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OECD work and the EU Water Initiative

Policy instruments in the water sector in Eastern Europe, the Caucasus and Central Asian countries

 

The OECD has initiated work on economic and financial dimensions of water resources management in Eastern Europe, the Caucasus and Central Asian countries (EECCA) region and helps the countries to achieve sustainable economic development by revising and improving economic instruments (EIs) in water sector.

The main objective of EIs is to create strong incentives for more efficient use, conservation and protection of water resources by improving the financial capacity of responsible public and basin administration and water services’ providers to develop, operate and maintain needed water systems.

Water infrastructure in the EECCA region is in poor condition due to the lack of funding, maintenance and repair that leads to local shortages and poor water-related services. The countries aim to face these difficulties; therefore, they need to apply carefully selected economic instruments. The current situation shows that the existing design and state of implementation of the instruments neither create the right incentives for water conservation and pollution prevention, for the efficient use of water resources and for efficient operation and maintenance of water utilities, nor do they generate sufficient revenues for financial sustainability of the sector.

As a result, the sector is often heavily subsidised with many not cost-effective and counter-productive subsidies that impede the countries from achieving policy objectives and targets.

Current water tariffs often do not cover operation and maintenance costs of water provision, collection and treatment, despite the fact that user charges remain the main source of finance. GREEN Action Task Force assists the governments in tariff regulation, including costs regulation, sound tariff-setting procedures and final tariffs calculation. Elaborating water-tariff regulation the OECD pays attention to social issues, especially to low-income groups, so that the tariffs remain affordable to all population layers.

Several measures have been suggested, such as progressive tariffs (tariffs modulated based on consumption blocks), separate social policies (subsidies aimed at support low-income household), social tariffs (lower tariffs for low-income groups) and Social Fund for Water (tariffs for all end-users with an additional charge for Social Funds).

 

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