IN an article published in the last issue of the Sunday Mail the sheer folly of the government’s water policy was laid bare. It is a policy that could be used as a case study in the misallocation of natural resources for first year economics students learning the basic principles of the subject.
One of the first things economics students learn is how the market ensures the efficient allocation of scarce resources. The government’s water policy, in contrast, is a case of clueless bureaucrats allocating a natural resource in an arbitrarily irrational manner that would prove very costly to the average household.
Bureaucrats decided that water in the dams would be used exclusively for agricultural purposes, while all potable water would be supplied by the desalination plants at a much higher price. Excess production by the desalination plants would be diverted to the dams and be sold below cost price to the farmers, who will have so much cheap water at their disposal that, according to one of the writers of the above-mentioned article, they would be able to grow rice if they chose to.
But for the average consumer, the water rates that would have to reflect desalination costs could triple from next year, while farmers would be able to waste as much cheap water as they like on crops at a much lower price. And when there is an over-supply of a crop and the price is low, they would either dump it or ask the government for compensation. It is a totally irrational use of a valuable natural resource, favouring a small class of people who contribute a paltry three per cent of GDP. Farmers could make money, if they wanted, by growing no crops and reselling their water at a good profit to households which would still be paying less than the going rate.
If ministry technocrats were capable of rational thought, they would not have differentiated the water and set different uses for it. Water from the dams would also have been classed as potable so that the average cost would have been lowered and consumers would have paid lower rates. Preventing wastage of what is a valuable resource should have been a priority of the government policy. Above a pre-specified level of water consumption, households should have been made to pay a premium rate. Farmers should also have been given quotas and made to pay a premium rate when these were exceeded, instead of being given a licence to waste.
The government policy is currently under discussion but nobody seems to be concerned enough to voice objections. But everyone will be up in arms this time next year when they receive water bills with the new pricing. Our only hope now, is for the EU to reject this economically irrational plan when it is finally submitted by the government.
