The Global Water Forum has released a discussion paper, titled "Breaking up Water Monopolies: Costs and Benefits," which concludes that vertical integration can be supported by economic arguments, but underscores that horizontal integration of water and sewage cannot be likewise supported.
October 2012: The Global Water Forum has released a discussion paper, titled “Breaking up Water Monopolies: Costs and Benefits,” which examines historical reorganizations in the English and Welsh water industries in order to evaluate different options for the effective and efficient management of the water industry, in an effort to best meet current and future needs.
The paper, authored by Alexandros Maziotis, examines two reorganizations that resulted in an eventual monopoly of the water and sewage companies that were subject to price cap regulation. The paper considers the arguments for such integration, including: technological and transactional economies; the alignment of incentives and behavior; and the ability to internalize externalities. In doing so, the paper also reviews current policies for the further reorganization of the water and sewage sectors.
The paper concludes that the vertical integration of services may be cost effective, with an anticipated 31% increase in costs if production is separated from distribution. However, it stresses that there is no valid economic argument for the horizontal integration of water with sewage. In fact, the paper underscores that separating water services from sewage services could yield annual savings of 13%.
The Global Water Forum was established in 2010 as an initiative of the UN Educational, Scientific and Cultural Organization (UNESCO) Chair in Water Economics and Transboundary Water Governance in order to present knowledge and insight from leading water researchers and practitioners. [Publication: Breaking up Water Monopolies: Costs and Benefits Discussion Paper 1239]