Rcitch MASSACHUSETTS NSTITU:E

Dilemmas in Water and Wastewater Pricing: The Case of Bangkok, Thailand by Joanne R. Potter Bachelor Degree in Independent Concentration University of Massachusetts at Amherst, 1976 Submitted to the Department of Urban Studies and Planning in Partial Fulfillment of the Requirements for the Degree of MASTER OF CITY PLANNING at the Massachusetts Institute of Technology May 1994 @ 1994 Joanne R. Potter All rights reserved The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part. Signature of Author . Department of Urban Studies and Planning May 17, 1994 Certified by .. Paul F. Levy Visiting Lecturer -~ 7 "/*hesis Supervisor Accepted by . / Ralph A. Gakeinheimer Chair, Master of City Planning Committee Rcitch MASSACHUSETTS NSTITU:E JUL 121994 1 '2 Dilemmas in Water and Wastewater Pricing: The Case of Bangkok, Thailand by Joanne R. Potter Submitted to the Department of Urban Studies and Planning on May 17, 1994 in partial fulfillment of the requirements for the Degree of Master of City Planning ABSTRACT The thesis explores two problems of water and wastewater pricing which currently confront the metropolitan area of Bangkok, Thailand: the need to create a pricing system for the city's first wastewater services, and the problem of excessive groundwater use. Following an overview of the theory of public service pricing as it applies to water and wastewater services, the thesis discusses these two dilemmas in detail and explores the options and constraints in developing effective policies. Bangkok is confronted with exponential increases in water pollution as a result of untreated sewage and wastewater discharge into the Chao Phraya River and the city's network of klongs. The extent to which Bangkok can successfully meet its needs for clean water and adequate sewage treatment will have a profound effect on the city's capacity to continue its economic growth and reverse the environmental degradation which is now occurring. Fortunately, the Bangkok Metropolitan Administration is now planning a comprehensive wastewater treatment system. A pricing system and rate structure for this service, however, has yet to be developed. A rate structure for wastewater services is recommended which incorporates considerations of efficiency, demand management, revenue needs, and administrative feasibility. The second problem is excessive groundwater use and the widespread practice of illegal well drilling, which has caused depletion of the aquifers, ground subsidence, water contamination, and flooding. Many developers and industrialists choose to tap groundwater supplies to obtain cheaper and higher quality water service than is available from the public system. Government attempts to reduce groundwater consumption have been stymied by limited institutional capacity for enforcement, insufficient piped water supplies, and a rate structure for groundwater which provides strong economic incentives to developers to drill private wells rather than purchase more expensive piped water. Pricing recommendations for groundwater are made which address the current distortions in water pricing policies, and management techniques to improve enforcement and public education are suggested. Thesis Supervisor: Paul F. Levy Title: Visiting Lecturer 4 Acknowledgments Since the spring of 1993, 1 have been fortunate to work with the Bangkok Research Team, headed by Professor Ralph A.Gakenheimer of MIT's Department of Urban Studies and Planning. This research group has been consulting with the Bangkok Metropolitan Administration to develop conceptual plans for the future of Bangkok in a variety of sectors, including water and wastewater management. My affiliation with the team provided me with substantial portions of my research source material, as well as the opportunity to visit Bangkok twice to interview researchers and public officials. I am grateful to have been part of such interesting work. In particular, I wish to express my appreciation to my thesis advisor Paul F. Levy, who I assisted on the project and who I hold responsible for introducing me to the fascinating (usually) complexities of water resource management. Numerous officials of the Bangkok Metropolitan Administration (BMA) worked closely with the Bangkok Team through individual and group meetings. It has been a pleasure for me to meet and learn from each. I would particularly like to thank Mr. Mana Noppun, Director of the BMA's Department of Drainage and Sewage, and the staff of the DDS, for their comments. I am very grateful to the staff of the BMA for their generous and unfailing help, and would like especially to thank Miss Phongintira Tantivathana, Miss Pattamaporn Ratanakongsuk, and Mr. Niruth Putchong. My understanding of Thailand's water and wastewater issues was greatly facilitated by interviews with Dr. Mingsarn Kaosa-ard, Director of Natural Resources Economics Program at the Thailand Development Research Institute (TDRI); Dr. Scott Christensen, Research Fellow at TDRI; Dr. Banasopit Mekvichai, Department of Urban and Regional Planning, Chulalongkorn University; Dr. Jarit Tingsapat, Department of Economics, Chulalongkorn University; Dr. Charles B. Mehl, Research Fellow at Chulalongkorn University; and Mr. Curtis Borden, U.S. AID Bangkok. I deeply appreciate the guidance and encouragement of Prof. Paul Smoke as a member of my thesis committee. Special thanks are due to Ms. Karis Hiebert, another colleague on the Bangkok Team, for her support and ongoing help from "the field". I also extend my thanks to Dr. Amrita Danier, of the Department of Urban and Regional Planning at the University of California at Irvine, for providing me with much useful material and for introducing me to colleagues in Bangkok; to Dr. Randy Crane, also of University of California at Irvine, for his discussion with me on water pricing issues; and to Mr. Richard Tribiano, of the Massachusetts Water Resources Authority, for the data he provided on cost analysis and rate setting methodology conducted by the MWRA. A fond thank you to both family and friends for their support. Finally, my thanks to Lee Meinicke, whose editing support was very helpful, and whose encouragement was invaluable. Table of Contents A cknow ledgm ents ....................................................................................................... 5 Table of Contents ............................................................................. ....... 7 I. Introduction ............................................................................. ..... 11 II. Theory of Water and Wastewater Pricing............................................................. 15 A. Purposes of Water and Wastewater Pricing Policy................................... 15 1. R evenue G eneration ..................................................................... 15 2. Efficiency and Demand Management ........................................... 18 3. Economic Development............................................................... 20 4. Public Welfare and Equity .......................................................... 20 B. Sources of Revenue for Water Management............................................ 23 C. Models of Cost-Based Water and Wastewater Pricing............................. 24 1. Full Cost Recovery Pricing .......................................................... 24 2. Marginal Cost Pricing ................................................................. 25 D. Designing a Cost-Based Pricing System .................................................. 27 1. Identifying and Allocating Costs .................................................. 27 2. Consumer Types and Pricing ...................................................... 31 3. Rate Models for Water and Wastewater Use Charges .................. 35 4. Special Issues in Pricing Sewerage and Wastewater Services ..... 39 5. Discussion of Different Rate Systems........................................... 41 6. Organizational Structure and Capacity ......................................... 46 E . Summ ary ............................................................................................... 47 III. The Case Study: Bangkok, Thailand ................................................................. 49 A. An Overview of Bangkok........................................................................ 49 1. Characteristics of the Region ........................................................ 49 2. Growth of the City of Bangkok and the Bangkok Metropolitan R egion ........................................................................................... .. 50 B. Governance of Water and Wastewater Activities ..................................... 54 1. Overview of Structure of Governance.......................................... 54 2. Key Government Institutions Involved in Water and Wastewater Management ................................................................. 55 3. Problems with Existing Governance Structure ............................. 60 IV. Developing a Pricing System for Wastewater Management in Bangkok ........ 63 A. The Need for Improved Wastewater Management in Bangkok ................ 63 1. Levels of W ater Pollution ............................................................. 63 2. Sources of Water Pollution........................................................... 71 3. Existing Wastewater Treatment Facilities in Bangkok .................. 76 B. The Proposed Master Plan For Wastewater

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