Water Valuation in Jordan

The Hashemite Kingdom of Jordan Ministry of Water and Irrigation

Water Valuation in Jordan Country paper Presented to the

IDRC Water Valuation Forum Lebanon, June 2002

Prepared by:

Eng. Suzan Taha Water Master Planning Director E-Mail: [email protected]

Eng. Fayez Bataineh Assistant Secretary General

E-Mail: [email protected]

Water Valuation in Jordan

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A - DEFINITION OF WATER VALUATION B - CURRENT STATUS AND BACKGROUND

C - TECHNICAL ISSUES D - INSTITUTIONS IN THE WATER SECTOR E - ECONOMIC AND FINANCIAL ISSUES F - LEGAL ISSUES G - ENVIRONMENT AND HEALTH ISSUES H - SOCIAL AND POLITICAL ISSUES I - OTHER ISSUES J - FUTURE CONSIDERATIONS


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A - DEFINITION OF WATER VALUATION In the context of this paper, water valuation is understood as an economic approach of estimating the financial value of water considering competitive markets to secure efficient and desirable water allocations to the different sectors of the national economy. Therefore: - water valuation is a tool that allows the allocation of water into more water

effective activities (allocative efficiency) leading to higher added value. In case of effective water valuation, water becomes a commodity rather than a freely available resource, and the water prices reflect the real value of water in the economy. In case of subsidizing water in the belief that, because it is an ‘essential’ good it should be as close to being free of charge, water is not sold at its value and the prices paid for water are less than its supply costs. Such subsidies have deleterious economic, social, and environmental effects.

- Water valuation is an important tool for water demand management and is to be reflected in water prices that can lead to an optimal allocation of water.

- The value of water can either be calculated, such as the value added that is generated through the use of water, or estimated, such as assessing the willingness of consumers to pay for water.

- The Jordan`s Water Utility Policy (MWI, 1997) demands to move towards full cost recovery and to use water tariffs mechanism to promote cost recovery considering water quality, end users as well as economic impacts on the various economic sectors.

B - CURRENT STATUS AND BACKGROUND

What is the background to and national reasons for the interest in applying water valuation strategies? The national reasons for the interest in applying water valuation in Jordan are:

1- Scarcity of water resources & growing threats of Pollution: . Jordan is below the water poverty line. It is among the poorest seven countries in

the world in terms of water resources. More than 90% of its total area receives less than 200 millimeters and more than half of the country less than 100 millimeters of precipitation a year.

. About 92% of all precipitation evaporates. The small remaining fraction constitutes the total flood flows and aquifer recharges including base flows.

. Jordan’s water resources are, on per capita basis, among the lowest in the world. They amounted to 249 m3/cap/year in 1993 decreased to 163 m3/cap/year in 1999 and are expected to decline to only 109 m3/cap/year by 2020, as result of the expected population growth from 4 million to 9.3 million respectively.

. The present use of water exceeds already the renewable freshwater resources considerably. Groundwater resources are overexploited.


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. The costs of water for some of the new projects now being developed in Jordan are expected to exceed $ 1.0 per m3 without the costs of wastewater treatment1estimated at $ 0.5/m3. At 150-l/c/d, the total costs of water supply and wastewater will hence exceed $ 82 / person / year that equals 4.8% of average per capita disposable income 1993-1999. This will pose extreme challenge to Jordan and reduce even further water’s affordability to the poor (unless cross- subsidy is applied.).

. Water resources consist of surface and ground water resources, with treated wastewater being used on an increasing scale for irrigation, mostly in the Jordan Valley. Renewable water resources are estimated at about 780 million cubic meters (MCM) per year, including 275 MCM / year of groundwater and 505 MCM / year of surface water. An additional 140 MCM / year is estimated to be available from fossil aquifers. Brackish aquifers are not yet fully explored but at least 50 MCM / year is expected to be accessible for municipal uses after desalination2.

. Another water resource is the treated wastewater. Jordan is promoting the reuse of treated wastewater in unrestricted agriculture and other non-domestic purposes, including groundwater recharge. Wastewater is treated at nineteen existing wastewater treatment plants using appropriate wastewater treatment technologies.

In 2001, about 61 MCM was indirectly reused for irrigation in the Jordan Valley. It is expected that the volume of treated wastewater for reuse in irrigation only will amount by the year 2020 to 220 MCM / year and will constitute a significant portion of the total irrigation water and hence supplement the demand for renewable groundwater resources.

Wastewater treatment plants in 2001 (MCM)

No. WWTP Operation Governorate Influent Effluent

1 As Samra 1985 Zarqa 62.3 54.64

2 Abu Nusir 1988 Amman 0.59 0.58

3 Wadi Essir 1996 Amman 0.41 0.26

4 Wadi Arab 1999 Irbid 2.19 2.05

5 Irbid 1987 Irbid 1.68 1.65

6 Ramtha 1988 Irbid 0.85 0.68

7 Salt 1981 Balqa 1.24 1.20

8 Baqa’ 1988 Balqa 4.09 3.88

9 Fuhais 1996 Balqa 0.44 0.38

10 Ma’an 1989 Ma’an 0.69 0.62

11 Wadi Mousa 2001 Ma’an *** ***

12 Mafraq 1988 Mafraq 0.67 0.54

13 Jarash 1983 Jarash 0.76 0.72

14 Kufranja 1989 Ajloun 0.69 0.59

15 Madaba 1989 Madaba 1.56 1.20

16 Karak 1988 Karak 0.45 0.44

17 Tafila 1988 Tafila 0.26 0.25

18 Aqaba 1987 Aqaba 3.21 2.44

19 Wadi hassan 2000 Irbid

Total 82.15 72.12 Source: Ministry of Water & Irrigation, Water Evaluation, April 2002

1 Estimated from MWI Investment Program 2002-2011 2 MWI Investment programm 2002-2011


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- As the volume of water used by Jordan’s municipal and industrial sector increases, wastewater volumes will increase. Therefore, Jordan’s Wastewater Management Policy (MWI, 1997) demands that the treatment of wastewater shall be targeted towards producing effluent suitable to be reused in irrigation in accordance to WHO and FAO guidelines, as a minimum.

- The sale price of treated wastewater, only for irrigation, is 10 fils / m3 and is to cover at least the operation and maintenance costs of the treated wastewater.

2- Increasing demand for municipal water: . Municipal water in Jordan is used by the domestic and commercial sectors, public

institutions, as well as by small industries that are connected to the public water system and receive needed water from municipalities. The municipal water requirements are determined by population growth, industrial development, urban concentration and income increase.

. Despite the increase of the municipal water supply in the period 1993-1999 by 8.6%, the per capita consumption of municipal water declined by 11.3% from 150 litre/day in 1993 to 133 litre/day in 1999. The reason for this decline is the increase of the population in Jordan in the same period from 3.99 million to 4.9 million.

Water Supply in Jordan 1993-1999

Year Population (1000)

Total Municipal*

[MCM] m3/c/y [MCM] % of total L/ c / d

1993 3,993 992.5 249 218.5 22.02 150

1994 4,139 914.9 221 219.9 24.04 146

1995 4,291 889.1 207 246.1 27.68 157

1996 4,441 891.3 201 242.3 27.19 149

1997 4,600 877.9 191 239.9 27.33 143

1998 4,756 837.6 176 241.6 28.84 139

1999 4,900 800.3 163 237.3 29.65 133 Source: Department of Statistic, JICA

* These figures include the unaccounted for water.

3- Maximizing efficiency of water Supply. Unaccounted For Water (UFW)still exceeds 50 % of the overall municipal supply. In case water prices would reflect the real water value, the Water Authority of Jordan (WAJ) will generate sufficient revenues, be able to rehabilitate the piped network as needed, and minimize the UFW.

4- Achieving cost recovery in the water sector. Cost recovery is a matter of pricing. The price of water does not cover the costs of water in Jordan. In case water prices would be raised to reflect the value of water, these prices will at least cover the costs.

What is the level or degree to which water valuation is adopted in the country and how widespread is it;

- Indirect water valuation has been applied for irrigation water through restriction of water use in crops of low value that consume high quantities of water. In the municipal water sector, tariffs have been developed and executed to cover its


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operation and maintenance costs as well as to reduce water consumption and wastage. However, these tariffs are not based on a valuation of municipal water through assessing the willingness of the consumers to pay for water.

- Comprehensive water valuation, as demanded by economists, has not yet been implemented in Jordan,

- WAJ has conducted few studies that represent the beginning of water valuation such as the study on “Analysis of Future Cost Recovery for the Water Authority of Jordan”. The goal of this study was to develop a “what-if” cost recovery model for use as a financial planning tool. It is useful for budget planning, capital planning, O & M costing and pricing information which are conceptualized on an annual basis. It gives WAJ the ability to test a variety of “what-if” future scenarios and view the financial outcome of potential utility reform, efficiency, and tariff programs over a 10-year period and then ascertain the extent of debt that could be afforded in meeting targeted financial goals of the government. The primary goal of the model is to identify a future average price of water and wastewater services (JD/m3) that will attain desired cost recovery goals.

- Although water tariffs in the various sectors in Jordan do not necessarily reflect the value of water in the concerned sector, they have achieved some financial objectives of WAJ and reduced the demand for municipal water. Therefore, tariffs of municipal water are an important tool of demand management:

. Between October 01, 1997 and October 01, 1998 (before and after introducing the tariffs for municipal water in October 1997),

.. WAJ’s water revenue increased by 30%,

.. the wastewater fees and drainage revenue by 61% while

.. The consumption of municipal water decreased by 3%.

.. However, the receivables (these are the accounts that became due at a prior fixed date but not paid yet) increased by 15%.The financial department in WAJ interprets this as a decrease of the ability of the customers to pay.

What is the rate of water valuation advances in your country compared with other countries in the Middle East and North Africa;

- Not known.

What are the differences between urban and rural policies; how does this have an impact on management and reuse.

At present, there are no more differences between urban and rural policies regarding the municipal water. However, before 1997, there were special municipal water tariffs for Amman (=urban), other governorates except the Jordan Valley (=urban and rural), and special rates for the Jordan Valley (rural):

Quarterly Rates of June 01, 1979 (JD)

Amman Rates Others’ Rates (except JV) Jordan Valley Rates

Block (m3) JD Block (m3) JD Block (m3) JD

00 – 20 0.060 00 – 15 0.080 00 – 50 0.100

21 - 40 0.120 16 – 45 0.120 51 – 100 0.100

41 -100 0.250 46 – 75 0.230 101 – 150 0.100

100 and more 0.350 76 and more 0.300 151 and more 0.100 Source: WAJ records


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and Quarterly Rates of October 01, 1996 (JD)

Amman Rates Others’ Rates (except JV) Jordan Valley Rates

Block (m3) JD Block (m3) JD Block (m3) JD

00 – 20 0.100 00 – 20 0.065 00 – 40 0.065

21 - 40 0.190 21 - 40 0.090 41 - 70 0.130

41 – 70 0.450 41 – 70 0.320 71 - 100 0.270

71 - 100 0.550 71 - 100 0.520 101 - 150 0.450

101-250 0.700 101-250 0.700 151 - 250 0.650

251 and more 0.730 251 and more 0.730 251 and more 0.730 Source: WAJ records

- Some areas in the desert, such as in Aqaba governorate, Mafraq governorate, etc, are still supplied with municipal water free of charge.

C - TECHNICAL ISSUES

How was the water valuation system devised in your country; how has this evolved;

- Jordan has progressive tariffs for municipal water as described obove. These tariffs however, are not based on water valuation, as demanded by economists (see next answers).

What is the current pricing structure for agricultural water / domestic water. Please provide a detailed description of this;

- The current pricing structure for municipal water was introduced in October 1997. Tariffs for municipal water and wastewater in Jordan

Block (m3)

Meter Charge (JD) Total bill value of water (JD)

Total bill value of wastewater (JD)

Amman Water & Wastewater Tariff Residential (Bill Calculation)

0 - 20 0.300 2.000 0.600

21 - 40 0.300 0.14(q)-0.8 0.04 (q ) - 0.2

41 - 130 0.300 0.006556(q2)- 0.12224(q) 0.002889(q2)-0.07556(q)

131 - more 0.300 0.85(q) 0.35(q)

Other Governorates & Jordan Valley Tariff Residential (Bill Calculation)

0 - 20 0.300 1.300 0.600

21 - 40 0.300 0.075(q)-0.2 0.035(q) - 0.1

41 - 185 0.300 0.004517(q2)- 0.10568(q) 0.001828(q2) - 0.038103(q)

> 185 0.300 0.85(q) 0.35(q)

Commercial Rates

6 – more 0.300 1 (q) 0.5(q)

Water for Agricultural Use

Treated Wastewater 10 fils / m3

Freshwater:

0000-2500 08 fils / m3

2500-3500 15 fils / m3

3500-4500 20 fils / m3

> 4500 35 fils / m3

Source: Water Authority of Jordan, 2002. q = Quantity, 1 JD = 1,000 Fils = $ 1.412


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- These tariffs show a fixed tariff for a 0-20 m3 block, with a minimum of 20 m3 and an increasing price for each additional consumed cubic meter of municipal water.

How was the current structure devised; what is it based on;

- The current pricing structure for municipal water was devised on the base of cost recovery of the maintenance and operation costs. However, the water tariffs in Jordan were structured in such a way as to guarantee the minimum needed consumption at a subsidized fixed price per m3 and to recover these subsidies from customers with higher consumption assuming the more consumptive customers to be wealthier. It is designed to possibly cover the service costs while keeping lifeline use affordable to the poor. The progressive pricing is at the same time a controlling mechanism to water wastage.

- The charges for water and wastewater are primarily based on the amount of water consumed.

- Water meters are read once each quarter of a year. The volume of water and wastewater for which the customer is invoiced is based on the total of measured consumption between two readings and estimated consumption from the last reading to the due date of the invoice.

What are the principal water delivery systems in the country; what is the extent of coverage (piped supplies, public taps, etc.);

- 95% of households In Jordan are connected to piped network delivery water system3. A project has been executed by the MWI to rehabilitate the old network and improve the efficiency of the water delivery system in the country.

- For domestic supply, Jordan depends on groundwater. The main delivery systems provide water from well fields in Azraq, Qatrana, Siwaqa Hallabat, the Mafraq governorate and Disi. Additional quantities of water are pumped from King Abdullah Canal to a treatment plant in Zai and then to Amman.

- 55% of the households are served by wastewater sewers. MWI has expanded the existing WWTPs to improve public health and protect the groundwater aquifers from pollution, as well as to benefit from the potential use of treated wastewater for irrigation.

What is the extent of metering in the country; - Metering is applied to all users of domestic, industrial and tourism supplies. They

are parts of the water connections. In cases meters are not installed yet or are out of order, estimates are applied.

- Consumption of municipal water is measured with water meters at individual properties. These water meters are the property of the Water Authority of Jordan (WAJ). At present, WAJ has about about 270,000 water connections in greater Amman area4. These figures include all customer categories, i.e. households (family houses, row houses and apartment houses), industry, services, etc.

3 WAJMWI, 2002. Connections include those to households, small industries, commerce establishments,

etc.., but not public taps. The only experience with the latter was in the early 1960's, in Tafileh

governorate, in which the taps have been exposed to severe vandalism. These are connections to

households, small industries, commerce establishments, etc. There are no public taps in Jordan. 4 Maria Iskandarani, Wie gehen Haushalte in Jordanian mit the Trinkwasserknapphet um?. Zentrum fuer Entwickluns-


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Have there been changes in patterns of water use due to metering; - Theoretically, water metering and full-cost, volume-based, user-pay systems have

to influence patterns of water use and provide a financial incentive to the households to use less water. But, in order to measure the changes in patterns of water use, the consumption of water with and without metering has to be known. However, information on the patterns of a group before having a metering system and the same group after installing the metering system could not be found.

Does metering apply to the domestic sector and the agricultural sector; - Water metering is applied for both agricultural and domestic sectors. Metering is

also applied for irrigation water in the Jordan Valley with the exception of farmers in the southern part of the Valley where private wells are the source of water. In the highlands, metering on private farms started recently, but is still not successful yet.

- Metering is applied everywhere in the municipal sector. However, the rate of unaccounted for water is still very high (more than 50% of supplied municipal water).

- Metering in the agricultural sector is not effective and in workshops that were conducted for JVA, the rate of unaccounted for water was estimated to reach 25% of pumped water due to defects of water meters. However, UFW including physical losses is debatable as concerned parties in the MWI estimate the overall efficiency of irrigation at about 66% (excluding administrative losses).

Is the tariff design simple, transparent, easy to implement;

- The tariff design is simple, transparent and easy to implement for those who implement the tariff: There are formulas to calculate the value of the bill of a consumer. The customers do not need to use the formulas. WAJ issued lists that exactly show the value of the bill for each consumed cubic meter of water, and a price table is printed on the back of each bill. The customer needs just to read his consumption from the meter for the concerned quarter of the year and read from the list (found at the back of his bill) the amount of money he has to pay without any calculations: example: the customer pays for the consumption of 81 m3 (JD 33.112 for water + JD 12.83 for wastewater services) =JD 45.947 in Amman governorate and (JD 21.076 + JD 8.905) =JD 29.981 in the other governorates.

What is the minimum amount of water assumed necessary for a household; - The minimum amount of municipal water assumed necessary for a household is

20 m3 / quarter. The applied tariffs show a fixed tariff for a 0-20 m3 block as 20 m3 of water are assumed to be the minimum water consumption of a household per quarter of a year in Jordan5.

What happens when there are no metered connections.

forschung, Bonn, May 2001. 5 WAJ, tariffs of 1997.


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- When there are no meter connections or the meters do not work, WAJ estimates the consumption according to the type of the household, size of the household, site of the property, the average consumption in the area, etc.

D - INSTITUTIONS IN THE WATER SECTOR

What are the main institutions responsible for water valuation; - The institutions directly concerned with water are the Ministry of Water and

Irrigation [MWI], established 1992, the Water Authority of Jordan [WAJ], established under the Law No. 18 of 1988, and the Jordan Valley Authority [JVA], founded 1977.

Who has the overall authority / responsibility for any revisions in pricing structure;

- The Cabinet of Ministers / Government of Jordan has the authority to revise the pricing structure for water. The MWI recommends the revisions and the Cabinet of Ministers approves, asks for changes or refuses the revisons.

Is there an independent regulatory body associated with this; - No other independent regulatory body is associated with the pricing structures or

their revisions. - However, the Government of Jordan is willing to expand the role of the private

sector through management contracts, concessions and other forms of private sector participation in municipal water utilities as well as irrigated agriculture utilities. Water tariffs were used as a tool to attract private investment in water projects. In this regard, WAJ has increased 1997 the tariffs of municipal water in order to position itself for a private water and wastewater management contract for greater Amman with Lyonnaise Des Eaux–Montgomery Watson and Arabtech Jardaneh (LEMA). It also increased the sewer tariff for Amman and Zarqa to allow for As-Samra Wastewater Treatment Plant, using BOT principle. But it is not intended to leave the pricing to the private sector. Privatization is expected to improve the management efficiency in order to reduce O&M costs.

What is the level of coordination amongst bodies responsible; - Since the three institutions are managened by one minister, assisted by a

secretary general for each of the MWI, WAJ and JVA, the level of coordication between these bodies is high.

What other government policies impact efficient valuation structures.

- Various government policies such as energy pricing, wages and salaries, etc. could have an impact on the costs of water supply, but not necessarily on water valuation. The policy that has the main impact on water valuation structure seems to be “who will be responsible for water valuation: the public or the private sector?”: while the public sector considers water a national resource that is to be valued as such, the private sector would price water according to supply of water and demand of various sectors for water.


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. However, according to the Jordanian water policies, the MWI will continue as a governmental organization to be responsible for policy formulation, decision making, national water planning, water resources monitoring and studies, as well as integrating Water Information Systems (e.g., GIS, databases and national water data bank).

. The Water Authority of Jordan (WAJ) will begin separating its bulk water supply and retail delivery functions and move these functions and services toward the private sector and commercial enterprises. WAJ will monitor retail supply contracts and become more involved in the operational monitoring of several management contracts with private sector utilities and providers.

E - ECONOMIC AND FINANCIAL ISSUES

What has been the level of investment in developing water valuation strategies; - MWI invests in studies to develop water strategies and policies and to identify

actions that suit most the Jordanian needs in this sector. Beside the study on “Analysis of future Cost Recovery for the Water Authority of Jordan” that has been conducted to develop a “what-if” cost recovery model for use as a financial planning tool for municipal water, an “Analysis and Review of the Prospects of Implementing a Differential Irrigation Water Pricing /Tariff System in the Jordan Rift Valley” has been conducted to:

. Investigate the factors, at the policy and technical level, that should be considered for a differential water pricing/tariff system that is sensitive to water quality variations in the JRV;

. Identify the data bases required to design an irrigation water tariff that is sensitive to water quality variations;

. Identify additional monitoring programs in the JRV that are essential to implementing such a tariff (time series water quality monitoring, soil salinization and build-up of trace elements, plant toxicity, etc.);and

. Define the required institutional tools to carry out such a tariff program. - The study concluded also that monitoring programs for the natural factors in the

Jordan Valley area should be initiated and implemented. The ability and willingness of farmers to pay for irrigation water has to be studied in detail taking the socio-economic aspects of farmers in due consideration. Comprehensive studies on willingness to pay for municipal water have not been conducted yet. To study the willingness to pay was a side aspect within a socio-economic interview survey conducted recently (JICA, 2002).

Are there cost sharing strategies; - While the Government of Jordan provides the funds for the initial infrastructure

development, the MWI is committed to set municipal water and wastewater tariffs at a level that recovers the costs of operation and maintenance. The cost recovery does not include the capital costs in the water sector.

- However, the customers of municipal water participate in financing these investments through following the subscription, applications and installation fees, the sewage tax, and the meter fee:


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. Subscriptions, applications and installation fees: In order to be connected to the municipal piped network, the customer pays 10 JD's as application fees in the form or revenue stamps, 20 JD's for subscription, and some 68 JD's for installation (Cost Sharing). The applicant has also to submit guarantees which varies according to the size of the household as follows: JD15 for a built area of less than 200 m2, JD 25 for a built area of 200-300 m2 and JD 35 for a built area of 300-400 m2. The subscriptions, applications and installation fees are shown in the issued financial statement of WAJ as an aggregated figure and amounted to an average of JD 4.45 million or 8.58% of WAJ’s total revenue in the period 1993-2000. Subscription, installation and application revenues fees can be paid in instalments according to the capability of the customers.

. Sewage tax is calculated as 3% of the rent paid for the property (in case the property is rented) or the estimated annual value of using the property (in case the owner himself is using his property). Example: the rent is JD 2000/year, the sewage tax is JD 60/per year. The Ministry of Finance collects the money for WAJ.. Meters fees, which are called also meter maintenance fees, are JD 0.3/ quarter of a year as shown in the previous "tariff for municipal water and wastewater in Jordan" table.

- This cost sharing provided WAJ with funds that amounted to an annual average of JD 10.86 million or 20.94% of the average annual revenue of WAJ in the period 1993-2000 and covered 32.72% of the annual average depreciation.

Year Cost Sharing

(mill. JD) % of WAJ’s

revenue

1993 7,926 22.76

1994 9,649 24.07

1995 9,072 22.33

1996 9,653 20.92

1997 11,150 22.59

1998 11,281 17.11

1999 11,878 18.56

2000 16,236 21.99

Average 10,856 20.94

Describe main costs: operation and maintenance, capital costs, etc.; - WAJ is autonomous with financial and administrative independence under the

umbrella of the Minister of Water and Irrigation. It operates its financial issues in accordance with the business accounting scheme.

- An independent certified public accountant issues annual financial statements and auditor’s report and submits it to the chairman and members of the board of directors of the Authority for each year ending December 31.

- These financial statements show that the main costs of the municipal water (including depreciation, interest on loans and differences in exchange rates) were as follows (Average 1993-2000 in JD 1,000):

Expenses:

Main Costs

1,000 JD %

Salaries and wages 19,116 18.32

General administration expenses 1,319 1.26


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Expenses:

Main Costs

1,000 JD %

Operating and maintenance expenses 30,429 29.16

Depreciation 34,220 32.80

Interest on loans 14,691 14.08

Differences in exchange rate 4,568 4.38

Total Expenses 104,343 100.00

Source: Calculated according to Financial Statements of WAJ 1993-2000

. The salaries, wages and general administration costs reached an average of 19.85% of the total average costs.

. The operation costs include the runing costs (electricity, diesel , chemicals, etc.) and the maintenance costs include spare parts, replacements, etc. needed for the maintenance. O & M costs do not include wages and salaries or other personnel costs. O & M costs reached an average of 29.16% of the total average costs.

. The depreciations reached 32.5% of the total costs.

. Other costs such as interests on loans and difference in exchange rate amounted to 18.46% of the total average costs.

Do tariffs imposed cover cost recovery; - No they don’t. The MWI is committed to set municipal water and wastewater

tariffs at a level which at least recovers the costs of operation and maintenance. According to Jordan’s Water Utility Policy (MWI, 1997), recovery of capital costs will become part of the on-going pricing actions The MWI will attempt to establish differential pricing for different qualities of water and end uses. Profitable markets (e.g., tourism, industry) will be expected to pay the full, fair water cost.

- The operation and maintenance costs, as defined by WAJ were always covered and the total costs were never recovered in the period 1993-2000.

Year Total Expenses Total Revenue O & M Expenses

1993 73,392 34,826 19,017

1994 89,417 40,090 25,188

1995 99,407 40,623 29,765

1996 105,240 46,133 30,639

1997 106,454 49,355 32,869

1998 112,148 65,916 33,733

1999 127,571 63,992 34,546

2000 121,116 73,849 37,675 Source: WAJ’s Financial Statements 1993-2000

What subsidies exist, how much is water subsided; - Subsidizing water suggests that the costs of water are higher than its prices and

that somebody else than the direct consumer pays the difference. - As the water revenues of WAJ do not recover water costs, the government of

Jordan pays the difference. This suggests that the tax payers pay this difference through the government of Jordan.

- These differences varied between a maximum of 59.13% of the total costs in 1995 and a minimum of 39.03% in 2000.


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WAJ’s Income statement for the years ended December 31 (JD 1000)

Items / Year 1993 1994 1995 1996 1997 1998 1999 2000

Total expenses 73,392 89,417 99,407 105,240 106,454 112,148 127,571 121,116

Total revenues 34,826 40,090 40,623 46,133 49,355 65,916 63,992 73,849

Subsidies of total expenses 38,566 49,327 58,784 59,107 57,099 46,232 63,579 47,267

Subsidies in % of Costs 52.55 55.17 59.13 56.16 53.64 41.22 49.84 39.03

Salaries and wages 15,218 16,099 16,348 19,363 20,253 20,683 21,337 23,628

Operation and maintenance 19,017 25,188 29,765 30,639 32,869 33,733 34,546 37,675

General administration 498 633 723 805 970 911 3,066 2,948

Interest on loans 12,044 15,782 16,188 17,560 15,399 16,927 22,758 871

Differences in exchange rate 2,227 4,129 6,929 3,887 970 944 5,043 12,414

Operating Costs 49,004 61,831 69,953 72,254 70,461 73,198 86,750 77,536

Total revenues 34,826 40,090 40,623 46,133 49,355 65,916 63,992 73,849

Subsidies of operating costs 14,178 21,741 29,330 26,121 21,106 7,282 22,758 3,687

Subsidies in % of Costs 28.93 35.16 41.93 36.15 29.95 9.95 26.23 4.76

Depreciation 24,388 27,586 29,454 32,986 35,993 38,950 40,821 43,580

Source: WAJ records

- Water was always subsidized in Jordan and the government used to allocate

certain amounts for WAJ every year. In 1996, JD 10 million were allocated but were not sufficient and the accumulated losses of WAJ increase continuously6. WAJ increased the water tariffs with the aim of recovery all costs of municipal water excluding the depreciation, i.e. WAJ suggests to recover the operating costs and subsidize the capital costs.

- In the reality, WAJ’s revenue do not cover it operating costs. Therefore, the tax payers in Jordan subsidy not only the capital cost but also parts of the operating costs. The subsidies covered, in addition to the capital costs, a maximum of 41.93% in 1995 and a minimum of 4.76% in 2000.

Are the prices charged for water reflecting the real value at the point of delivery and discharge;

- No, they don’t reflect the real value of water:Based on the domestic consumers’ willingness to pay (WTP), the average value of domestic water was estimated to range between JD 1.8 and 4.7/m37. These figures sound reasonable if compared to JD 1.66/m3, which is the average cost per person if 5% of the Jordan’s GNP was spent on supplying 28 m3/year/capita on potable water8.

- The same argument applies to the industrial water, as this water is supplied through the municipalities. A report on value added of industrial water in Jordan estimated the average value added as JD 13.46/m3. Based on an analysis of particular firms listed in that report, and on the World Bank’s Country Assistance Strategy (April 1995), the Bank estimated a gross value added of JD 5/m3 for 2015 and described this estimation as being conservative.

- The prices charged for water in the agricultural sector do not reflect the real value of water. Studies showed that the average value added of water in all crops

6 WAJ’s Financial department.

7 The World Bank:, Report No. 17095 -JO, Water Sector Review, October 1997.

8 The World Bank:, Report No. 17095 -JO, Water Sector Review, October 1997.


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reached JD 0.995 / m3 while the price charged for water reached an average of JD 0.0159.

In the domestic sector, are there provisions for pricing domestic supplies and charging for effluent discharges and treatment;

- Yes, there are provisions for pricing domestic supplies. According to WAJ’s law, the price rates, deposit fees and tariffs for connections, subscriptions are decided by the Cabinet of Ministers upon recommendation of the Board of Directors of WAJ. The current pricing for domestic supplies have remained unchanged since October 1997 while the tariffs for discharge have been increased by 12%.

Are there examples of illegal trading in water; - In general, “all natural and judicial bodies are prohibited to sell water from any

source, or grant or transport it, without obtaining in advance the written approval of the Authority and within the conditions and restrictions decided or included in the contracts or agreement concluded between them and the Authority”.

- There is no illegal trading in municipal water or wastewater. - Illegal is the trade with water that is not licensed such as overdraftig from private

wells (more than the approved abstraction of 50,000 m3 / year / well), or to sell water that was not declared and without paying the fees of JD 0.25 / m3 to WAJ, sell water at higher prices than approved by the WAJ e.g. a well owner sells water to the tankers at a higher price than the allowed price of JD 0.55 / m3 or a tank owner sells water to a household at a higher price than JD 2 / m3 in Amman governorate or JD 1.75 / m3 in other governorates.

- The quantities of water that are traded by the owners of the private wells are not known to WAJ. Since the installation of meters on private wells, WAJ will know for the first time at the end of 2002, how much water has been sold by the owners of private wells.

Are there examples of water markets - There are various water markets in Jordan: . The market of bottled water where various companies that generally own private

wells, extract the water according to a licence issued by WAJ, pay JD 0.25 / m3 to WAJ, destill it in reverse osmosis plants, and sell it in bottles of 0.25 to 1.5 liter through marketing channels at JD 0.20-0.30 / 1.5 Liter.

. The market of mineral destilled water (small reverse osmosis machines) in small shops scattered in the Jordanian cities. The ‘water shops’ use municipal water from the piped network and sell it after destillation as mineral water in containers of various sizes at JD 0.04-0.1 / liter.

. The market of private wells where water is sold to tankers at JD 0.55 / m3.

. The market of tankers where customers are provided with water at JD 2 / m3 in Amman governorate and JD 1.75 / m3 in other governorates.

. In addition there are the discharge services that are offered by the private sector for households not connected to the sewage system.

9 MWI, Economics of Water, 1998


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F - LEGAL ISSUES

What are the legal implications, if any, for water valuation; - According to the Jordanian water strategy, water is a national resource and shall

be valued as such at all times. - Legal issues regarding water are governed by the “Law No. 18 of 1988 Water

Authority Law”. - The Law states that the financial resources of WAJ consist of: . Revenue from water prices, subscriptions, deposits and other services the

Authority may collect for its services. . The income from movable and real estate owned by WAJ and the income of

investment projects. . Loans, donations and subsidies to WAJ . Any other sources of income of WAJ. - WAJ shall “obtain and continue to obtain data and information regarding the needs

of the Kingdom and the actual consumption of water for different uses, and utilize such data for future planning to provide for the Kingdom’s needs for water and to conserve its consumption”.

Do these pose an obstacle to valuation or do they facilitate it; - The legal status concerning water valuation and water pricing is derived from the

“Water Authority Law”, which poses no obstacles to water valuation. - The MWI evaluates and revises the water pricing structure according to

economic and financial conditions in the water sector aiming at developing and improving the situation of this sector.

What is the system of water rights in the country? - All water resources available within the boundries of the Kingdom, whether they

are surface or ground waters, regional waters, rivers or internal seas are considered State owned property and shall not be used or transported except in compliance with the Water Authority Law.

- There are legal water rights that are given to the owners of private wells and to other governmental institutions than WAJ through licences issued by WAJ while WAJ is presently developing its resources without licensing

- There are water rights on surface water and springs that are registered in the Department of Land & Surveys.

- There are rights of using the water of wadis given to owners of livestock or small farmers in remote areas.

G - ENVIRONMENT AND HEALTH ISSUES

Are there documented examples of how water valuation policies impact environment or health;

- Jordan has made many recommendations regarding the preservation of safe water.

- The new environmental law issued in 1995 states that the Council of Public Establishments for Environmental Protection is responsible in coordination with all


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concerned agencies for issuing standards for water for different uses. The law also sets penalties for violators.

- The water strategy in Jordan states that . Setting and enforcing national health standards shall be enhanced and sustained,

especially in regards of municipal water supply. . Concerns for public health and the health of workers shall be a focus in the

programs of reuse of treated wastewater. . Laboratories for controls shall be maintained and properly equipped. - Jordanian decision makers consider the lack of access to safe drinking water as

one of the “traditional hazards” related to poverty and "insufficient" development. As under water shortage conditions water prices will increase, there is a severe danger that the health status of poor families will be affected first if no appropriate means like cross-subsidies are implemented.

Is the value of water for the environment considered in policies. - Jordan uses the WHO guidelines as a basis to derive the national drinking water

standards. These standards have been subjected to several modification, since their setting for the first time in 1982. The labs of the MWI are continuously controlling the water quality.

- According to the water strategy in Jordan, special care is given to the protection against pollution, quality degradation and depletion.

- Present water use already exceeds the renewable freshwater resources by more than 20%. After the year 2005, freshwater resources will be fully utilized and there remain no more known resources within the country to develop. The reaction to the abrupt surges in population levels, water wise, has been overexploitation of groundwater aquifers. This was exacerbated by relaxed controls on drilling operations, and the near absence of controls on licensed extraction rates. Ground water aquifers are exploited at more than double their sustainable safe yield in average.

- In addition, Jordan has witnessed deterioration in its water quality in the last two decades due to industrial pollution, overuse of agrochemicals, inefficiency of wastewater treatment plants, and seepage from septic tanks and landfills, and improper disposal of dangerous chemicals.

- Recognising the value of water for the environment, the government of Jordan has set up plan in order to reduce the overall groundwater abstractions into sustainable yield. Furthermore upgrading of major wastewater treatment plants is underway in order to minimise the environmental hazards related to inefficient wastewater treatment, and connections for new treatment facilities are planned

H - SOCIAL AND POLITICAL ISSUES

Describe the socio-economic and demographic characteristics of the country in relation to water valuation;

- The population pressure on the water resources of Jordan has never been as intense as today. Measured by the per capita share of renewable water resources of 163 m3, the country can afford to allocate only a modest annual quantity of municipal water to its population that averaged in 1996 a share of 55 m3 per


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capita (149 liters per cap per day). In the period 1993-1999, the supply of municipal water increased by 9%, however, municipal water supply is still insufficient to cover demands. The per capita municipal water supply decreased from 150 l/c/d in 1993 to 133 l/c/d in 1999, and is expected to decrease further if no additional water supply or other sectors demand management projects are implemented.

- 78% of the population lives in urban areas and 38% of the population of Jordan lives in Amman. The Department of Statistics estimated the annual growth rate of the population to reach 3.4%.

- The main problems of water supply are the scarcity of water, lack of insufficiently maintained infrastructure resulting in high unaccounted for water (> 50%) due to water losses, and inadequate billing - , and a continuously increasing demand for municipal water.

- About 95% of the households are connected to the piped network of WAJ, however, Jordan has been implementing a rationing program since 1988. During the summer period, the households receive water once or twice per week for 12 to 24 hours. This rationing program obliges the households to invest in water tanks. It is estimated that about 30% of the households in Amman receive additional water in summer from private dealers and pay at least the official price of JD 2 / m3 or about ten times the price of supplied water by WAJ (the average reached between 1993-1999 JD 0.206 / m3).

- The supply of water by WAJ water tanks is not reliable as WAJ owns only few tanks that cannot cope with the demand for additional water10.

- A household study in east Amman and 14 villages in the Northern regions of Jordan showed that households in Amman pay between 1% of their family income for water (including purchase of water from water tanks) in winter and 2.9% in summer, while the households in the rural areas pay 0.7% to 1.4% respectively. These rates may not be very high compared to international rates however, a large portion of these households does not receive sufficient water and must therefore buy water from private dealers11.

- As a result of the rationing program, the households bear other indirect costs for water such as investments in water tanks in the houses and on the roofs, pumping costs, etc. By considering these costs in the calculation, the households in Amman spend 4.6% of their family income in summer and 2.3% in winter, and in the rural areas 2.3 and 1.5% respectively12.

What have been the social consequences of water valuation polices; - Up to now no comprehensive water valuation policies have been established. The

expected social consequences of water prices that reflect the real value have apparently not encouraged the government to proceed in this direction.

Do the poor pay more for water than the better off;

10 Maria Iskandarani, Wie gehen Haushalte in Jordanian mit the Trinkwasserknapphet um?. Zentrum fuer Entwickluns-

forschung, Bonn, May 2001. 11 ibid. 12 ibid.


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- Jordan, as in most countries introduced low water tariffs with respect to the poor. The water tariffs in Jordan are structured in such a way as to guarantee the minimum needed consumption at a subsidized fixed price per m3 and to recover these subsidies from customers with higher consumption. For the minimum of 20 m3, the customer pays JD 2.6

- Consumers of less than 20 m3 pay a lump sum for a block of 20 m3, as showed in the lists of WAJ. But, in reality they do not consume an average of 20 m3. The financial statements of WAJ show the following:

. In 2000, 186,811 customers consumed less than 20 m3

. These customers actually consumed only 8,284,978 m3 per year i.e 11.078 m3/ quarter in 2001 and paid JD 2,103,516, i.e 254 fils/m3 - The customers of more than 20 m3 per quarter do not pay a lump sum but for their real consumption, example: a consumer of 47 m3 pays JD 11.567 or 246 fils/m3.

. The situation of such groups was not different before the increase of water tariffs in 1997. In 1996:

Block (m3) Consumption (m3) Revenue (JD) Effective price (Fils/m3)

0000-0020 2,999,058 509,064 16.97

0021-0030 4,043,258 488,952 12.09

0031-0040 4,628,811 647,333 13.98 Source: WAJ, Tariffs 1996

- The water-rationing program since 1988 affects the poor more as they cannot easily invest in water infrastructure (storage, pumps, etc.)

Do domestic tariffs take account of household size; - No, they don’t. The domestic tariffs are based on progressive pricing that takes

account of the volume of water consumption.

How has the first block or minimum price been set; - It was set to satisfy the minimum needed consumption of municipal water. It was

constructed in combination with cross-subsidized water tariffs to guarantee minimum levels of supply for the economically weak.

How is the issue of water valuation perceived by the different stakeholders: e.g., farmers, households, government, etc.;

- No comprehensive water valuation has been established yet. However, one of the main obstacles of increasing the water tariffs of irrigation water is the expected resistance of farmers and landowners.

How aware are consumers of the tariff structure in operation; - In general, the awareness for water is not high. Therefore, the Water Strategy in

Jordan demands, that the public shall be educated through various means about the value of water for them and the wellbeing of the country for the sustainability of life, and for the economic and social development. Facts about water in Jordan shall be disseminated along with the cost incurred to provide the service, and the mounting pressure of population on the water resources. Introduction, adoption and use of water saving and recycling systems and devices shall be promoted.


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- Tariffs have been published and it is very easy for the consumer to acquire information on water tariffs, when needed.

In agriculture, have farmers changed their irrigation strategies in line with changes in water pricing;

- It is not expected that a moderate price increase of irrigation water would lead to great changes in irrigated agriculture, as the rate of water costs in the total production costs is negligible. Only very high price increases would inspire farmers to change their irrigation strategies and eventually change their cropping pattern towards high value crops.

- Decisions on interruption of water supply for irrigation in 2001 have reduced the areas used for agriculture and increased the prices for agricultural products.

Are there religious concerns about water valuation policies; - Religious concerns about water valuation policies are not existent or expected.

In fact, given that Islam emerged in a water-scarce area, it says a lot about such issues that can facilitate the development and implementation of such policies. It allows water providers to recover their costs. Water itself cannot be sold, because it's considered a social good and owned by the community. But governments, municipalities, and contractors can recover their costs for collecting, storing, treating, and distributing drinking water, and for treating wastewater. However, they must also provide a "lifeline tariff."

- Islam supports the demand management. It explicitly encourages water conservation and asks people to use water sparingly for important purposes, even if they were taking water from a large river. The authors however are not aware of the Islamic view on water valuation as defined in the context of this paper.

Are there particular political considerations that should be highlighted which could affect water valuation;

- The involvement of the private sector is highly political. Inner-political difficult situations are expected in case privatization of water services is realized with full authority of pricing and the reduction of the number of employees in this sector.

Are there particular gender considerations that need to be accounted for. - Supplying water for rural areas generally liberates the women from transporting

water, also in Jordan, But this does not affect the water valuation as the percentage of woman affected by this burden is very small. The fact that 2 to 5% of the Jordanian households are not connected to the piped network has no impact on water valuation.

- More important in this concern are the habits of cleaning houses in Jordan. Cleanliness for a Jordanian housewife means using a lot of fresh water to clean and cool the tiles. Therefore, raising awareness on how to make best use of scarce water resources should be spread among women NGOs.


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I - OTHER ISSUES Special attention should be paid to the costs and benefits of the above strategies.

Where possible, quantitative analysis should be shown. Otherwise, a more descriptive approach will have to be adopted but this should be accompanied by next steps on how and whether it is possible to quantify these;

Results of work of other institutions in the country that are working on water valuation need to be included.

J - FUTURE CONSIDERATIONS

Summarize the obstacles to improved valuation policies based on current practices and suggest what is necessary for practices to best move forward (please rank the latter in terms of importance);

- In Jordan, there is an emerging consensus that tariff structures that cover service cost should be designed while keeping lifeline use affordable to the poor. This will pose extreme challenge to Jordan, where development of additional water will be extremely expensive and will reduce even further its affordability to the poor in the absence of well-designed cross subsidies.

- It is difficult to develop manageable tariffs for municipal water that reflect the real value of water according to the supply of water and demand for it in all regions of the Kingdom and while remaining affordable to the poor.

. There are water supplies that could be reallocated from low return to high return uses such as irrigated water that can be used as municipal water for domestic or industrial uses.

. Valuation of municipal water suggests that different groups of population would declare their different willingness to pay for water. The willingness to pay would strongly vary between governorates, poor and rich areas, urban and rural regions, and lead to different tariffs: tariffs by zones, tariffs by income level, etc.

. As the value of a commodity changes according to supply and demand and the supply of as well as the demand for water are in summer different than in winter, Jordan has to develop seasonal tariffs for summer and others for winter to reflect its changing value.

- The MWI is committed to set municipal water and wastewater tariffs that recover the costs of operation and maintenance in a first step, and later the capital costs as well. However, it is uncertain if the MWI will be able to establish and execute differential pricing for different qualities of water and end uses.

- Other constraints of water valuation are the historical water rights in various parts of the country, the shared water resources, etc.

Include a full consideration in report on what are the important next steps for water valuation;

- Conduct comprehensive study on willingness to pay in prevailing economic sectors including municipal.

- Take a clear decision regarding the water valuation in the municipal as well as the irrigation sectors


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- Assign economists and sociologists to study the possibilities and steps needed for water valuation, with due consideration to the socio-economic impacts of water valuation.

- Strengthen the role of the private sector in municipal water as well as in irrigated agriculture through management contracts, concessions and participation in water utilities.

- Take measure to eliminate the amount of unaccounted for water. - Raise public awareness for the value of this scarce resource within all sectors of

the society.

Provide an estimation of how much freshwater can be freed up if valuation becomes a significant part of a national integrated water management plan, based on your discussions in the paper;

- One year after changing the water tariffs October 1997, it was obvious that these changes have lead to a decrease of the billed consumption of municipal water by 3%.

The research synthesis will consider in detail lessons learnt in management practices, including discussions on successes and failures and the reasons for this, and how these can be incorporated into future, effective management strategies.

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Water Valuation in Jordan

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