Reforming Water Pricing in Pakistan for Sustainability

Water scarcity is a growing concern globally, but in Pakistan, it has reached critical levels. The country’s water resources are depleting rapidly due to inefficient usage, outdated management systems, and population growth. Pakistan, classified as a water-stressed nation, is on the verge of becoming a water-scarce country if immediate and substantial reforms are not implemented. Per capita water availability has plummeted by more than 30% in just over a decade, from 1,500 cubic meters per person in 2009 to 1,017 cubic meters in 2021. The World Resources Institute predicts that by 2050, Pakistan will be among the world’s most water-stressed countries.

One of the primary culprits behind Pakistan’s inefficient water use is the outdated water pricing mechanism. The current system, particularly in agriculture, where more than 90% of the country’s water resources are consumed, fails to reflect the true value of water, leading to wasteful practices and unchecked depletion. Addressing this issue requires a fundamental restructuring of Pakistan’s water pricing system. This article explores the need for reform in water pricing, particularly in agriculture, the challenges of the current system, and the potential benefits of transitioning to an economic water pricing model.

The Current State of Water Pricing: The Abiana System

At the heart of Pakistan’s water pricing system is the Abiana charge, a flat-rate levy imposed on farmers for irrigation water use. While this system was intended to generate revenue and encourage efficient water use, it has failed in both respects. The Abiana rates, even after being revised in 2019, remain significantly lower than the economic value of water. Farmers view water as a low-cost or free resource, resulting in its overuse and mismanagement.

Furthermore, revenue collection through the Abiana system is alarmingly low. In key agricultural provinces like Sindh and Punjab, less than 60% of the assessed revenue is collected. This minimal revenue, in turn, barely covers 10% of the maintenance costs of the water channels, leaving the irrigation infrastructure in poor condition. Without sufficient funding, water systems are not adequately maintained, resulting in leakages, inefficiencies, and higher losses of valuable water.

Moreover, the flat-rate pricing system used under the Abiana model does not accurately reflect the actual amount of water each farmer uses. This creates inequities, where some farmers pay more than they should while others pay less. Such a system provides no incentive for water conservation or the adoption of water-saving technologies like drip irrigation, even though significant government subsidies are available for such initiatives.

The Environmental and Economic Costs of Inefficient Water Use

The absence of an economic water pricing system leads to extensive environmental degradation and long-term economic costs. Pakistan’s agriculture sector, which relies on irrigation, is dominated by water-intensive cropping patterns such as rice, wheat, and sugarcane. Without financial penalties for excessive water usage, farmers have little motivation to shift to less water-intensive crops or adopt modern irrigation techniques. The result is overexploitation of water resources, contributing to declining water tables, soil degradation, and reduced agricultural productivity.

For example, the cultivation of rice, a crop that requires substantial water, is common in regions like Punjab, where the water table is already dropping at alarming rates. In some areas, the groundwater level is receding by up to one meter annually due to excessive irrigation. This unsustainable use of water not only threatens long-term agricultural productivity but also reduces the availability of potable water for human consumption, exacerbating Pakistan’s overall water crisis.

Economic Valuation of Water: The Potential Revenue

To understand the economic implications of water mismanagement, it is essential to consider the potential revenue from a well-structured water pricing system. A comprehensive economic valuation of Pakistan’s water resources reveals a stark contrast between the potential and actual revenue generated through the current system. According to the Economic Survey of Pakistan (2023-24), the country had approximately 92.5 million acre-feet of surface water available in the fiscal year. This is a substantial volume of water that, if properly taxed and enforced, could generate significant revenue.

The Abiana system, with its outdated and under-collected charges, brings in a fraction of the potential revenue. The total potential revenue from Abiana could be as high as Rs. 32.66 billion. However, the actual receipts in Punjab during the last fiscal year were only around Rs. 1.49 billion. Punjab accounts for nearly 70% of Pakistan’s agricultural land. So, the total revenue from Abiana is estimated to be less than Rs. 3 billion, a vast shortfall compared to the economic value of Pakistan’s water resources.

Further analysis shows that the economic price of water, based on the opportunity cost of using diesel to extract water, ranges from Rs. 871 to Rs. 1,143 for extracting 100 to 120 m³ of water. This results in a cost of Rs. 7.92 to Rs. 10.39 per cubic meter. This suggests that the total value of Pakistan’s surface water is between Rs. 904 billion and Rs. 1,186 billion. The gap between the potential revenue under the current Abiana system and the true economic value of water is substantial, highlighting the urgent need for reform in water pricing.

The Need for Economic Water Pricing

Implementing an economic water pricing system is critical to addressing Pakistan’s water crisis. Such a system would reflect the true scarcity and value of water, providing a financial incentive for conservation and sustainable use. By linking the price of water to its economic value, Pakistan can encourage farmers to adopt more efficient irrigation techniques and reduce their reliance on water-intensive crops.

An economic pricing model would involve charging farmers based on their actual water consumption, rather than the current flat-rate system. This would encourage more equitable and efficient water use, ensuring that those who consume more pay proportionately higher. Farmers who adopt water-saving technologies, such as drip or sprinkler irrigation, would benefit from reduced water bills, creating a direct financial incentive for conservation.

Countries like Israel provide a valuable example of how economic water pricing can lead to sustainable water management. Israel, a country that faces similar water scarcity challenges, has implemented a comprehensive water pricing system that charges users based on their consumption. This system has incentivized farmers to invest in cutting-edge irrigation technologies, leading to higher agricultural productivity with significantly lower water use. Israel is now a world leader in water efficiency, and its agriculture sector continues to thrive despite its arid environment.

Overcoming Challenges in Water Pricing Reform

While the case for economic water pricing is clear, implementing such reforms in Pakistan presents several challenges. The political economy of water pricing is complex, with strong resistance from influential agricultural stakeholders who benefit from the current low-cost water system. Farmers are often reluctant to accept higher water prices, fearing that it would erode their already slim profit margins.

To overcome these challenges, it is crucial for the government to phase in water pricing reforms gradually, allowing farmers time to adjust to the new system. Providing targeted subsidies or financial assistance for the adoption of water-saving technologies could help ease the transition. Additionally, investments in farmer education and awareness campaigns are essential to demonstrate the long-term benefits of efficient water use, both for individual farmers and for the country as a whole.

Redirecting Revenue for Water Infrastructure and Sustainability

The revenue generated from an economic water pricing system could be used to fund critical infrastructure projects aimed at improving Pakistan’s water management. For instance, the construction of new dams, canals, and storage facilities would help Pakistan better manage its water resources, reducing losses due to evaporation and inefficient distribution.

In addition, revenue could be invested in research and development for water-saving technologies and sustainable farming practices. Public awareness campaigns, funded through water pricing revenue, could play a pivotal role in changing societal attitudes toward water conservation and sustainable use.

Conclusion: A Path to Sustainability

Pakistan is at a critical crossroads in its water management journey. Without substantial reforms in its water pricing system, the country faces a future of increasing water scarcity, reduced agricultural productivity, and growing environmental degradation. Implementing an economic water pricing system is a crucial step toward sustainability, allowing Pakistan to align water use with its true value and create incentives for conservation.

By restructuring the Abiana charges and introducing consumption-based pricing mechanisms, Pakistan can ensure that its water resources are used efficiently and sustainably. The time for action is now. With comprehensive reform, Pakistan can overcome its water inefficiencies, secure its food production, and build a sustainable future for generations to come.

Please note that the views expressed in this article are of the author and do not necessarily reflect the views or policies of any organization.

The Author is a Research Fellow at Pakistan Institute of Development Economics

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