Centre on Regulation and Competition WORKING PAPER SERIES Paper No. 112 WATER SERVICE SUBSIDIES AND THE POOR: A CASE STUDY OF GREATER NELSPRUIT UTILITY COMPANY, MBOMBELA MUNICIPALITY, SOUTH AFRICA Julia Brown June 2005 ISBN: 978-1-905381-11-5 Further details: Centre Secretary Published by: Centre on Regulation and Competition, Institute for Development Policy and Management, University of Manchester, Harold Hankins Building, Precinct Centre, Oxford Road, Manchester M13 9QH, UK Tel: +44-161 275 2798 Fax: +44-161 275 0808 Email:
[email protected] Web: www.competition-regulation.org.uk 1 WATER SERVICE SUBSIDIES AND THE POOR: A CASE STUDY OF GREATER NELSPRUIT UTILITY COMPANY, MBOMBELA MUNICIPALITY, SOUTH AFRICA Julia Brown 1. INTRODUCTION In many countries water has been historically considered a “free” resource of unlimited supply that is managed by the state. Users did not pay for the true cost of supplying water and often paid only for a proportion of the cost of transferring, treating and disposing of water i.e. its use was heavily subsidised, (Calder,1999:57). Recent reform of the water services sector in both the North and South has been strongly influenced by neo-liberal views, which have radically altered the provision of water services. The new guiding principles for water services management recognise water as an economic good that should be priced to reflect its true cost because water subsidies distort the market and do not encourage efficient use of water, an important consideration in water scarce countries. It is argued that whilst subsidising infrastructure development and water in many countries was seen as a ‘pro-poor’ policy it was actually anything but, because it was largely the middle classes that benefited.