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Back | Programme Area: Markets, Business and Regulation (2000 - 2009) | Event: Social Policy, Regulation and Private Sector Involvement in Water Supply

Social Policy, Regulation and Private Sector Involvement in Water Supply

Social Policy, Regulation and Private Sector Water Supply : the Case of France

Given the prominent size of the private water industry in France (80% of customers are supplied by a private firm) and given the specific French private public partnership model (local communities can manage the water services by their own or they may delegate it to a private firm), it is natural to investigate how private sector involvement impacts on the poverty-related issues of water equity, access and affordability in France.

One should however mention that one characteristic of the French water sector is that there is currently no specific pricing scheme, rebate or discount tariff, for the poorest households. The mechanism put in place by public authorities and private firms in order to guaranty affordable access to water corresponds to an ex-post financial aid to help qualified low-income households facing difficulties with paying their water bill. The main explanation of this situation is that, according to the French definition of a public service, all customers having similar characteristics must face the same price. A recent decree has however opened a door for implementing social electricity pricing. Hence, there is a priori no reason to exclude the possibility to see some form of social water pricing in France in the next years.

To investigate whether the private sector participation in water supply has helped the poorer sections of the community, we use quantitative analyses of the French microeconomic survey data (National Institute of Statistics and Economics Studies, INSEE, survey on family income and expenditure). More precisely, from the INSEE surveys, we first provide a measure of water affordability by income class. Next, we econometrically assess the determinants of the water affordability measure. We consider several potential determinants into the econometric model, which include household and housing characteristics, the type of water pricing scheme implemented by the water service, the level of participation of the private sector into the management of the service, the state regulation (either social of economic).

First, we show that the average percentage of income spent on paying water charges by French households was 1.20% in 2001. Based on this aggregated figure, one may say that water affordability does not seem to emerge as an important issue. However, going into the details gives a very different picture. The percentage of income spent on paying water charges strongly depends on the household income level. It varies from 2.32% for households belonging to the first income decile group to 0.61% if the household belongs to the highest income decile. For the 1% poorest households, the water charges even represent 4.80% of their total income. These figures clearly show that pro-poor policies are still required in France to maintain water affordability at an acceptable level for poor households.
Secondly, the impact of private participation in the water industry on the probability of being water poor (3% or more of the total income spent on paying water charges) also strongly differs according to the level of income. More precisely, the predicted probability of being water poor significantly decreases with the income class. For instance, for a household belonging to the highest income decile, the probability of being water poor in 2001 was less than 1%. Belonging to the lowest income class results in a probability of being water poor more than 24 times higher.

Finally, the impact of private participation on water affordability appears to be very moderate on average (0.05%) but significantly different from zero. The picture is different when we consider a model allowing a differentiated impact of private participation across income decile classes. Increasing the private sector participation by 10% results in a significant increase in the water income shares by 0.24%, 0.14% and 0.11% for income classes 1, 2 and 3 (low-income households). On contrary increasing the private seems to favour high income households since by increasing the private sector participation by 10%, the percentage of income spent on paying water charges is reduced by –0.01%, –0.02% and –0.02% for income classes 8, 9 and 10.