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Price Regulation Is Essential
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The price of water has kept rising in recent years, as has public doubt about what is behind the rises.


The new regulation on the supervision of water pricing, which was released by the National Development and Reform Commission (NDRC) to clarify what can be included in the cost of water supply and what should not, will help resolve public doubt.


The cost of residential water use rose by 42 percent from 2000 to 2005, according to a survey of 36 cities by the National Bureau of Statistics. Meanwhile, the bureau found that staff in monopoly sectors enjoy much higher incomes on average compared to competitive industries.


Aware of the vast income gap, the public cannot help but feel angry about the continual increase in the cost of water.


The price of water should be based on the costs of water supply. But what constitutes costs is complex.


Water diversion, waste-water treatment and construction of pipes are, justifiably, water use costs. But office buildings, salary rises, staff benefits and hospitality expenses are also included in the costs of water, according to the current practice.


It is not that those expenses cannot be taken into account; they can, but there must be a limit on them so that water suppliers do not push up their spending and claim it is reasonable.


If this were the case, price hikes would be groundless, because those "swollen costs" are not truly necessary for water supply and should not be shouldered by the public.


Proper pricing regulation, which makes the price of water match its real cost, is thus essential.


The NDRC regulation provides clear-cut accounting standards for water suppliers. It imposes quotas on those costs, which could become uncontrollable if no specific limit is imposed, such as hospitality expenses.


This would prove to be the first workable step for regulators to rein in the costs of public goods suppliers if it can be carried out to the letter.


To ensure the faithful implementation of the rule, independent auditing is indispensable and cost information should be made available to the public. A good regulation alone would not solve all the problems.


If external auditing is not introduced in the cost accounting of water supply firms and their cost information remains off limits to the public, water suppliers would still have much leeway to cheat regulators and the public and manipulate pricing.


If that happened, it would nullify the NDRC regulation. And that is what the public is really concerned about.


(China Daily November 15, 2006)

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