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Water Pricing Regulations in the Context of Concessions

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Regulating Municipal Water Supply Concessions

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Abstract

As discussed in Chap. 1, investments are usually in water infrastructures and maintenance. Long-term investments require commitment of long-term return. Past practices in China indicate that a short-term investment return is guaranteed by way of a fixed rate of return, and a rapid increase in water tariffs. Some concession projects have failed, like the Shenyang case, while some are controversial, such as the Lanzhou case.

The main argument of this chapter has been published in Australian Journal of Asian Law, Vol. 14, No. 1, 2013

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Notes

  1. 1.

    Z. W. Xu, note 16 of Chap. 1, p. 245.

  2. 2.

    M. J. Rouse, Institutional Governance and Regulation of Water Services: the Essential Elements, (London, U.K.: 2007), p. 164.

  3. 3.

    Introduction of Lanzhou Water Group, http://www.sxgov.cn/bwzt%5Clshx%5Cxgzl/464629.shtml

  4. 4.

    P. Li, Ultra-premium Dispute of Lanzhou Water Group Stock Transfer, Economic Observer Website, (April 23, 2007), at http://news.h2o-china.com/finance/information/571411177318320_1.shtml

  5. 5.

    W. Y. Zhi, Behind Ultra-premium of Lanzhou Water, 21st Century Business Herald, (August 6, 2007), at http://news.h2o-china.com/finance/information/607541186409340_1.shtml

  6. 6.

    Ibid.

  7. 7.

    Ibid.

  8. 8.

    Ibid.

  9. 9.

    P. Li, note 4.

  10. 10.

    W. Y. Zhi, note 5.

  11. 11.

    Ibid.

  12. 12.

    Ibid.

  13. 13.

    Ibid.

  14. 14.

    T. Fu, Behind Over-priced Water Asset, (March 4, 2008), at http://blog.h2o-china.com/html/62/251662-1901.html

  15. 15.

    Ibid.

  16. 16.

    P. Li, note 4.

  17. 17.

    Ibid.

  18. 18.

    P. Li, note 4.

  19. 19.

    Ibid.

  20. 20.

    Ibid.

  21. 21.

    Ibid.

  22. 22.

    C. Y. Sun, Lanzhou Water Rises 5 Times in 9 Consecutive Years-dual contradictory roles of the government, China News Magazine, (February 24, 2010), at http://news.sina.com.cn/c/sd/2010-02-24/161719731303.shtml

  23. 23.

    T. Fu, note 14.

  24. 24.

    M. He, Foreign Giants are Accused of Pushing up Water Prices, Reasons behind High-priced Acquisition, First Financial Daily (July 29, 2009), at http://finance.ifeng.com/news/industry/hy/20090729/1007608.shtml

  25. 25.

    Ibid.

  26. 26.

    Ibid.

  27. 27.

    C. Y. Sun, note 22.

  28. 28.

    M. He, note 24.

  29. 29.

    Research Team of Price Theory Institute of Jiangxi Province, “Solutions to Water Price Reform” (2009) 390 Prices Monthly 3–11.

  30. 30.

    G. L. Zhu and W. X. Huang, Questioning Lanzhou Water Price Increase: A Mystery of Water Cost, Cross Talk, (September 9, 2009), at http://www.chinanews.com.cn/gn/news/2009/09-09/1857742.shtml

  31. 31.

    S. Dai, Many Cities Increase Water Tariffs, Beijing and Chongqing Lead the Markup, (December 3, 2009) at http://gb.cri.cn/27824/2009/12/03/3365s2693867.htm

  32. 32.

    S. H. Shi, Some Reflections on Utilities Privatization Reform, China Economic Publishing House, pp. 131–132.

  33. 33.

    Administrative Measures of Urban Water Supply Tariff, Article 7.

  34. 34.

    Y. Guo, “Analysis on China’s Water Supply Industry Status Quo, Trends, and Capital Operation” (2005) 19 Journal of Wuhan Economic Administration Cadre’s College 31–34.

  35. 35.

    Z. S. Huang, “Increase Capital Return, Expand Financing Channels of Water Utility” (2006) 19 China Finance, 20–21.

  36. 36.

    D. Hall and E. Lobina, From a Private Past to a Public Future?-the Problems of Water in England and Wales, (November 2007) at www.psiru.org, p. 10.

  37. 37.

    Department for Environment Food and Rural Affairs, (February 2008), Future Water: the Government’s Water Strategy for England.

  38. 38.

    D. Hall and E. Lobina, note 33.

  39. 39.

    E. Chong, F. Huet, S. Saussier and F. Steiner, note 99 of Chap. 3.

  40. 40.

    M. H. I. Dore, J. Kushner and K. Zumer, “Privatization of Water in the UK and France—What Can We Learn?” (2004) 12 Utilities Policy 41–50.

  41. 41.

    Ibid.

  42. 42.

    S. Garcia and A. Reynaud, note 5 of Chap. 3.

  43. 43.

    Research Team of Price Theory Institute of Jiangxi Province, note 29.

  44. 44.

    S. Lu, Endless Water Tariff Increases under Lanzhou Model, Beijing Youth Daily, (September 3, 2009) at http://finance.ifeng.com/opinion/special/sjsz/cjpl/20090903/1185496.shtml

  45. 45.

    S. C. Wang, Water Tariff Increases Needs Cost Clarification, (July 27, 2009), at http://www.zj.chinanews.com/detail/1156224.shtml

  46. 46.

    China News Website, Experts State that Losses in Water Companies are Attributed to the High Payment to the Employees, (August 11, 2009), at http://acftu.people.com.cn/GB/67561/9830101.html

  47. 47.

    L. Li, The Truth of Water Costs: Source Water Price and Operating Expenses Push up the Water Tariff, Southern Weekend, (July 30, 2009) at http://news.h2o-china.com/market/waterprice/820811248923207_1.shtml

  48. 48.

    Research group of “Financial Policy, and Fiscal and Taxation System Reform” in Central Party School, How to Solve Financial Constraints at the Counties and Villages, China Economic Times, (September 30, 2003).

  49. 49.

    People website, Jin Renqing said the Central Government was Considering Local Government Bond Issuance, (September 13, 2006), at http://finance.people.com.cn/BIG5/4809733.html

  50. 50.

    Government Working Paper (full text), at http://www.xinhuanet.com/2009lh/gzbg/20090305/

  51. 51.

    Constructing an Independent Price Monitoring System, Southern Metropolis Daily, (August 24, 2009) at http://nf.nfdaily.cn/nanfangdaily/spqy/200908240010.asp

  52. 52.

    I. Alexander and T. Irwin, Price caps, Rate-of-return Regulation, the Cost of Capital, (September 1996), The World bank Group, Note no. 87.

  53. 53.

    M. A. Jamison, “Rate of Return: Regulation” (July 2007) 3 Encyclopedia of Energy Engineering and Technology 1252–1257 (Print Version).

  54. 54.

    Ibid.

  55. 55.

    O. E. Williamson, The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting, (New York: 1985), p. 347. In addition to the rate of return regulation, the statement also brings the concept of regulatory contract. See detailed discussion in next chapter.

  56. 56.

    I. Alexander and T. Irwin, note 52.

  57. 57.

    J. J. Laffont and J. Tirole, A Theory of Incentives in Procurement and Regulation, (Cambridge, Mass. 1993), p. 17.

  58. 58.

    S. C. Littlechild, Economic Regulation of Privatised Water Authorities: a Report Submitted to the Department of the Environment (London 1986), pp. 26–27.

  59. 59.

    M. E. Beesley and S. C. Littlechild, “The Regulation of Privatized Monopolies in the United Kingdom” (Autumn 1989) 20 Rand Journal of Economics 454–472.

  60. 60.

    J. Vickers and G. K. Yarrow, Privatization : an Economic Analysis, (Cambridge, Mass. 1988), p. 87.

  61. 61.

    Ibid., pp. 410–411.

  62. 62.

    I. Alexander and T. Irwin, note 52.

  63. 63.

    Ibid.

  64. 64.

    D. Parker and C. Kirkpatrick, Privatisation and Regulation in Developing Countries In C. Robinson (ed.), Regulating Utilities and Promoting Competition: Lessons for the Future, (Cheltenham, UK 2006), p. 201.

  65. 65.

    I. Alexander and T. Irwin, note 52.

  66. 66.

    N. Spulber and A. Sabba, Economics of Water Resources: from Regulation to Privatization, (Boston 1998), p. 295.

  67. 67.

    R. A. Morin and L. T. Hillman, Regulatory Finance: Utilities’ Cost of Capital (Arlington, Va. 1994), preface, p. xv.

  68. 68.

    I. Alexander and T. Irwin, note 52.

  69. 69.

    R. A. Morin and L. T. Hillman, note 67.

  70. 70.

    S. C. Littlechild, note 58, p. 30.

  71. 71.

    K. Bakker, “Neoliberalizing Nature? Market Environmentalism in Water Supply in England and Wales” (2005) 95 Annuals of the Association of American Geographers 542–565.

  72. 72.

    C. Kirkpatrick, D. Parker and Y. F. Zhang, “Price and Profit Regulation in Developing and Transition Economies: A Survey of the Regulators” (2005) 25 Public Money & Management 99–105.

  73. 73.

    H. Demsetz, note 20 of Chap. 2.

  74. 74.

    G. J. Stigler, “Free Riders and Collective Action: An Appendix to Theories of Economic Regulation” (Autumn, 1974) 5 The Bell Journal of Economics and Management Science 359–365.

  75. 75.

    E. Chong, F. Huet, S. Saussier and F. Steiner, note 99 of Chap. 3.

  76. 76.

    Ibid.

  77. 77.

    C. T. Shugart, note 76 of Chap. 3, pp. 143–144.

  78. 78.

    For a general discussion on principal-agent relationships in the context of regulation, see Laffont and Tirole, note 57.

  79. 79.

    A. Dinar, Political Economy of Water Pricing Reforms, in A. Dinar (ed.) The Political Economy of Water Pricing Reforms. (New York: 2000), pp. 5–6.

  80. 80.

    T. Fu, “Urban Water Tariff is the Most Complex Public Services Price” (2010) 1 Urban and Rural Development 69–70.

  81. 81.

    For instance, article 2 of Administrative Measures for Concession of Public Utilities states that the municipal utilities concession is a system by which the government selects investors or operators through a market competition mechanism. Article 2 of Shenzhen Public Utility Concession Ordinance specifies that an operator must be competitively selected under the concession system, and the same provision is also found in article 11 of Beijing Municipal Infrastructure Concession Ordinance.

  82. 82.

    See the detailed discussion at previous Chap. 3, Sect. 3.2.2.1 and 3.2.2.2.

  83. 83.

    Field interviews.

  84. 84.

    See the detailed introduction at Sect. 4.1.2.

  85. 85.

    Price Law, Articles 18 and 19.

  86. 86.

    Annex 4 of the Protocol on the Accession of the People’s Republic of China to the WTO Agreement.

  87. 87.

    Y. Guo, note 34.

  88. 88.

    C. Y. Sun, note 22.

  89. 89.

    T. Fu, L. X. Quan, and X. J. Fan, “Incremental Cost Control Method for Urban Water Supply Tariff” (April 23, 2010) at http://www.wh-swjt.cn/shownewsinfo.asp?NewsId=25928T

  90. 90.

    Ibid.

  91. 91.

    Ibid.

  92. 92.

    L. W. Jiang and Q. Tang, “Beijing Municipal Water Price Reform and Policy Research”, (2009) 27 Journal of Economics of Water Resources 30–33.

  93. 93.

    T. Fu, L. X. Quan, and X. J. Fan, note 89.

  94. 94.

    S. C. Wang, Reasons behind Water Costs Dare not Open, Xinhua Daily Telegraph, (June 3, 2010) at http://news.xinhuanet.com/mrdx/2010-06/03/content_13611193.htm

  95. 95.

    The SM Group International Inc “Water Tariff Study II People’s Republic of China”, TA No 3250-PRC, submitted to Asian Development Bank, Final Report, (November 2001), available at www2.adb.org, p. 58.

  96. 96.

    Ofwat, “The 2001 Review of the Regulatory Accounting Guidelines—Initial Consultation Paper”, (2001), at www.ofwat.gov.uk

  97. 97.

    See Regulatory Accounting Guidelines, at http://www.ofwat.gov.uk

  98. 98.

    See Appointment Licences in Water, at http://www.ofwat.gov.uk

  99. 99.

    Ministry of Ecology, Energy, Sustainable Development and the Sea, in Charge of Green Technologies and Climate Change Negotiations, “Public Water Supply and Sanitation Utilities in France” (2009), www.developpement-durable.gouv.fr. p. 10.

  100. 100.

    Ibid., p. 11.

  101. 101.

    Ibid.

  102. 102.

    Ibid.

  103. 103.

    Measures on Municipal Water Supply Pricing Cost Review (for Trial Implementation), Article 6.

  104. 104.

    Ibid. Article 14.

  105. 105.

    Ibid. Article 18.

  106. 106.

    Ibid. Article 22.

  107. 107.

    For detailed discussion about regulator and regulatory framework, please refer to Chap. 6.

  108. 108.

    OECD, Citizens as Partners: Information, Consultation and Public Participation in Policy-making. Paris: 2001.

  109. 109.

    G. K. Hadfield, R. Howse and M. J. Trebilcock, “Information-based Principles for Rethinking Consumer Protection Policy” (June 1998) 21 Journal of Consumer Policy 131–169.

  110. 110.

    Ibid.

  111. 111.

    Australian Government National Water Commission, Approaches to urban water pricing, Waterlines Occasional Paper No 7, July 2008, available at http://archive.nwc.gov.au

  112. 112.

    Committee on Privatization of Water Services in the United States, Water Science and Technology Board, Division on Life and Earth Studies, Natural Research Council, Privatization of Water Services in the United States: an Assessment of Issues and Experience, (Washington, DC 2002), p. 87.

  113. 113.

    M. J. Rouse, note 2, pp. 82–83.

  114. 114.

    Price Law, Article 23.

  115. 115.

    “It was indicated that water tariff hearings had been held perfunctorily and the representatives had been manipulated. The representatives had been represented and all reached a consensus over water tariff increases. How? Some municipalities fabricated the identities of representatives, and manipulated the hearing outcome. For instance, in terms of public hearings in Harbin, 4 out of the 13 representatives were regarded with suspicion. Other municipalities manipulated the public opinions by controlling the agenda for the hearing. The Beijing hearing is an example. Some places may even directly substitute public opinion. Disagreement over water tariff increases may lead to the water supply suspension. Before the Lanzhou domestic water tariff hearing, there was a preliminary survey in the communities. The results showed that most residents were opposed to increasing the tariff. Dramatically, at the hearing, only 2 out of 13 representatives were against the increase in tariff.” L. Cao, The Public is Definitely Represented, but “How”?, Procuratorial Daily, (December 18, 2009).

  116. 116.

    Water Act 2003, Section 35.

  117. 117.

    Ministry of Ecology, Energy, Sustainable Development and the Sea, note 99, p. 11.

  118. 118.

    Law on the Protection of Consumer Rights and Interests, Article 32.

  119. 119.

    M. M. Al’Afghani, “The Transparency Agenda in Water Utilities Regulation and the Role of Freedom of Information: England and Jakarta Case Studies” (June 2010) 20 Water Law 129–143.

  120. 120.

    T. Fu et al., Twelve Problems in Urban Water Industry Reform, 1st ed., (Beijing 2006), p. 28.

  121. 121.

    M. H. I. Dore, J. Kushner and K. Zumer, note 40.

  122. 122.

    Finet website, China Water Industry Group Limited Announced the Cooperation with Huayu Fund, (November 10, 2010), at http://www.finet.hk/mainsite/newscenter/PRNHK/0/15363.html

  123. 123.

    China Energy Conservation and Environmental Protection Group official website, at http://www.cecic.com.cn/p226.aspx

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    Yan Wei

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Wei, Y. (2014). Water Pricing Regulations in the Context of Concessions. In: Regulating Municipal Water Supply Concessions. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-43683-7_4

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