6
Water Demand Management

Water quality problems and water supply limitations in the Mexico City Metropolitan Area (MCMA) are principally driven by population growth and macroeconomic and regional economic trends, most of which are far beyond the control of local water planners. Land use planning will also play a role in the growth of the region (see Garza 1987, 1989, for reviews). Aggressive efforts are now being made to protect the aquifer recharge areas and the remaining open space in the interior from further encroachment, but efforts to control growth at the urban periphery will likely remain difficult. While these large social issues are beyond the scope of this report, it is clear that the costs of bringing in new water supplies to the MCMA verge on the prohibitive for the foreseeable future—especially if the actual costs of water and the third party effects of its transfers are considered. It is also clear that the full cost of urban water use must include the cost of developing sewerage systems and wastewater-treatment facilities1.

1  

It was not the intent of this report to go beyond the collection of readily available, secondary data for purposes of a general discussion of water demand management in the MCMA. Information required for demand forecasting is outside the scope of this work. The report is designed to serve as a bridge to assist the Mexican government with the generation of data for implementing the recommendations proposed. As a transnational study, it was not the desire of the committee to instruct the government of Mexico in their social policies with respect to water. Rather, this document points



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Mexico City’s Water Supply: Improving the Outlook for Sustainability 6 Water Demand Management Water quality problems and water supply limitations in the Mexico City Metropolitan Area (MCMA) are principally driven by population growth and macroeconomic and regional economic trends, most of which are far beyond the control of local water planners. Land use planning will also play a role in the growth of the region (see Garza 1987, 1989, for reviews). Aggressive efforts are now being made to protect the aquifer recharge areas and the remaining open space in the interior from further encroachment, but efforts to control growth at the urban periphery will likely remain difficult. While these large social issues are beyond the scope of this report, it is clear that the costs of bringing in new water supplies to the MCMA verge on the prohibitive for the foreseeable future—especially if the actual costs of water and the third party effects of its transfers are considered. It is also clear that the full cost of urban water use must include the cost of developing sewerage systems and wastewater-treatment facilities1. 1   It was not the intent of this report to go beyond the collection of readily available, secondary data for purposes of a general discussion of water demand management in the MCMA. Information required for demand forecasting is outside the scope of this work. The report is designed to serve as a bridge to assist the Mexican government with the generation of data for implementing the recommendations proposed. As a transnational study, it was not the desire of the committee to instruct the government of Mexico in their social policies with respect to water. Rather, this document points

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Mexico City’s Water Supply: Improving the Outlook for Sustainability This chapter looks at three less familiar but no less fundamental problems: (1) the neglect of conservation policies in water-sector planning, (2) the crippling financial problems associated with traditional tariff and billing practices, and (3) the uneven and often inadequate access to good water by the poor throughout the region. While these problems tend to be behavioral rather than technical in nature, the solutions proposed in this chapter are straightforward and feasible, and can be described as demand management. Demand management has two core components: (1) conservation to sustain available supplies, and (2) cost recovery. Demand management is complementary to engineering solutions that seek to augment water supplies; it ensures that available water is used efficiently and equitably. Demand management is not a reaction to a crisis situation; instead, it is a tool that can be applied under all circumstances. However, demand management strategies may be unpopular because they make transparent the actual price of water by revealing the true distribution of costs and benefits of heavily-subsidized consumption. Consequently, water rates in most metropolitan cities tend to lag well behind actual costs because local governments fear adverse political reactions. Demand management policies are therefore rarely implemented unless the situation becomes dire, as it now is in the MCMA. PROBLEMS AND PRIORITIES The recognition of the problem of meeting rising demands for water at an acceptable quality level is hardly new in Mexico. Buenfil (1993) identified the major water supply issues as: water conservation, cost recovery and financial soundness of the water company, household and social equity, unaccounted water-supply losses, and the need for information. In many respects, cost recovery is a more pressing concern than conservation. Historically in Mexico, high water subsidies have allowed access to unlimited quantities of water at artificially low cost. Because industries consume large amounts of water, these subsidies have served to encourage industrial development within the MCMA. Hence, subsidies led to greater consumption and have contributed to water scarcity. This situation is not unique to Mexico, as low cost water has, until recently, been a common arrangement worldwide. Water subsidies have always been popular when governments wished to promote local economic development. Subsidies have also been defended as anti-poverty policies. Given the general scarcity of all public revenues, the historical levels of water-sector subsidies are no longer available. Water authorities realize that they must look to their customers for the funds to maintain the existing level of     up new directions that may be taken to ensure that the water supply is maintained on a sustainable basis while ensuring efficiency and fairness in its allocation.

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Mexico City’s Water Supply: Improving the Outlook for Sustainability service, and to invest in its future. Over $1 billion per year is spent subsidizing water and sanitation services in the Federal District or roughly $125 per person (World Bank, 1992). Only $0.10 is collected per cubic meter of water in the Federal District—considerably less than some other cities in Mexico. The low price for water in the Federal District persists despite the fact that the marginal cost of supplying water to the MCMA is estimated at about $1.00 per cubic meter, among the highest in the nation (World Bank, 1992). Monterrey, for instance, collects $0.37 per cubic meter. In the United States, Phoenix collects about $0.25 per cubic meter (World Bank, 1992). Urban water districts in Southern California purchase imported water at about $0.33 per cubic meter (1994 prices), and residential rates vary from about $0.22 at the Irvine Ranch Water District, which has access to local ground water, to about $0.46 per cubic meter for the City of San Diego, which imports nearly all its water. While demand management strategies have been under-utilized in the past, it is important to recognize that such neglect is characteristic of water planning worldwide and, further, that major demand-side reforms are already in place in Mexico. Indeed, in some respects, Mexico is the vanguard among developing countries. Water is increasingly recognized as a private economic good, and appropriate pricing is being introduced to reduce waste and increase cost-recovery, finance expansion, and improve water systems throughout Mexico. The Federal District has initiated an ambitious program for retrofitting low-flow plumbing fixtures, and is aggressively repairing system leaks. Several new federal laws have been introduced in the past year, including a new system of effluent charges intended to finance wastewater treatment and changes in the assignment of water rights. The latter reform has allowed water regulators to begin to talk openly of water rights that can be traded in open markets. A trend toward increased private management of municipal services, under terms which maintain public ownership while introducing a measure of competition, is also apparent. These institutional changes are discussed in Chapter 7. WATER TARIFFS, USE, AND ACCESS IN THE MCMA A rigorous analysis of water demand would include an estimate or forecast of water demands (see Piña et al., 1993, for such an approach in 30 Mexican cities). However, credible demand forecasting is a complex and technical procedure, requiring considerable original data collection (see Kindler and Russell, 1984, and Munasinghe, 1992), and is thus well beyond the scope of this review. Instead, the approach here is to profile water use in the MCMA so far as available data permit, and thus establish where conservation efforts could be most economically directed. Such a profile can also help detect which areas of the economy and region have the greatest need for improved supplies. As noted in Chapter 4 (Table 4.1), most water use in the MCMA is “domestic” in nature, followed by “industrial” and then “commercial and serv-

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Mexico City’s Water Supply: Improving the Outlook for Sustainability ices.” For conservation purposes, it is easier to begin to target broad categories of users who use large quantities of water and who are predisposed to react to conservation incentives (World Bank, 1991). The Federal District waterworks department identifies just under 60,000 “major” water users—those consuming at least 60 cubic meters per month. These include 3,107 industrial users, 16,157 commercial users, and 39,892 residential users (Departamento de Distrito Federal, 1992b). The rate structure for commercial and industrial users was the same as for domestic users until 1991 (Bahl and Linn, 1992). Now the rate for nondomestic use is considerably higher. The rate structure adopted in 1991, an increasing block rate which charges more per cubic meter at higher consumption levels, provides metered industries with more incentive to conserve (Table 6.1). Nondomestic users without meters, including industry, are charged on the basis of pipe diameter. For example, a bimonthly fee of $28 is charged for pipes no larger than 13 millimeters in diameter, and the tariff increases rapidly with increasing pipe diameter, reaching $223,078 for pipes greater than 300 millimeters in diameter (Departamento del Distrito Federal, 1992b). The highest rates are incurred by large volume users such as the Moctezuma brewery. The Federal District water works department has emphasized metering those users who consume over 240 cubic meters bimonthly (Departamento del Distrito Federal, 1992a). Domestic users make up about 67 percent of all users, and constitute about the same percentage of the largest users. As shown in Table 6.2, domestic water rates range from about $0.15 per cubic meter for use the lowest usage to $1.07 per cubic meter for higher consumption (Departamento del Distrito Federal, 1992b). The increasing block structure of the tariff schedule gives incentives to conserve as the use levels rise. However, only about half of the domestic users are metered in the Federal District, many do not function, and enforcement of bill collection has been uneven. Many domestic and non-domestic users pay a flat rate for water service. Low-income households are of particular concern because they may not have sufficient access to enough water to provide adequate health and sanitation. Unfortunately, income data linked to consumption behavior were not available for this study. The World Health Organization has established a minimum of 150 liters per day per household in the cities of the developing world; 75 liters per day per household are considered adequate to protect against waterborne diseases (Falkenmark and Suprapto, 1992). The World Bank estimates that at least 50 liters per capita per day are necessary for sanitation, in order to forestall health related problems. As noted in Chapter 5, the major cause of death among children in irregular and rural areas in Mexico continues to be diarrheal diseases. Some evidence suggests that residents of poor settlements in the MCMA use as little as 20 liters per capita (Schteingart,

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Mexico City’s Water Supply: Improving the Outlook for Sustainability TABLE 6.1 Water Rates for Non-Domestic (Industrial and Commercial) Users in the Federal District in 1992. Bimonthly Consumption (cubic meters) Cost per cubic meter up to 30 $0.40 from 30 to 60 $0.67 from 60 to 120 $0.77 from 120 to 240 $1.00 from 240 to 420 $1.17 from 420 to 660 $1.40 from 660 to 960 $1.63 over 960 $1.87 Source: Departamento del Distrito Federal, 1992b. TABLE 6.2 Water Rates for Domestic Users in the Federal District in 1992. Bimonthly Consumption (cubic meters) Cost per cubic meter Up to 10 no charge from 10 to 20 $0.15 from 20 to 30 $0.17 from 30 to 60 $0.40 from 60 to 120 $0.47 from 120 to 240 $0.63 from 240 to 420 $0.73 from 420 to 660 $0.83 from 660 to 960 $0.93 Over 960 $1.07 Source: Departamento del Distrito Federal, 1992b. 1993). This may be sufficient for cooking and drinking, but not for maintaining a healthy environment. On the other hand, higher-income households typically consume many hundreds of liters per capita per day for discretionary purposes such as such as decorative plants, lawns, and pools, in addition to the higher uses associated with indoor flush toilets and showers. Table 6.3 is a county-level breakdown of the availability of piped water sources (categorized as in-house, in-yard, neighborhood, or other public source, or no public source) from the 1990 census, the most recent year available. The

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Mexico City’s Water Supply: Improving the Outlook for Sustainability TABLE 6.3 Household Water Sources in the Mexico City Metropolitan Area, 1990   Number of Homes Percent of Homes by Source of Water Supply In-house On-Site Neighborhood None Alvaro Obregón 133,937 72.6% 24.2% 3.2% 2.5% Azcapotzalco 103,130 76.3% 22.9% 0.8% 0.7% Benito Juárez 114,002 95.4% 4.5% 0.2% 0.3% Coyoacán 142,533 78.7% 20.8% 0.6% 0.6% Cuajimalpa de Morelos 23,422 55.0% 40.1% 5.0% 5.6% Cuauhtémoc 157,079 91.9% 7.7% 0.3% 0.7% Gustavo A.Madero 262,905 73.6% 25.5% 0.9% 1.6% Iztacalco 93,815 75.4% 24.2% 0.4% 0.7% Iztapalapa 294,738 62.4% 36.1% 1.6% 5.4% Magdalena Contreras 40,247 59.3% 38.8% 1.9% 3.4% Miguel Hidalgo 98,051 84.5% 15.1% 0.4% 0.6% Milpa Alta 12,258 42.2% 50.8% 7.0% 17.1% Tláhuac 39,311 39.0% 59.7% 1.2% 5.8% Tlalpan 103,137 66.4% 30.2% 3.4% 13.8% Venustiano Carranza 117,640 82.0% 17.7% 0.3% 0.7% Xochimilco 52,966 55.0% 40.1% 4.9% 9.1% Federal District Total 1,789,171 74.3% 24.4% 1.3% 3.1% Atizapán de Zaragoza 64,990 58.6% 25.5% 0.8% 5.9% Coacalco 32,072 89.1% 7.0% 0.4% 2.1% Cuautitlán 9,693 66.0% 30.0% 0.9% 2.7% Cuautitlán Izcalli 68,019 76.2% 17.5% 2.3% 2.9% Chalco 54,155 13.7% 12.9% 1.8% 69.9% Chicoloapan 10,749 27.2% 65.5% 2.0% 4.7% Chimalhuacán 44,016 21.6% 56.2% 6.3% 15.1% Ecatepec 283,413 46.8% 26.4% 1.2% 9.0% Huixquilucán 25,392 51.5% 34.8% 2.1% 9.9% Ixtapaluca 26,460 32.6% 35.3% 3.0% 28.5% La Paz 25,226 39.3% 46.1% 2.0% 11.5% Naucalpan 159,372 57.3% 39.2% 1.1% 1.3% Nezahualcóyotl 239,951 52.3% 43.3% 0.7% 2.3% Nicolás Romero 34,732 34.2% 46.9% 1.6% 16.4% Tecamac 24,079 42.8% 44.5% 0.7% 11.3% Tlalnepantla 144,366 65.3% 30.6% 1.3% 1.8% Tultitlán 49,847 65.8% 21.5% 0.6% 11.2% State of México 1,296,532 52.1% 32.8% 1.4% 8.8% MCMA 3,085,703 63.3% 27.4% 1.3% 5.5% Source: INEGI, 1991.

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Mexico City’s Water Supply: Improving the Outlook for Sustainability Mexican census differentiates between an “in-yard” tap which is outside but on the resident’s property, and a “neighborhood” spigot which is used by a number of residences. The neighboorhood category also includes water-delivery trucks that provide water by the container at regular times at specific locations, and which must then be carried or otherwise transported back to the home, or may be delivered directly to homes. Those homes without access to public water sources presumably obtain their supplies from surface water, illegal wells, or private vendors. The data reveal that while 97 percent of the homes in the Federal District have some kind of access to piped water, only 74 percent have an in-house source. The bulk of the remainder rely on a yard spigot. In the metropolitan service area of the State of Mexico, roughly 52 percent of the homes reported having an in-house water source, and 33 percent rely on yard sources. Three percent of the homes in the Federal District and nearly nine percent in the State of Mexico do not have access to the public water supply. It can be seen from Table 6.3 that some of the counties in the MCMA have much lower levels of service than others. In the Federal District, for example, Tlahuac, Xochimilco, Milpa Alta, and Tlalpan stand out as areas with poorer service. Of the 17 counties in the State of Mexico service area, 7 have more than 10 percent of the households without any access to piped water, including nearly 70 percent of households in the county of Chalco. Figure 6–1 shows the geographical relationship of water service in the MCMA as reported in the 1990 Census. The more poorly-served areas of the MCMA are the newly developed units, such as in the southern part of the Federal District and the eastern areas in the State of Mexico. The reason for poorly served areas becomes clear with a consideration of the tremendous growth of the metropolitan area. Figure 6–2 shows the increase in both water and sewer services in the MCMA from 1960 to 1990, and illustrates several points. First is the enormous growth in the number of homes with water service across the MCMA over the 30-year period, especially during the 1970s, when more than 825,000 homes were hooked-up to the water-supply system. During the 1980s, the State of Mexico grew 2.5 times as fast as the Federal District in terms of homes with in-house water services. Generally, the number of households connected to the sewerage system grew even more rapidly than water service during the 30-year period. Figure 6–2a illustrates the continual progress in the Federal District, in terms of the share of the housing stock with an in-home water supply, reaching more than 70 percent by 1990. The metropolitan area of the State of Mexico has fared less well by this measure, both with respect to the share of dwellings with in-house water supplies and with respect to the change in this share over time; only 52 percent of the homes in 1990 had an in-house water supply. This is a great accomplishment in light of the 17 percent served in 1960, but represents a decline from 62 percent in 1980. The most likely explanation is that the water-distribution system was unable to keep pace with the rapid population growth of the 1980s in the State

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Mexico City’s Water Supply: Improving the Outlook for Sustainability Photo 6–1 A water tank or pipa truck filling up to deliver water to outlying neighborhoods in the Mexico City Metropolitan Area. Courtesy of Robert Farvolden. of Mexico. The trend for sewer service generally follows a similar pattern for the two service areas (Figure 6–2b). In general, data are scarce regarding the provision of public services to the poorer households of the community who are unable to receive piped-in water. A recent study by El Colegio de México researchers (Schteingart, 1993) found widely different experiences among four irregular settlements (or colonias populares, two in the State of Mexico and two within the Federal District). Some of the residents were served by government tank trucks free of charge, other residents paid for a professionally installed and metered network, and others paid a flat fee. The quantity and quality of the service varied considerably, many poor residents substitute bottled water or soft drinks for drinking water instead of using piped water, an expensive, but presumably safe alternative to water supplies in which they have little confidence. Official statistics regarding the expansion of the water-supply system therefore disguise widely differing experiences. In addition to the time and effort involved in bringing water into the home by hand, water costs are often a burden to the poor. Data on water costs by in-

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Mexico City’s Water Supply: Improving the Outlook for Sustainability FIGURE 6–1 Share of homes with in-house water supply in the MCMA in 1990, by county. Source: INEGI, 1991a. come group in the MCMA are not available. There is some evidence that the payment of water bills is not rigidly enforced, and that many bills go unpaid without service cutoffs (Comisión de Aguas de Distrito Federal, 1993). Nearly all studies of other major cities in developing countries find that monthly water expenses are a larger share of income for the poor than for the wealthy (Crane, 1994, World Bank, 1992). This is because water demand is relatively income inelastic, and some of the poor must purchase their water from intermediaries who add a mark up. Further study is needed to provide a fuller understanding of how expansions in the distribution system, as well as water tariff policies, affect

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Mexico City’s Water Supply: Improving the Outlook for Sustainability FIGURE 6–2 Changes from 1960 to 1990 in the percent of homes with (a) an in-house water supply, and (b) connected to sewers or with a septic system for the Federal District and the metropolitan area of the State of Mexico, and for the MCMA as a whole. Source: INEGI, 1991a.

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Mexico City’s Water Supply: Improving the Outlook for Sustainability the health and financial status of the very poor. Water that is treated and pumped, but not paid for, is one part of the problem, and system leakage is another. Due to the lack of metering, these problems are very difficult to quantify. Nevertheless, system leakage alone may amount to as much as 40 percent in the MCMA, as estimated by the National Water Commission (Comisión Nacional de Agua, 1992). Leaks can be detected by systematically metering the system, segment by segment, installing water meters in private houses, updating connection records, improving maintenance, and renovating aging installations. In the MCMA, aging infrastructure is aggravated by land subsidence caused by overpumping of ground water; the 1985 earthquake also caused considerable damage. Leaks and unmetered water losses are now being addressed in Mexico City. Water utilities have made repairs part of their overall conservation effort. An average of 2,000 leaks in the distribution network are repaired each month in the Federal District and 1,800 in the State of Mexico (Departamento del Distrito Federal, 19901a). Further, an effort has been made to eliminate household leaks, especially in multifamily housing. Each year, approximately 150,000 leaks are eliminated inside households through water agency programs (Departamento del Distrito Federal, 1991b). Such programs include detailed brochures explaining to householders how leaks can be detected and fixed. DEMAND MANAGEMENT TOOLS The approach to these problems begins by recognizing that the volume of water used by any one person or business is variable. While a minimum quantity of water is required for basic health and sanitation, water use is influenced by a number of factors, many of which are under the control of the water authority. These factors include the price of water, the manner in which water use is billed, the reliability and quality of water, and the restrictions placed on its use. Although the Federal District tends to forecast water use as a fixed estimate of current per capita use multiplied by a straight-line projection of population growth (Departamento del Distrito Federal, 1992b), this approach does not give an accurate view of either household or business behavior. The use of policy tools to control water consumption is known as demand management. In contrast to supply-side strategies, which emphasize the development of new supplies to deal with water scarcity problems, demand management is oriented toward changing the behavior of consumers. Demand management tools can be divided into involuntary and voluntary policies. Involuntary policies are those where consumers have relatively little discretion regarding their implementation (Frederick, 1993). These are policies that directly control water use, and are generally command-and-control methods such as water rationing, the retrofitting of plumbing equipment, new construction codes, and water reuse regulations. In 1989, the Federal District ini-

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Mexico City’s Water Supply: Improving the Outlook for Sustainability tiated a program for retrofitting large office and apartment buildings with low-flow toilets that use 6 liters of water to flush (normal toilets use an average of 16 liters). By 1991, the program had installed 330,000 fixtures, saving about 0.8 cms of water consumed. By 1996, the program is expected to reduce water consumption by 4.3 cms within the Federal District. The State of Mexico began a similar program more recently, and expects to reduce consumption within its service area by 3.7 cms (Departamento del Distrito Federal, 1991a). Perhaps the most under-utilized means of controlling the level of water consumption in the MCMA is via indirect or voluntary tools, such as water tariffs and education campaigns. In part, this may be another reflection of the traditional supply-side orientation of the water sector planning, which has little behavior-modification content. Experience shows that significant reductions in consumption can likely be obtained by implementing rather modest reforms. With respect to tariff policy especially, attention to a few basic principles in water pricing and billing administration should reduce the demands placed on existing supplies while improving the financial health of the system. There are three basic components of an administrative tariff policy. The first component, and perhaps the most familiar in Mexico is “cost-recovery”, or the direct linkage of system expenses to revenues. Ideally, cost recovery would account for distribution, disposal, and treatment costs as well as related induced expenses (such as those due to land subsidence caused by a falling water table). However, the last of these are not usually considered as system expenses, and are disregarded in practice. In some cases, even the capital costs of the constructed facilities are ignored in favor of a tariff policy aimed merely at recovering operating and maintenance outlays. Nevertheless, this limited approach may, in many instances, be a constructive first step. The second component of a tariff policy is demand. Demand is related to what people are willing to pay (see, for example, a discussion of contingency valuation in Whittington and Choe, 1992, and in Natural Resources Journal, volume 4(1), 1985 for measuring demand where hard data are not available). The question of whether consumers are willing to finance a new water-supply system is an example of linking cost to demand and is, in fact, the central question guiding policy toward infrastructure improvements in developing countries today: Is the cost justified by demand? The third tariff consideration is equity, which refers to the fairness of the distribution of water costs across households with differing incomes. Within these constraints, the actual form of the tariff can be structured a number of ways (e.g., see Bahl and Linn, 1992). Users may be charged once to cover costs of extending the water supply to their property; they may be charged once for a connection to the system. They may be charged periodic, fixed payments related to water use but not varying directly with water use (e.g., pipe diameter), or charged periodic payments based upon actual metered use. As mentioned earlier, the pricing scheme most common in the MCMA, especially for large

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Mexico City’s Water Supply: Improving the Outlook for Sustainability commercial and industrial users, is a periodic fixed payment related to pipe diameter. In addition to tariff policy, education and public awareness also have an important role to play in conservation. A well-designed public education program can achieve a substantial reduction in water demand. Unfortunately, prolific habits concerning the use of water are deep-seated in most adults. In recent years the water utility in the Federal District has established a section overseeing efficient water use, one that now has a laboratory to test the effectiveness of water-saving devices, conservation publications, and an imaginative and energetic program of fourth and fifth grade water “police” to discover leaks. There are a number of media messages in Mexico City urging care of precious water resources. In the case of the MCMA, it is not yet clear how great an impact the public information campaigns have had. The public is already subjected to many campaigns of various sorts, and the medium may be saturated. At the same time, people must understand the nature of the water problem if they are to consciously and conscientiously conserve water resources. IMPLEMENTATION ISSUES It is one thing to talk about a better way of doing things, and quite another to get it to work. For instance, while raising water rates will tend to discourage water waste by many users, it is not without its drawbacks. Price incentives operate only when water use is metered, and the decision of whether or not to meter is in part an administrative issue. Any tariff policy will only be effective if (1) it is administered capably, which requires a high level of competence in costing, budgeting, and bookkeeping procedures in order to make realistic cost estimates and check performance; and (2) adequate enforcement measures are applied against free-loaders. The most effective domestic water conservation programs have combined rate increases with public information campaigns that reinforce the message about the need to conserve, and with public participation to generate community support. In Mexico City, only 53 percent of the users are metered, and not all meters function properly. Many functioning meters are apparently read on an irregular basis, and enforcement of bill collections has been uneven. Obviously, the lack of meters is an impediment to both cost-recovery and conservation. To achieve full metering, several million additional meters would have to be installed, at a total cost of roughly $100 each. Metering, in conjunction with an effective volume-based tariff and collection system, has the potential to substantially reduce water use because consumers would have an incentive to conserve and, in particular, to avoid squandering water. Metering also allows easier detection of system leaks.

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Mexico City’s Water Supply: Improving the Outlook for Sustainability Domestic Use Any discussion of implementation issues surrounding water management policies for households involves considerations of both equity and efficiency of water services. It is well documented that, if necessary, the poor in developing countries are both willing and able to pay their fair share for good quality water supply (e.g., Okun, 1991; World Bank, 1992; Whittington and Choe, 1992; Crane, 1994). In the large cities of the developing world where the poor have limited access to dependable sources of clean water, research has documented how they actually pay much more for water than other residents in that city (Roth, 1985; World Bank, 1992; Whittington and Choe, 1992; Ingram et al., 1995). In most cases, those who do not have good access to public water supplies would actually benefit from paying for services if it improved their access to water. Aside from equity concerns, implementation obstacles in the domestic sector include the general resistance to water tariffs by people who are not on a metered system, and the practical difficulties associated with the proper design of block tariffs and use of metering. The unpopularity of substantially higher prices for water, and more rigorous enforcement of bill collections, are themselves institutional and administrative issues, and are most difficult to resolve for the domestic sector. In practice, setting new tariffs is a complex and delicate matter. It is axiomatic that when people are asked how much they would like to pay (for anything), they invariably prefer to pay nothing. Still, most understand that the system cannot sustain itself under such a scheme and that some, perhaps most, goods must be paid for somehow. This is increasingly true of the air we breathe, for example, in Mexico and elsewhere. To improve or even maintain the quality of air, it has been necessary to pay more for gasoline, drive less, and accept many other inconveniences and expenses. Given time, the idea of prices that cover water costs will become more acceptable, particularly once the linkage of cost to water quality and availability is understood. The task is therefore to educate the public and the politicians about this linkage. There is no question that people are willing to pay for good water—in many ways they already do, especially in areas where water is privately distributed. The issue, then, is how to teach water consumers that they have few long-run alternatives to paying the full price. Metering also presents implementation difficulties. For example, full metering may not be advisable in all parts of the MCMA. In addition to the basic capital cost of the meter, the cost of metering is high, consisting of installation costs, the expense of regular reading, maintenance, billing, and accounting (Bahl and Linn, 1992; Buenfil, 1993). The benefits of metering must be weighed against these costs. For large consumers and business enterprises, metering will almost always be cost-effective. For small consumers in poorly developed and low-income areas, metering is probably not appropriate in the

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Mexico City’s Water Supply: Improving the Outlook for Sustainability short term. Because many of these users do not have in-house piping, overall water consumption by this section is relatively small. Industrial Users Experience in industrialized and developing countries alike shows that industries tend to use water more cost-effectively than other sectors of society. While industry is not a large water user compared to other sectors, industries are frequently located in urban areas where water consumption is growing fastest. The price per unit of water is normally set higher for industry than for domestic users, for reasons generally concerned with capital financing—infrastructure costs and the higher cost of treating industrial wastewater. Further, industries tend to respond readily to economic and regulatory incentives. The potential for using water more wisely and more cost-effectively by industry has been demonstrated through experience in both the industrialized and developing countries. In many cases, the increased cost of industrial wastewater treatment, or the need for industry to provide pretreatment of its wastewater before discharging it to a public sewer system, is sufficient motivation for industry to initiate a program of water conservation. Institutional and Administrative Obstacles Governments have a difficult time dealing with water conservation because water is generally a highly-charged political issue. Many people believe that, since water is essential to life, authorities are obliged to bring it to the population at little or no cost. Therefore, it takes real courage to raise rates and enforce the system of allocation, metering, and sanctions that lead to reducing demand (World Bank, 1991; Bahl and Linn, 1992). In addition, when supply is unreliable and people either do not receive water or water pressure is too low much of the time, they resist paying their water bills. Unless bills are paid, utilities lack the resources to repair infrastructure (see, for example, Ingram et al., 1995). Consequently, service becomes worse and the situation deteriorates in a downward spiral. Water is an important element in regional politics. Regions and the cities within them vie with one another for growth and investment, and resist limitation of any resource fundamental to growth such as water. Population growth figures are often exaggerated so that particular regions can gain larger shares of the national budget’s grants and subsidies for infrastructure development, such as water-supply systems, sewers, and highways. As investments flow to particular regions at the expense of others, migration to the better-serviced regions follows. Certain regions and cities become centers of power and influence, while others fade in importance. In spite of such difficulties, Mexico is striving to reverse past trends. The 1992 national budget of proposed investments in the

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Mexico City’s Water Supply: Improving the Outlook for Sustainability water sector indicates a decreasing share of the federal water budget allocated to the MCMA, while other cities and rural areas are getting more attention. Throughout the world, municipal water utilities have focused on construction projects rather than demand management (Ward, 1990; Ostrom et al., 1993). By tradition and sometimes by law, these agencies are required to provide water service upon demand to all residents as cheaply as possible. When rates are highly subsidized, and access to new supplies are funded from sources other than rates, the cost-saving argument of conservation holds little force. In Mexico, as in many developing countries, external support agencies have tended to focus on providing money for capital construction, but none for operation and maintenance or for management. The ability to adopt a program of demand management depends on the capacity of the institutions responsible for water supply. In the MCMA, there has been a high level of centralization of operational functions and, at the same time, a separation of operational functions from those of rate setting and fee collection. Therefore, the efficiency with which the utility operated was not critical to the utility’s standing or funding. One reason for the creation of the Federal District Water Commission (La Comisión de Aguas de Distrito Federal) in 1992 is to change these organizational incentives (Comision Nacional de Agua, 1992; and see Chapter 7 of this report). Capacity Building Historically, municipal water utilities throughout the world have shown an organizational preference for developing new supplies rather than trying to change patterns of demands. Changing the demand patterns of water users requires the insight of economists and other social scientists who specialize in the design of economic incentives, educational programs, and other tools of persuasion. Despite the obvious relevance of social science training to implementation of water demand strategies, many utilities employ primarily engineers. Economists or other social scientists are often employed at low levels in the agency hierarchy and thus have little influence on important policies. Further, conservation offices are awarded relatively few resources to promote demand management, and have little organizational status. The implementation of conservation plans is complex and requires the consideration of, for example, administrative and organizational costs, environmental issues, institutional development, human resources development, community organization, water sector assessments, legal issues, information management, and contracting (Okun and Lauria, 1991). Demand-management programs will affect several different groups, including the administering agencies as well as consumers. The incentives and disincentives faced by each municipal water authority must be evaluated. Incentives include increased supply capacity, and thus reduced investment and operating costs. Possible

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Mexico City’s Water Supply: Improving the Outlook for Sustainability disincentives include revenue shortfalls, the need for more frequent rate adjustments, and increased difficulty forecasting future demand. The effects of any conservation strategy on local water agencies, particularly one formulated at higher levels of government, need to be addressed if those agencies are expected to embrace both the concept and the practice of increased efficiency in water use. The actual practice of cost-recovery also requires the technical and administrative ability to operate a pricing system efficiently (Bahl and Linn, 1992; Ostrom, et al., 1993). This calls for reasonably accurate metering of the water supply to each consumer who is to be billed separately. Thus, the initial installation of the meters must be supported by an adequate system of maintenance and repair (including recalibration of meters at appropriate intervals). The meters must also be read at clearly defined intervals. Water accounts and delivery of bills should be prepared with the least possible delay after meter reading. Finally, payment of accounts within a reasonable time must be enforced, with genuine penalties for late payment. Building administrative and technical capacity must go hand in hand with policy innovations such as water rate reform if the desired results are to be achieved. Two other points bear repeating here. First, conservation offices must receive the resources they need in order to be effective, including the funding necessary to attract qualified personnel, especially those from social science disciplines. Social scientists will tend to steer water policy away from command-and-control and toward demand management, provided that they are allotted sufficient status within the organization. Second, to be able to push through demand-management programs over other entrenched interests, water-conservation offices must themselves have increased stature within the water utilities and other municipal agencies in the MCMA. Increased stature will, in part, derive from the caliber and professionalism of the conservation office’s staff2. It has been repeatedly demonstrated that, even with the simplest of water conservation programs, water usage may be reduced 20 to 30 percent without substantially affecting resident or business welfare by introducing conservation incentives or technologies that generate the same water services from lesser quantities. (Martin et al., 1980; Shaw et al., 1992). Simply metering water usage more widely is likely to effectively reduce water use, particularly if coupled with an incentive-oriented pricing structure such as increasing block rate. Nevertheless, adequate institutional capacity is a prerequisite for success. Mexico City has the potential to obtain similar savings if enough attention is placed on 2   Much has been written on the topic of metering and unaccounted-for water. The interested reader is referred to extensive publications on the topic by the American Water Works Association, Denver, Colorado.

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Mexico City’s Water Supply: Improving the Outlook for Sustainability proper implementation of demand management strategies. Of course, conservation water policies must be designed for a specific context and programs that succeed elsewhere may be inappropriate in the MCMA. The Federal District has launched an ambitious program to reduce the water demand within a community through the installation of water saving devices, such as low-flow toilets and showerheads. In recent years, water officials in the MCMA have established goals of better water demand management and have taken important steps toward the realization of these goals. Reorganizations occurred to decentralize and better integrate functions, and rate structures have been changed; but perhaps more importantly, officials have voiced an intent to confront the urban growth that has created many of the water problems. In the document entitled Agua 2000, the chief of the Department of the Federal District gave official recognition to the need to control growth and to steer population away from recharge areas and into areas where infrastructure exists (Departamento de Distrito Federal, 1991a). In addition, the need to change popular cultural conceptions concerning water has been recognized. These are steps in the right direction, but the importance of further reform is clear. The costs, both financial and environmental, of using water in the MCMA have risen sharply in recent years, and they will continue increasing as demands promise to outstrip supplies in the near term.