Basic principles for urban water value assessment and price setting towards its full cost recovery – pinpointing the role of the water losses

This paper attempts to set the basic methodological framework for an integrated action plan (in terms of successive steps) to be developed that will guarantee the reliable calculation of the Full Water Cost (FWC), as defined by the WFD 2000/60/EC. Towards this goal, the crucial role of the water losses occurring in a water distribution system is demonstrated. This will help an effective and socially just water pricing policy to be developed. The cost components (direct – DC; environmental – EC; and resource – RC) comprising the FWC are analysed, introducing approaches for their reliable calculation. Regarding the DC, the marginal capacity cost and the necessary preconditions for its integration to the final water price along with its contribution towards effective water demand reduction are analysed. Regarding the EC, its dynamic character and the ways it interacts with the DC are presented. The role of the stakeholders in setting those price levels is also checked. Crucial parameters are analysed for a socially just water cost allocation to domestic users. The role of the water utility is examined, considering its responsibility in water losses. The basic policies (market-based vs. conventional) used to achieve conservative water use are evaluated. In addition, the role of the State is criticized.