities
consumed) because it was assumed that these years represent average conditions and
not extreme phenomena. In cases where water is supplied from groundwater aquifers
and abstraction assessments, decade data were used.
WATER CONSUMPTION
The results of the analysis for the specification of water consumption (in m3 – annual
average of 2005-2007) for water services in Cyprus, are summarized in the table
below:
Service
Drinking Water
Irrigation
Sewage*
Recycled water supply**
THROUGH GWP
OUTSIDE GWP
68,682,697
11,216,357
38,236,251
105,014,715
20,637,536
9,907,924
TOTAL
79.899.054
143.250.966
20,637,536
9,907,924
* It also includes the quantities of Mias Milias, where 6.387.500 m3 are treated
** Consumed quantities of recycled water
COST ASSESSMENT AND PRICING OF WATER SERVICES REPORT
-3-
COST OF WATER SERVICES
TYPES OF WATER SERVICES COST
According to the Directive, in order to assess the cost of water services, each
Department must take into account 3 types of cost:
Financial cost, which includes the cost of operation, capital, maintenance and
management for all procedures and infrastructure of water services.
Resource cost, which consists of the cost of water body restoration in cases where
the natural recharge rate is surpassed (i.e. over-abstraction of groundwater)
Environmental cost, which represents environmental damage in economic cost.
Environmental damage is the deterioration of a water body’s status from a good
qualitative and quantitative status.
The following tables show the overall results of the cost assessment analysis
(meaning the estimates of all three types of cost outlined above) for each Water
Service.
Drinking Water Supply Service
Unit Cost
Financial
Environmental
Resource
Total
2007 prices
THROUGH GWP
(€/m3)
1.17 (96%)
0.04 (3%)
0.01 (1%)
1.22 (100%)
OUTSIDE GWP
(€/m3)
1.00 (89%)
0.03 (3%)
0.09 (8%)
1.12 (100%)
2007 prices
Irrigation Water Supply Service
Unit Cost
Financial
Environmental
Resource
Total
THROUGH GWP
(€/m3)
0.34 (76%)
0.10 (22%)
0.01 (2%)
0.45 (100%)
OUTSIDE GWP
(€/m3)
0.30 (61%)
0.16 (33%)
0.03 (6%)
0.49 (100%)
Sewage and Waste Water Treatment Service
(up to secondary treatment)
2007 prices
(€/m3)
Unit Cost
Financial
Environmental
Resource
1.21 (100%)
Total
1.21 (100%)
Recycled Water Supply Service
(tertiary treatment and supply for irrigation)
2007 prices
(€/m3)
Unit Cost
Financial
Environmental
Resource
0.15 (65%)
0.08 (35%)
Total
0.23 (100%)
COST ASSESSMENT AND PRICING OF WATER SERVICES REPORT
-4-
CURRENT COST RECOVERY FOR WATER SERVICES
Cost recovery for Water Services is defined as covering the total cost (financial +
environmental + resource) for each Water Service from its revenues.
The levels of cost recovery are, in essence, calculated based on the following general
equation:
REVENUES
COST (Financial + Environmental + Resource)
The following tables show the current (2005-2007) levels of cost recovery up to
the end user of each Water Service:
Drinking Water Supply
95%
Irrigation Water supply
56%
Through GWP
99%
Through GWP
41%
Outside GWP
72%
Outside GWP
61%
Sewage and Waste Water
Treatment
(up to 2ndary treatment)
227% *
Recycled Water Supply
38%
* The high levels of cost recovery for the Sewage and Waste Water Treatment Service are due to the fact
that sewage charges, which are prepaid by consumers, also contribute to the revenues.
COST ASSESSMENT AND PRICING OF WATER SERVICES REPORT
-5-
PROPOSED PRICING POLICIES IN CYPRUS, BASED ON THE
WFD
The new water-pricing plan for Cyprus aims at the implementation of the Directive’s
Article 9 and at the adequate recovery water cost recovery.
The pricing recommendations cover:
a) On the one hand, the current situation without the new desalination
plants, using the 2005-2007 time period as a baseline, when the biggest
proportion
of
water
requirements
was
covered
by
dams,
groundwater
abstraction and limited capacity desalination plants.
b) On the other, the future situation, when from 2013 and beyond, the capacity
of desalination plants will increase significantly, with the operation of new
permanent plants.
New prices for each Water Service in current prices (2010) are proposed.
Especially for the Drinking Water Supply Service, the following new prices are
proposed:
For the year 2010 based on the scenario without any new desalination plants
For the year 2015 based on the scenario with new desalination plants
For the year 2013 based on the price which constitutes a smooth transition
from the price of 2010 to the one of 2015.
DRINKING WATER SUPPLY SERVICE
Goal = Complete cost recovery
Pricing policies are recommended for:
The Water Development Department: drinking water prices from the Water
Development Department to various providers (Water Council Boards, Municipalities
and Communities)
The end user level: uniform method for drinking water price determination by
providers (Water Council Boards, Municipalities and Communities) to end users.
A NEW WATER FUND IS PROPOSED
There is a need for a statutory intervention and the foundation and operation of a Fund
for the collection and management of resource and environmental revenues.
This new Fund with the Water Development Department as a possible manager will
have the power to collect and manage revenues from the environmental and resource
cost charging.
COST ASSESSMENT AND PRICING OF WATER SERVICES REPORT
-6-
Α. PRICING THROUGH GOVERNMENTAL WATER PROJECTS
(DRINKING WATER)
WATER DEVELOPMENT DEPARTMENT (WDD)
MUNICIPALITIES AND COMMUNITIES
TO
WATER COUNCIL BOARDS,
Drinking water prices from the Water Development Department were specified in order
to include and cover the total financial cost of the WDD + the environmental cost
+ the resource cost.
Two scenarios / approaches are taken into consideration for pricing from the Water
Development Department:
1. Different pricing per Governmental Water Project
2. A uniform price for all Governmental Water Projects (GWP)
The following table shows the suggested prices for the two aforementioned scenarios:
Year
Current Prices
2010 (without new desalination
plants)
2013
2015 (with new desalination
plants)
1st Scenario Different prices €/ m3
GWP - South
GWP - Pafos
Conveyor
0.77
0.56
2nd Scenario
- Uniform
price
€/ m3
-
0.87
0.56
0.82
1.08
1.11
1.09
1.26
1.77
1.32
The application of a uniform price by the Water Development Department for
all Governmental Water Projects is recommended.
END USER LEVEL (WATER
COMMUNITIES TO CITIZENS)
COUNCIL
BOARDS
&
MUNICIPALITIES
/
Application of a common methodology for all providers for the specification of
drinking water pricing.
The Method of pricing with ascending scales is recommended, which consists of:
A fixed charge «X»
A volumetric charge of at least two scales (prices P1 and P2)
The fixed charge “X” and the first scale of volumetric charging P1 aim at cost recovery
(financial, environmental and resource). The second scale P2, as well as all other scales
that will finally be adopted by drinking water providers will be used in order to
encourage water saving.
Two scenarios / approaches are taken into consideration for pricing up to the end
user:
COST ASSESSMENT AND PRICING OF WATER SERVICES REPORT
-7-
1. A uniform price up to the end user
2. Different prices for the end user according to the cost differences, but
with a common pricing calculation methodology (2 sub-scenarios)
The following tables show indicative prices for each of the two aforementioned
scenarios:
Scenario 1: Uniform price up to the end user
Scenario 2: Different prices for the end user
Sub-scenario Α
Sub-scenario Β
Implementation of different prices, according to
the different costs of WDD up to the end provider
and user level
Implementation of different prices, taking into
account uniform selling price from the WDD to
all the providers (Water Council Boards,
Municipalities - Communities)
Both sub-scenarios take into account the introduction of the new desalination plants
after 2012 and a smooth price transition from 2010 to 2015 is aimed.
The implementation of different pricing up to the end user according to cost
variations with a common pricing calculation methodology is recommended
(Sub-scenario B).
COST ASSESSMENT AND PRICING OF WATER SERVICES REPORT
-8-
Β. PRICING OUTSIDE GOVERNMENTAL WATER PROJECTS
(DRINKING WATER)
The following recommendations are made for areas outside GWPs for their drinking
water supply:
Municipalities and Communities must fully recover financial cost for the supply of
water to the end user.
An additional to the financial cost charge will be levied for the corresponding
environmental and resource costs, based on the consumption of each end user
(0,13 €/m3).
The
environmental
and
resource
costs
will
be
collected
by
Municipalities/Communities and then inputted to the Special Water Fund.
In several cases Municipalities and Communities have covered part of the financial
capital cost with grants from the WDD. In these cases, an additional to the above
charge is recommended to be levied, which will cover this capital cost and will be in
the range of 0,10 €/ m3.
IRRIGATION WATER SUPPLY SERVICE
The examination of pricing policies for irrigation water supply, took into account the
social importance of the primary sector and, especially, the financial viability of the
agricultural sector in order to specify a valid and applicable proportion of cost
recovery.
Α. PRICING THROUGH
(IRRIGATION WATER)
GOVERNMENTAL
WATER
PROJECTS
The recommended pricing method is Æ Mixed charging system which consists of:
A fixed charge with the form of an annual base charge
A variable charge based on consumption (volumetric charging)
The following table shows the proposed prices for irrigation water supply through
Governmental Water Projects:
Current prices
New prices
Annual base charge per
dectare €/dectare
1.71
6.61
Volumetric charge €/ m3
0.17
0.24
Irrigation water supply
cost was estimated at
0.45 €/ m3 (2005-2007)
by the study
Cost recovery, based on the prices above, will increase from 41% to 54% (2010)
and 72% (2015), after the additional water input from the new desalination plants.
COST ASSESSMENT AND PRICING OF WATER SERVICES REPORT
-9-
The following suggestions are applicable to other uses of irrigation water…
New prices, in accordance with the effort to recover full cost after an ability to pay
analysis.
For uses associated with turf irrigation of soccer fields, golf courses, sports
activities, for hotel and home garden irrigation and for industrial use Æ the
goal is to fully recover cost (therefore 0,45 €/ m3).
For uses concerning livestock and farming of ornamental fishstock, they are
considered as agricultural activities and charging is the same with agricultural
production charges (therefore 0,24 €/ m3).
Β. PRICING OUTSIDE GOVERNMENTAL WATER PROJECTS
(IRRIGATION WATER)
For irrigation water supply outside Governmental Water Projects, be it on a private
individual level or on a local Irrigational Divisions and Irrigational Associations level, the
following apply:
The financial cost of water supply (construction, operation-maintenance and
auxiliary infrastructure) is completely covered by the private individual.
For areas outside GWP, the resource and environmental cost charged will be
equal to 0.11 €/ m3.
SEWAGE
WASTEWATER
SECONDARY TREATMENT)
AND
TREATMENT
SERVICE
(UP
TO
The implementation of current planning and, especially, the adoption of the current
studied program – in the context of the Directive 91/271/ΕEEC on urban
waste water- are recommended.
Prior to the next management cycle of the WFD (2015 – 2021), this issue will be reexamined, based on a more complete picture of the implementation of both Directives.
RECYCLED WATER SUPPLY SERVICE
The use of recycled water entails significant benefits for the environment (further
treatment of waste water, reduction in of groundwater aquifers overuse).
The recommended prices for recycled water are formed as 75% of the price of
fresh undistilled irrigation water, in order to constantly provide a strong motive for
its use and to achieve freshwater resources conservation.
COST ASSESSMENT AND PRICING OF WATER SERVICES REPORT
- 10 -
The table below shows current and new recycled water pricing:
Annual base charge per
dectare €/dect
Volumetric charge €/ m3
Current
prices
New prices
-
4.96
0.07
0.18
Cost recovery based on prices above equals:
88%
NEXT STEPS
The recommendations on water services pricing policy –as outlined in previous chapters
of this report- constitute one of the Water Management Plan Measures aiming to
achieve the environmental goals of the Directive. The implementation of pricing policies
can only be achieved through parallel formulation of a set of appropriate
management measures, which will include and support the implementation of
pricing policy at every level.
These measures are already in the process of investigation and formulation, and will be
subject to further consultation within the following months.
COST ASSESSMENT AND PRICING OF WATER SERVICES REPORT
- 11 -