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Fixing Pakistan's water woes beyond regulating the price of bottled water

Fixing Pakistan's water woes beyond regulating the price of bottled water

The Supreme Court has taken up the issue of bottled water.

This presents an excellent opportunity: water experts have for decades decried the irrational prices attached to water, and regularly blame low prices for a major chunk of the country’s inefficient water use.

If the court expands the scope of its inquiry to the pricing of surface water (i.e. water from rivers and canals), and the cost of groundwater (i.e. water pumped from the ground) for all users, it can tackle head on a water scarcity issue that may outweigh the construction of large dams in its import to securing our water future.

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The court summoned yesterday the CEOs of all bottled water companies to present data on the price of extracted water and the revenue they have made selling it.

There will be a large wedge between these two numbers, which can be explained in part by the costs of bottling, transport and retail.

Another part of the wedge will be profit, and it is important to understand whether this profit is the normal sort of profit that encourages businesses to exist, or abnormally high profit emanating from a market dysfunction.

We can question whether major bottlers are cartelised, and whether quality audits are functioning well, but let’s think here instead about what the price of water should be.

First, consider groundwater. As Barrister Aitzaz Ahsan reminded the court on Saturday, an earlier SC judgement declares groundwater to be the property of the land owner.

And as the chief justice observed, it may be time to revisit the issue.

The problem is that groundwater extracted by different users comes from a common underground aquifer.

So think of it this way: the current law is akin to a law that allows anyone with a straw to drink from a common container.

This is the law of first possession: he who extracts, keeps; first come, first served.

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This rule works great when the resource under consideration isn’t particularly scarce: if there are a handful of people drinking from a tub, letting people drink their fill works pretty well.

But what if the tub starts drying up, and one person starts using a straw the size of a hose?

As the underlying resource becomes scarcer, one person’s use starts hindering another person’s use in a meaningful way, and it may be time to consider other rules of water ownership.

As the water table drops across large parts of Pakistan, it may be time to turn to some such rules.

One alternative is the rule of tied ownership. This links our rights over groundwater to, typically, the extent of land we own: the more the land owned, the greater the allowance to pump water.

For agricultural land, this makes some sense. But for consumption, it is more egalitarian to give every resident an equal right to water.

Then, anyone wanting to enter into the bottled water business will need to purchase water pumping rights from citizens whose water allowance exceeds their needs.

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This requires the setting up of a permit-trade system, which is fantastic in theory and in some developed countries, but fantastical in our context.

The problem is that it is hard to monitor individual water use, so there would be nothing stopping an individual from selling their permit to a bottler and then still using as much water as they please.

Of course, this brings us back to a situation of over-extraction of water.

So water is becoming too scarce for the first possession rule, and tied ownership might be unrealistic in our country. What can be done?

The most realistic answer may be to allow bottling and other commercial pumping of groundwater, but to also regulate it.

Of course, a water regulatory body already exists, and was present in court on Saturday: the Water and Sanitation Agency (Wasa) informed the court that the current tariff from groundwater allows the bottlers to pay one rupee for 500 litres of water pumped, and that a proposed tariff hike will bring this to one rupee per 133 litres.

This is, prima facie, farcical. The purpose of a tariff on a scarce resource that people can use freely is to discourage overexploitation, not to be a rounding error on a firm’s balance sheet.

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The chief justice may wish to direct his ire first at the regulator, and only at those private firms that are found — with irrefutable proof — to have influenced the tariff-setting illegally.

It is a principle of good economic policy that differences in prices reflect differences in costs, and not differences in who the consumer is.

It would be logical then for the chief justice to turn his sights next on to water prices across the economy.

One of our most wasteful sectors when it comes to water use is agriculture, and this is because farmers face nominal tariffs for their use of surface water.

In fact, the charged water prices are so highly subsidised that the revenue thus generated isn’t even enough to pay for the maintenance of our canals.

It takes a gravely afflicted polity to subsidise the use of a resource that it is experiencing a shortage in.

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And finally, while his gaze rests on water in the agricultural sector, the chief justice may consider the plight of lower riparians, whose water is often stolen by upper riparians or lost because flow is constricted by poorly maintained canal systems.

Research published last year demonstrates the last drop consumed by an upper riparian in the Indus Basin would be far more efficiently used by lower riparians who are denied their allocated water.

Fixing this would improve welfare by 13 per cent.

Many lower riparians victim to this injustice will have filed cases in lower courts, and their prompt resolution could substantially improve the country’s water resource allocations.

Looking at case backlogs may well be the best use of the chief justice’s remaining time in office.

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