# 3. Water demand management in the Eastern Economic Corridor

According to the Royal Irrigation Department assessment, by 2037 water demand will increase by 13 percent in the EEC (Table 3.1), with a current annual growth of 27.7 percent. The domestic water sector is the main driver for additional water demand with an estimated growth rate of 56 percent in 20 years, followed by industry with a growth rate estimated of 43 percent. However, agriculture is the sector with the highest total consumption now and in the future, with a growth rate estimated of 17 percent by 2027.

Source: Background Information Gathering and Fact Finding on Thailand Water-Related Challenges and Policy Agenda, ONWR, Thailand, 2021

Chon Buri province is and is projected to be the province with the highest volume consumption in absolute terms, but with the lowest increase 12% growth in 2027. Chonburi and Rayong Province are projected to increase their water demand by 50% at least in 2037. Figure 3.1. provides the detail projections for EEC provinces and neighbouring provinces.

Source: Background Information Gathering and Fact Finding on Thailand Water-Related Challenges and Policy Agenda, ONWR, 2022

Robust water allocation regimes are required to ensure water security in the region and minimise tensions during scarcity time in the EEC. According to the preliminary study of water demand and supply in three EEC provinces, it was found that total water supply in the whole Eastern Region was around 2.936 billion cubic metres, while water supply in the three EEC provinces was 1.682 billion cubic metres. However, water demand already overpasses current supply: the demand for water consumption requirement for all economic activities in the entire Eastern Region was 3.833 billion cubic metres, while in the three EEC provinces the demand was 1.984 billion cubic metres (EEC Office, 2019[1]).

Currently, the magnitude of the potential water insecurity in the EEC does not seem to be fully considered. Climate change and water resources management risks could threaten water security to new levels which may not be addressed by current water developments in the EEC. According to Water Users groups and key agencies of the Thai government (EEC Secretariat, Royal Irrigation Department and ONWR) the current water development plan is considered sufficient to address future water insecurity in the region, by avoiding future shortage during drought periods. Trust from the civil society can be interpreted as a result of Thai’s government commitment to ensure that water supply covers water demand.

International experience suggests that such a statement may need to be qualified. First, supply augmentation comes at increasing social, environmental, economic and financial costs. Additional infrastructure needs to be built, and then operated and maintained, creating future liabilities. This is particularly an issue when future water demand and availability are uncertain (be it only because of climate change). In addition to finance, economic costs derive from the fact that additional water capacity may not contribute to water use efficiency. Environmental costs can be complex, when sediments are stopped from flowing because of dams, environmental flows are not sustained when too much water is abstracted from water bodies, or when additional (fossil) energy is used to augment supply. Social costs occur when the costs of augmenting supply are unevenly allocated across user groups and communities. Second, a combination of demand management and supply augmentation can be more robust in the face of uncertainties about future water availability and demand. Third, such a combination can be cost-effective, when all the costs sketched above are considered; it can result is less pressure on scarce public finance (see OECD, 2013; OECD, 2021). Water allocation regimes can go a long way managing water demand - from existing and new users. They can allocate water where it creates most value to communities (OECD, 2015).

Thai authorities are committed to ensuring that water allocation regimes (Box 3.1) are fit for the future and deliver effective water allocation under normal conditions and in times of water scarcity. The background information received suggests that responses to scarcity in Thailand translate into limiting or banning some uses.

The Water Resources Act 2018 divides water users in three categories, without clearly quantifying the distinctions between them:

1. 1. Type 1: the use of public water resources for the living, household consumption, agriculture or livestock farming for subsistence, household industry, ecosystem conservation, customs, public disaster mitigation, communications and the use of water in a small quantity;

2. 2. Type 2: the use of public water resources for the industry, tourism industry, electricity generation, waterworks and other undertakings;

3. 3. Type 3: the use of public water resources for a large-sized undertaking which requires the use of a large quantity of water or possibly has effects across drainage basins or covering large areas

The water use of Type 1 “requires no water use licence and is subject to no payment of fees”, regardless of the farming surface. Taking into account that irrigated agriculture is the major consumer of water resources in the EEC, users Type 1 consume up to 65% of the total volume in some provinces (Table 3.2.), it can be a critical element to limit water security in the EEC and the country.

Source: Background Information Gathering and Fact Finding on Thailand Water-Related Challenges and Policy Agenda, ONWR, Thailand, 2022

Currently, water allocation in the EEC is assessed through two situations. During normal situation, the River Basin Committee is responsible for considering water usage, water allocation, prioritizing water usage in each river basin activity, and controlling the use of water in accordance with the framework of rules and guidelines prescribed by the National Water Resources Committee (NWRC), including the Eastern Economic Corridor Committee. To increase water security, a plan is prepared in advance by the River Basin Committee to prevent and resolve drought and flood situations. It is approved by NWRC and submitted to the governor, government agencies, and local government organizations. However, the River Basin Committee does not have a mechanism for analysing and forecasting the water situation.

During extreme events, defined as “an event of a water crisis that may affect the livelihoods of people, animals, plants, or may cause severe damage to the property of the people or the state”, the Prime Minister establishes an Ad Hoc Command Centre to manage the crisis until it returns to normal. During this period, the National Water Command (NWC) act as a secretary in conducting monitoring, surveillance, analysis, pointing out the risk areas and adjusting the plan. Measures set up include limiting and banning some activities, which affects farmers and industry.

Such command-and-control responses are common globally. However, they can trigger equity issues and can unduly affect economic development. In particular, they can lead to unfair and inefficient allocation of risks across water users in the basin. Typically, they disproportionally affect low value uses and provide no incentives for other uses to enhance water use efficiency. Other options could be considered, thanks to robust water allocation regimes.

Given the inherent variability of water resources and shifting pressures and social preferences, in particular with the important transformation happening in the EEC, water allocation regimes need to be both robust and demonstrate adaptive capacity. This requires striking a balance between the need for flexibility at the system level and security at the user level, giving both water managers and water users’ greater capacity to manage risk. The following section presents recommendations on water allocation regimes, water demand management as well as compensation mechanisms for inter-basins water transfers in the EEC.

The EEC, River Basin Committees will benefit from assessing the robustness of their water allocation regime at system and user level. The complex and distinctive features of water resources as an economic good and its particular legal status mean that allocation regimes are often complex combinations of various laws, policies, and mechanisms. The robustness and adaptive efficiency of an allocation regime can be improved by unbundling the various elements and using separate instruments to pursue various objectives. However, unbundling should not undermine the effective management of the system as a whole. Therefore, even if separate instruments are used to achieve particular objectives, there is still a need for a comprehensive view of how the various elements interact. The elements of an allocation regime can be divided into “system level” and “user level” elements (OECD, 2015[2]).

System level elements are those that are most efficiently and equitably dealt with at the scale of the water body, whether it is the basin, catchment, river, stream or aquifer. They range from identifying the availability of water resources, to the legal status of the resource, to mechanisms for monitoring and enforcement, see Table 3.3 (OECD, 2015[2]).

Source: OECD (2015), Water Resources Allocation: Sharing Risks and Opportunities, OECD Studies on Water, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264229631-en.

In the EEC, River Basin Committees may need to reinforce some elements of the water allocation regime, in particular the demand side such as identification of in situ flow requirements, abstraction limit and requirements for new entrants. Demand based water policies are considered most cost efficient and sustainable in the long term (OECD, 2016[3]).

Thai authorities, through their ambitious reforms of the water sector, are addressing numerous system elements such as providing appropriate infrastructures, the legal status, the institutional arrangement and definition of exception circumstances.

In addition, water security in the EEC would benefit from having a more accurate supply assessment under extreme events, which could set more realistic limits to water abstraction and access to new entrants, to be able to increase water resilience. Thai government has already started to reinforce this element by developing “One Map”, a “national data bank on water and climate” as a database gathering real time information from related agencies, grouping information on rain, rain and storm forecast, flood water, level of water in different sources, such as reservoirs, large natural water sources, and main rivers; as well as water quality and emergency area (ONWR, 2019[4]).

Data gathering and homogenisation are key elements to support more accurate water allocation regimes. However, they are not sufficient. Decision making processes need to be established, including threshold for water abstraction during normal times and dry periods, application of these thresholds through policy, economic and regulatory instruments and thresholds revision to adapt to changing conditions. For example, without having a realistic cap for water abstraction in the basin, regardless of the data precision, very limited effective measures can be implemented to address future water insecurity in the EEC.

User level elements of a water allocation regime are those aspects that are most efficiently and equitably dealt with by specifying the arrangements that apply to an individual (or collective) abstractor. Typically, these take the form of arrangements specified in entitlements, permits and licenses.

Source: OECD (2015), Water Resources Allocation: Sharing Risks and Opportunities, OECD Studies on Water, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264229631-en

Several measures at user level could make water allocation more robust in the EEC. Licenses and related abstraction charges could be set up for water use of Type 1 which benefit from water services delivery. This could be done at a group level to be most cost-effective. Even if individually the volume consumed is small for Type 1 users, the total volume consumed by all Type 1 users is the highest (Table 3.2.). France has explored options to regulate water abstraction from groups of small users. It does so through collective entitlements to abstract water, which are then managed by water user associations without further interference from any regulating agency. Box 3.2 illustrates the French case.

Providing clearer guidelines on what is meant by “small quantity” for water uses from Type 1 would strengthen water allocation, as well.

Without setting in place licences for all users or some form of cap on how much water can be abstracted (individually or collectively), water security could be compromised now and in the future, regardless of how much additional water can be supplied. Licences, and the economic instruments linked to them, are key tools to ensure water security in the region. By leaving the biggest number of users and the highest cumulative water consumption outside the water allocation regime and any regulation about water abstraction, the EEC region as well as the whole country could be jeopardising its water security.

Environmental flows refer to the quantity, quality and timing of water flows required to sustain the ecological health of a water body. More precisely, Thailand defines minimum environmental flow as “the flow with 90% exceeding of duration (Q90) to sustain the ecological health of waterway” (ONWR, 2019[4]). Thai authorities estimate that 27,090 billion cubic meters are required to preserve ecosystem during droughts in the country (ONWR, 2019[4]).

Thai authorities would benefit from reinforcing environmental flows in the EEC, in particular developing policies ensuring protection under the secondary laws under the Act on Water Resources Management. The Water Resources Act does not mention explicitly environmental flow, which may limit environmental flows legitimacy to be considered as part of the allocation process. Having in place a methodology to set minimum environmental flows does not ensure its application. Its absence in the Act may lead to impunity towards its consideration. The penalties in the Act currently occur once the damage has taken place (section 85) which limits the options to protect the resource and increases the costs in the long term. In relation to environmental water, the Act only sets the conservation and development of public water resources by identifying the areas (water sources, creek and wetlands) and identifying the criteria for making use of land that may affect public water resources. These two elements are key to protect the resources but may not be sufficient to ensure its protection in the long term. Pillar 1 of the Master Plan on Water Resource Management “hold the principle of balance in conservation, rehabilitation and development of water sources(ONWR, 2019[4]) needs to be applied.

Freshwater systems provide a wide range of ecosystem services, and those services depend on particular flow regimes. This includes many services beyond traditional “conservation” objectives, and can include services such as flood attenuation or the provision of water for human consumption. Failure to provide adequate environmental flows can lead to a wide range of negative, and often unexpected, impacts. International experience shows it is extremely difficult to recover water for the environment once it has been allocated for consumptive use. This highlights the importance of reserving appropriate flows for environmental purposes from the outset (OECD, 2015[5]).

It does not follow from the considerations above that environment should be given priority vis-à-vis other water uses in the EEC. The point is that due consideration should be given to the needs of the environment (in particular, freshwater ecosystems) from the outset and the likely consequences of reductions or other changes to instream flows: understanding how much water ecosystems need to provide the services on which our well-being relies is a requisite to factor the environment in allocation decisions. Underestimating these needs can be very costly in the end (either because ecosystems may fail to function or because their protection or restoration will be more costly at a later date); overestimating them results in lost opportunities for other valuable purposes. (OECD, 2015[5]).

During water scarcity time at the EEC, addressing return flows can be particularly challenging, because entitlement holders have an incentive to reduce return flows and save the water for themselves. This can undermine the integrity of the allocation regime if the change in the effective rate of consumption is not accounted for. There are generally two approaches to address this issue:

1. i) reducing the abstraction limit as the technical efficiency of water use increases, with the reduction averaged across all entitlement holders equally; or

2. ii) Specifying return flow obligations in water entitlements.

Choosing between these options depends on an assessment of administrative costs and preference for stimulating innovation in the EEC. The first approach rewards first movers in the pursuit of technically more efficient uses of water. The rate of adoption of more efficient irrigation technology should be faster. Those that move first, benefit from access to water that was previously being used by others. The latter approach is more equitable, as changes in the choice of technology made by one person, which increase the technical efficiency of water use, have no impact on the amount of water allocated to all other users, as would be the case in the first approach. However, the latter approach is much more expensive to administer as the type of technology used by each person needs to be tracked and accounted for (OECD, 2015[5]).

In some cases, including several parts of the United States, a hybrid approach is taken. No attempt is made to account for changes within a farm, but when an entitlement is transferred to another person the entitlement is adjusted for expected changes in the return flow (OECD, 2015[2]).

Water allocation regimes can only be effective when combined with pricing and non-pricing measures across sectors. Demand side approaches offer multiple benefits compared to supply-side approaches. These include reduced costs from reduced water treatment and energy use (e.g. treatment, heating); savings in capital expenditures through downsized new supply projects; and increased environmental benefits of reduced withdrawals. At the same time, water demand management requires a high level of expertise, knowledge and know-how, together with capital (upfront) investments, for example, the installation of water meters or the replacement of distribution networks. Based on other countries experience, the efficiency and effectiveness of particular non-price and price measures depend on several dimensions, such as the level of water scarcity, level of awareness, institutional context or the quality of the infrastructure (European Environmental Agency, 2017[6]).

Restrictions of water supply in times of acute water scarcity are generally considered to be effective in reducing the water demand in the short term. However, they have no or marginal effect on water demand in the long term if they are not accompanied by other measures such as leakage reduction, water saving devices and awareness campaigns (European Environmental Agency, 2017[6]).

Thai authorities could benefit from reinforcing non-pricing measures under EEC water allocation regimes. However, these measures would need to be combined with pricing measures to reach their maximum potential.

One of the key challenges of non-pricing mechanisms, in particular in times of restricted public finance, is that they often require financial resources for their implementation. This is the case for subsidies for the installation of water saving devices and for consumer awareness campaigns – even though the implementation costs of awareness campaigns are relatively low as compared to many other (infrastructure-like) measures.

EEC authorities would benefit from reinforcing the water demand side management long term plan by reducing water losses, reducing network leakage across all sectors.

Under the EEC water management plan, network leakage reduction or reducing water losses are key elements to manage demand in collaboration with the Provincial Waterworks Authority and the Industrial sector. Leakage in the distribution networks is not compatible with the increasing trend towards sustainability, economic efficiency and environmental protection. Water losses are an inevitable part of the practice of public water supply, which from a resource efficiency perspective should be minimised. The term includes production losses and distribution losses, which again includes real losses in the network and unbilled consumption (European Environmental Agency, 2017[6]).

Thai authorities would need to take into account that investments needed for improved leakage efficiency must compete with other priorities for operating and capital funds, and must be based on a sound financial case of costs and benefits. To reduce water losses, Provincial Waterworks Authority could measure the volume of lost water by water service providers. It is important to note that water services providers often offer the position that they are operating as efficiently as they can, given their specific circumstances, and that further increases in efficiency to reduce leakage would require increased tariffs, which can be politically unpopular.

In the EEC, effective reduction in leakage can become more complex with increasing water shortages and potential reduction in consumption in the long term. When a distribution system faces shortage, the last resort is to stop distributing water for parts to allow some replenishment of the reserves. “Stop and go” is socially harmful and potentially unfair. Moreover, it affects the infrastructure through brutal changes in the pressure in the network. This is why a thorough leakage reduction programme is preferable.

To ensure water security in the EEC, Thai authorities would benefit from exploring water use efficiency for the agricultural sector. According to the Royal Irrigation Department, the current strategy of the for water management is to increase supply by building water storage facilities to support farmers.

Other countries, facing similar water scarcity challenges, have put strong emphasis on water use efficiency as a means to reduce structural water stress and vulnerability to the risk of water shortage. Water use efficiency has different components: distribution, application and retention. Different technical options are potentially available to improve water use efficiency which would allow the agricultural sector to produce more while also freeing up water resources for other users and uses.

While improving water use efficiency is necessary to move forward a green growth strategy in agriculture, several issues must be addressed to ensure that policy approaches achieve their objectives. A too narrow focus on water use efficiency, together with a lack of water policy coherence could lead to perverse effects and counterproductive outcomes (OECD, 2016[3]). Three issues are of particular concern in this area:

• Hydrological paradox. When assessing water efficiency, return flows tend to be ignored. Water use efficiency measures tend to reduce return flows, resulting in less water being available for users downstream (including for environmental purposes), thereby exacerbating scarcity. This is a major error and can lead to environmental risks at the catchment level. Mitigating these unintended consequences of water use efficiency gains requires appropriate water accounting at the basin scale that considers not just withdrawals but also water returning to the system. Moving from hydrological science to the inclusion of such return flows in water right systems is, however, a complex task. Accounting for return flows should thus be studied more systemically to assess their relative importance in watersheds. And return flows would need to be accounted for in water allocation (OECD, 2016[3]).

• Risk of rebound effect. Water use efficiency frees water, which becomes available to expand irrigated land. This happens when water savings arising from efficiency gains are captured by the farmer, rather than returned to the water system. As a consequence, water use efficiency can lead to extension of irrigated surfaces, not to more water being available for users downstream (including the environment). The classical corollary is that water use efficiency gains should be accompanied by a regulation of water demand or irrigated surfaces to prevent this rebound effect from occurring (OECD, 2016[3]).

• Indirect impact associated with production choices. Even taking into account the previous risks of perverse effects, investments to increase water use efficiency can incite farmers to follow a path of specialisation in irrigated crops, which in the end would make them more dependent on water resources and the risks associated with climate change (OECD, 2016[3]).

The current water management plan in the EEC includes water diversion. This can exacerbate growing competition across riparian regions (providers versus receivers of water).

Robust allocation regimes can minimise equity issues related to such a competition. Still, compensation measures may be required. As suggested earlier, the reform of water allocation regimes could provide ample opportunities for participation and negotiation. Thai authorities’ willingness to engage stakeholders and appropriately compensate potential “losers” facilitates the process. Compensations can take various forms, such as funding to build storage structures in some EEC provinces (Chachoengsao) and neighbouring provinces (Chanthaburi) providing water. Regardless of the compensation measure selected, minimising equity issues and designing fair and cost-effective compensation are key.

Many countries with similar socio-economic (developing regions with high tourism and industry and wealth inequality) and hydro-climatic conditions (semi-arid versus abundant water regions) have put in place inter-basins transfers. They do not include compensation measures; at places receiving bodies pay for the volume transferred (on the basis of some bulk water tariff). Most inter-basins transfers are based on the principle of solidarity between wealthier and water abundant regions and poorer and water scarce regions within a country. Box 3.3 provides details on the Brazilian experience with the São Francisco Integration Project water transfer.

In a different context, Korea has set up a mechanism to compensate territories and communities upstream of a river for the distinctive constrains they face to protect water quality to the benefits of users downstream. This financial transfer mechanisms is designed to compensate for the impacts such constraints have on the capacity of these communities to grow and develop. Although it is designed to manage water quality, this mechanism can be a source of inspiration for Thai authorities when considering a financial mechanism to compensate basins which agree to share their waters with other basins.

Several elements should be considered when putting in place inter-basins transfers which include compensation measures between regions:

• Economic analysis is required to evaluate if the net regional income gain due to the transfer in the EEC is positive, given all feasible alternatives to the transfer, including the equivalent value of environmental changes. From an economic perspective, a transfer should occur if the transferred water, including the costs of transportation and payment for third-party income losses and environmental costs, is the least cost water available to the importing basin. These considerations normally demonstrate how cost-effective water demand management is, compared to inter-basin transfers.

• The water price for the water transferred should aim to recover the full cost of the resource (the financial cost of building and operating the infrastructure, and the opportunity cost of adding constraints to water users in the source basin). It should not only consider operation and maintenance costs, it should include environmental and social costs as well. As illustrated by the Spanish case (Box 3.4), inter-basin water transfers raise the cost of supply significantly and can have substantial environmental impacts.

As explored by the Thai government, the compensation mechanism could finance additional infrastructures in the origin basin. The receiving basin, as a potential condition of the transfer, could refund the income foregone (including the equivalent value of lost nature) in the basin of origin. Analysis of the potential income losses in the region that shares its water should be assessed taking into account all sectors (agriculture, environment, water supply, industry, energy, among others). The following economic instruments could be explored:

• The receiving basins in the EEC could share the net regional income gain with the basin of origin, through a tax over benefitting sectors. Access to water supply provides spill-over effects for the economy, such as in the EEC area benefitting from infrastructure, industry and tourism development. In addition, it has the potential to attract private businesses to the region, resulting in higher regional income. This, in turn, will bring employment to the region, increasing consumption and demand for other sectors such as housing (OECD/ADBI/Mekong Institute, 2020[10]).

• The tax revenues could be distributed to investors who finance the infrastructure in the origin basin without decreasing existing tax revenues of local and central governments. Returning spill-over tax revenues to investors would encourage the development of rural regions. For example, in the Philippines, the central government finances much of the infrastructure development. If local governments return a part of their increased spill-over tax revenues to the central government, the central government can invest those returned tax revenues into other projects to help mitigate poverty in rural regions (OECD/ADBI/Mekong Institute, 2020[10]).

Water charges in the receiving basins in the EEC could be used to finance compensation measures under specific conditions. According to section 49 (1) of the Water Resources Act 2018, water charges are applicable to users Type 2 and 3. Water tariffs and water charges are two different economic instruments. The first aims to recover the costs of water supply services (building, operating and maintaining the infrastructure; it accrues to the service provider). The latter aims to manage water resources; it reflects the scarcity of the resource (the charge is higher when water is scarce); revenues from the tax can be transferred to the general budget (the preferred option from a public finance perspective), or earmarked for water expenditures (the preferred option from a water policy perspective).

OECD Council Recommendation on Water advises that “setting abstraction charges for surface and ground water that reflect water scarcity (i.e. environmental and resource cost) and that cover administrative costs of managing the system” and “setting water pollution charges for surface and groundwater use and pollution or charges for wastewater discharge at a sufficient level to have a significant incentive effect to prevent and control pollution” (OECD, 2021[11]).

A portion of the water charge could be used to finance infrastructures. This could be justified if the public benefits of infrastructures are established. In the meantime, the absence of sufficient charges in the EEC basin seriously compromises the financing of the river basin plan (assuming implementation of the water pays for water principle). This discussion is currently undergoing in other countries experiencing similar situations as Thailand, such as in the Piancó-Piranhas Açu River Basin in Brazil (OECD, 2022[12]), see Box 3.5.

The charge rate should not vary according to the category of user, as is often the case in OECD countries, where farmers - and sometimes industry - benefit from preferential rates. The water conservation signal would be more effective if the same rate applies for all abstractors. To address affordability issues, two steps should be considered. First, affordability issues should be thoroughly documented and the communities affected clearly identified. Too generic assessments tend to overstate affordability issues, leading to compensation measures that are poorly targeted and benefit users who could afford to pay more. Second, an additional levy on rich abstractors could be collected and redistributed in the basin as income for the poorest to help them pay the rate (cross-subsidy between abstractors). The support would be even more effective if it was earmarked to support transition away from water-intensive practices (e.g. support to new crops, innovative farming techniques, more efficient irrigation schemes). Box 3.6 provides an overview of the functioning of abstraction charges in France (OECD, 2022[12]), which have proven effective as a financing mechanism for water-related expenditures.

Regardless of the compensation measure in place, conflict due to inter-basin transfers are common. Water transfers are a sensitive strategy to overcome water scarcity needs. Box 3.7 illustrates Korean experience with this challenge. Numerous elements should be reinforced to reduce conflict in the future while ensuring that the water security is achieved across basins and not only at specific locations. Monitoring i) the total water balance across basins to address any asymmetry over time, ii) users consent across regions and iii) economic and non-economic compensation mechanisms matters, in particular during scarcity times.

Thailand has started the process of reviewing its water tariffs for all users, by homogenising the calculation methodology across sectors. Under the new formula, capital operation and maintenance costs should be covered by water users.

Without further information on the new tariff system, no recommendation can be provided in relation to the feasibility of introducing an additional variable to increase revenues for compensation mechanisms. However, taking into account the low water tariff rate, adding an additional cost to the formula may not be the most viable solution in the short them. Currently, water tariffs in Thailand are low. For instance, the charge for raw water is based on a national tariff dating back to the 1940s, while wastewater services are free for most of the population (OECD/ADBI/Mekong Institute, 2020[10]). Adjusting these tariffs is challenging from both a technical and political point of view. However, when comparing peer countries including Indonesia, Vietnam, Philippines, the water tariff level of Thailand is considerably low, as illustrated in Table 3.7. The GDP per capita of Thailand of 2020 was $7,188, nearly twice as much as that of its regional peer countries such as Indonesia ($3,922), Vietnam ($3,525) and the Philippines ($3,323). In other words, Thailand could increase water tariff in exchange of better services.

Low tariffs for water services have two harmful consequences. First, they deprive service providers from the revenues to improve service provision and reach unserved communities. Second, water tariffs are too low to manage water demand (Molle, 2001[14]). While disaggregated data on affordability is lacking, it is worth noting that cheap water usually is a very inefficient way to address affordability issues. This is so as a vast majority of water users could afford to pay more for the service they benefit from. In developed and developing countries, cheap water hurts the poor as it prevents extension of service coverage to unserved communities, who often procure unsafe water from private vendors at a much higher price than public supply.

The new tariff should ensure that there is full cost recovery, across all water sectors. To achieve it, ONWR would require to promote this principle across sectors and Ministries. Several obstacles may limit its implementation in Thailand: 1) policy makers’ concern about the strong public opposition to refuse any price increases in public goods especially water and 2) lack of users trust to accept an increase of water tariff in exchange of better services.

ONWR would need to address two main challenges when supporting water tariffs aiming at full cost recovery in the EEC: low willingness to pay of water users and water tariffs impacts on the Consumer Price Index monitored and controlled by the Ministry of Finance. Water is an intermediate good used in countless manufacturing process, increasing water tariff has a direct impact on the Consumer Price Index and indirectly increases food, industrial products and services prices. Therefore, the trade-off between the strong need to increase water tariffs to ensure the sustainability of services and water security and the pressure on keeping it low due to domestic economy requires strong cooperation among the Ministry of Finance and OWNR.

This assumption needs to be checked. First, social expectations vis-à-vis water security and access to water and sanitation services are likely to change as Thailand develops. Second, simple economic analysis would demonstrate that the impact of higher water tariffs on the consumer price index would be minimal.

When affordability issues are documented, they are best addressed through targeted social measures. Setting tariffs at the right level and structuring them appropriately is complicated by the need to address multiple policy objectives (economic, financial, social and environmental). Despite the existence of various water tariff practices around the world, there is no consensus on which tariff structure best balances the objectives of the utility, customers and society as a whole (OECD, 2020[16]).

The efficiency of tariffs as instruments to manage water demand depends on users’ response to price signals. The literature suggests that this response is usually limited, in particular in the short term. For example, accompanying measures, such as nudging, can enhance the elasticity of domestic water demand to price (OECD, 2020[16]).

While authorities and service providers allocate considerable amounts of time and efforts to design and adjust tariff structures to accommodate multiple policy objectives, they usually fail to combine efficiency and equity objectives. Increasing-block tariffs - which provide water for basic needs at a lower price - can be socially progressive only when they meet two conditions:

1. 1. highest tariff blocks are set well above the average cost of service provision and income generated serve to cover the costs of the subsidised lower block; and

2. 2. They take into consideration that poor households can actually consume more water than wealthy ones (because they have larger families, or less water-efficient networks or appliances).

In practice well-targeted tariff structures are complicated and difficult to understand: they may be perceived as opaque. They require information on water use and its features (for instance on the size of households, age and physical conditions of individuals, crop production, quality required among others) that are either costly to collect or not accessible to service providers. This explains why sophisticated tariff structures can fail to target the households most in need (OECD, 2020[16]).

Fiscal transfers can be justified to cover part of the cost of water services. Public authorities must pay attention to which fiscal instrument is most appropriate. Different fiscal instruments have distinctive capacities to address the social dimensions of paying for water supply and sanitation services, as well as water for other sectors. The most appropriate fiscal instruments will depend on Thai national context. For example, touristic areas property taxes can be used to capture some of the value added by reliable water supply and sanitation services (OECD, 2020[16]).

Affordability is a multifaceted issue, which does not merely refer to the capacity to foot the water bill. Affordability also relates to how water bills affect users’ capacity to meet other essential needs (e.g. food or health care). It relates to the capacity to save (when water bills are issued every quarter or year) and to have stable revenues. It follows that appropriate responses to affordability issues need to combine several dimensions. They can waive or modulate access fees, which can be disproportionate with households’ capacities to save or incur debt. They can adjust payment schedules to match users’ liquidity or irregular income. They are better delivered through targeted social measures than through the water bill. The most appropriate responses vary according to national and local contexts. They usually combine a capacity to target users most in need of support; low transaction costs, building on existing data and social programmes; and synergies with water conservation measures (OECD, 2020[16]).

In Thailand, the major constraints to wastewater treatment are the high cost of investment and lack of continuous operation and maintenance. This applies to wastewater in the EEC. However, the EEC has started to implement its wastewater plan, focusing on domestic use, including wastewater control and minimization at point sources, public participation, effective law enforcement, and rehabilitation and construction of wastewater treatment facilities.

In relation to industry sector, Chonburi and Rayong provinces have been designated for developing the EEC. In Chonburi province, there is Laem Chabang Industrial Estate, the largest industrial port of Thailand. For Rayong province, there are a lot of industries and Map Ta Phut Industrial Estate is the largest one. To manage industrial wastewater quality, the emphasis is set on the reduction of wastewater at point sources, establishment of a permit system to control industrial discharge, and installation of online monitoring equipment at point sources.

Treated wastewater is a reliable alternative water source in water-scarce regions. Plan for the reuse of treated wastewater plans should be reviewed in consideration of the characteristics and economic situation of the each EEC province. As such, diverse water uses need to be taken into consideration when establishing wastewater reuse plans and strategies: i) agricultural uses such as irrigation of crops, orchards and pastures or aquaculture, ii) industrial uses such as cooling water, process water, aggregate washing, concrete making, soil compaction, dust control, iii) municipal, landscape uses such as irrigation of public parks, recreational and sporting facilities, street cleaning, fire protection systems, toilet flushing, dust control.

Planning for water reuse includes the following considerations:

1. 1. Identify the available quantities of wastewater that could be recycled and how these are placed to address individual needs ;

2. 2. Determine the necessary quality standards or treatment requirements and other requirements ensuring safe use and protection of health and the environment;

3. 3. Identify the different costs (and energy requirements) associated with treatment of the different wastewater sources and with the delivery of treated wastewater to identified users;

4. 4. Determine the funding sources for the development and operation of the reuse schemes and adequate water tariffs. This element can be complemented by who will recover the costs; and

5. 5. Establish systems for control and monitoring to ensure safe use of the treated wastewater for people and the environment and compliance by the operator with legal obligations.

In parallel, the deployment of reclaimed water requires the stimulation of demand for alternative sources of water. This can be achieved by a combination of robust water allocation regimes (putting a cap on freshwater available for abstraction), quality standards for reclaimed water aligned with requirements for targeted uses, and abstraction charges that reflect water scarcity and make reclaimed water competitive and attractive. Different water users have different expectations and reclaimed water becomes a viable option when it comes with guaranteed access to needed volumes at a stable price. This combination allows water users (water utilities, industries and farmers) to factor water availability in their operation and adjust behaviour and use. We turn to this in the following subsections.

Countries such as Israel (see Box 3.8) and Spain which have experienced similar situation in terms of rapid economic growth with limited water resources provide valuable inspirations for Thailand.

A variety of technologies with different nature, processes, and means exists for wastewater treatment. A treatment technology can be employed singly or in combination with other technologies and processes for optimal result. Due to the numerous available technologies and processes, there is a respectively high number of possible flow diagrams for the treatment train that can be adopted, depending on the specific characteristics of each reuse application. The basic principle of wastewater treatment plants is the optimum removal of the various pollutants present in wastewater. The necessary level of wastewater treatment is defined by the effluent limit concentrations, which needs to be fulfilled before the final discharge of the effluent, and by the option of water reuse of this treated effluent. A conventional treatment train usually includes up to two or three treatment stages: primary (preliminary), secondary, and tertiary treatment.

Increasing recognition of treated water as a valuable resource enhances the demand for water reuse, especially in the urban environment. Water reuse for non-potable applications in urban areas can significantly contribute to potable water supplies conservation.

Water reuse applications take place mainly in large centralized treatment facilities. If water reclamation is the target, then advanced treatment technologies should be included in the treatment train. A variety of different technologies could be available to achieve an optimum effluent quality suitable for reuse applications in the EEC.

Water sensitive urban design which includes nature solutions to collect water as part of the water reuse cycle. This supplements treatment of effluents in wastewater treatment plants, by collecting rainwater and making it available for (non-potable) uses in urban environments.

Water Sensitive Urban Design (WSUD) integrates urban water cycle management with urban planning and design, with the aim of mimicking natural systems to minimize negative impacts on the natural water cycle and receiving waterways and bays. It offers an alternative to the traditional conveyance approach to storm water management by acting at the source, thereby reducing the required size of the structural storm water system. It seeks to minimize impervious surfaces, reuse water on site, incorporate retention basins to reduce peak flows, and incorporate treatment systems to remove pollutants. WSUD also provides the opportunity to achieve multiple benefits though sustainable urban water management.

The key principles of WSUD are:

• Protect and enhance natural water systems within urban environments.

• Integrate storm water treatment into the landscape, maximizing the visual and recreational amenity of developments.

• Improve the quality of water draining from urban developments into receiving environments.

• Reduce runoff and peak flows from urban developments by increasing local detention times and minimizing impervious areas.

• Minimize drainage infrastructure costs of development due to reduced runoff and peak flows.

The WSUD concept and tools are flexible enough to be inserted in different types of urban development. Large open space with waterways, a building unit, civic plaza, and hardscapes (car park and roads) are typical options for application. In any case, a soft scape plays a significant role in storing, treating, and conveying water for various purposes: flood mitigation, runoff harvesting and reuse, heat mitigation, and recreational use with added ecological value.

A notable example is the Cheonggyecheon Stream in Seoul, South Korea, a restored 11 km stream in the middle of the city that was once topped by a highway (Figure 3.3. ). The project has shown an improvement in its recreational value by providing publicly accessible equipment for residents and tourists. By using the presence and natural process of water, it has reduced the heat island effect, with the stream acting as a cooling mechanism facilitating thermal comfort while managing storm water runoff.

Source: Transforming Cities through Water-Sensitive Principles and Practices, Tony H.F. Wong, Briony C. Rogers,Rebekah R. Brown

Acceptability by the social communities or households is a requisite for the deployment of alternative water systems. The main challenge regards potable reuse.

Indirect potable reuse, meaning where reclaimed water is discharged into a water body before being used in the potable water system, has successfully been implemented in Australia, Europe, Singapore and the United States. As noted by Marsden Jacob Associates (2006), “the key issue is not whether the science or the engineering are feasible, but the extent to which indirect potable reuse will be accepted by the public (OECD, 2015[17]).

Direct reuse is more sensitive. Singapore, which produces New Water (Box 3.9) complying with the most stringent requirements for industrial uses, finds it difficult to sell extra-safe water to consumers. Trust in standards, in the processes that prevailed to their definition, and in compliance enforcement contributes to (but does not guarantee) acceptance (OECD, 2015[17]).

Reform of the governance and the institutional framework for water supply and sanitation is a requisite for the public opinion to consider alternative ways of providing water. Changing patterns of water use is a process of long-term institutional transformation. To ensure that water reuse is a viable source of water, policy should focus on facilitating stable predictable arrangements for making policy decisions such as guaranteed volume during scarcity times. This should be done including civic groups to reassure and inform the public. This implies long-term institutions in charge of water re-use for continuous negotiation among diverse stakeholders about conditions, meanings, values and relationships (OECD, 2015[17]).

Based on other countries experiences, key factors can contribute to the acceptability of reuse water. First, scarcity is the main driver to awake the public interest in alternative sources of water. Second, the possibility of providing permanent supply even during scarcity times. And finally when compared with other sources of water, such as desalinisation, energy consumption is lower1 (Schaum, Lensch and Cornel, 2015[18]). These factors combined with financial incentives can make reuse water a major source of supply in the EEC.

Water tariff, as indicated by the OECD Council Recommendation on Water, should be based on the principle that tariffs enable full cost recovery including cost of water conveyance, piping systems and wastewater treatment (OECD, 2021[11]).

In the EEC, setting prices right for water could be the first step towards stimulating markets for water reuse. From a revenue side, the financial attractiveness of reuse water systems is limited by the fact that revenues coming from water tariffs and other charges and in most cases, they do not reflect the positive externalities for the society at large. Typically, revenue streams from non-potable reused water are limited because only a few applications qualify, and the willingness to pay for them is low. This is so for two reasons: first, the price of potable water does not reflect its full cost and second, non-potable uses are valued less by the community and the customers than drinking water (OECD, 2015[17]).

This illustrates a market failure which is typical for environmental policy and which can legitimate policy interventions. It follows that alternative water systems can only be deployed when water-related institutions and regulations are transformed into enabling frameworks, a prerequisite for the deployment of reclaimed water (OECD, 2015[17]).

In Thailand, and in particular the EEC, the appropriate pricing strategy for water reuse should be designed and implemented as part of a wider pricing strategy including tariffs for water reuse, conventional water supply and wastewater treatment, as well as other instruments (e.g. water charges). The application of unmodified pricing principles for conventional water supply, based on cost-recovery considerations only, is not always relevant or appropriate for reclaimed water. Whereas the overall objective of pricing strategies for water reuse should always be cost-recovery, pricing strategies must adopt a system-wide approach –which considers: (i) all components of the system, i.e. water reuse as well as conventional water supply and waste water treatment; (ii) all costs included in the system; and (iii) all benefits (also environmental benefits) (ACTeon, 2016[19]). In addition, water tariffs for reclaimed water need to be regulated through their design, approval and enforcement to avoid their fluctuation over time and increase transparency for consumers.

Reclaimed water consumption could increase for the industrial sector, in particular in Rayong province, if the production cost is not higher than freshwater, reclaimed water quality meets the quality requirements and constant volume is ensured even during scarcity times. According to representatives of industrial sector, most manufacturers in EEC have their own water storage facilities to address unexpected water shortage and already use reclaimed water in their production process. The percentage of reuse water used is almost 50 percent. According to the interviews, the main barrier to increase further the use of reuse water is its cost, compared with fresh water. It is therefore essential that freshwater charges and tariffs reflect the cost of the service, including the resource cost (i.e. the opportunity cost of using water when it is scarce).

Water supply affects the production and manufacturing process of most goods and products. Therefore industrial stakeholders are taking water price and stable supply into account to ensure profitability. Industries analyse the cost of their water use and reliability of supply. They will opt for the water resource (freshwater versus reclaimed water) which is the most beneficial and which minimise the risk of production failure due to water shortage.

The total amount of water saved from using reuse water in the industrial sector may be lower than the agriculture sector. However, industrial sector is less sensitive to psychological factor of reuse water, unlike agriculture and households. Currently, farmers can irrigate with fresh bulk water without any cost; therefore, they have no incentive to purchase reclaimed water. Considering the EEC development plan to make this region, the high-tech industrial hub of Thailand, promoting reuse water for the industry would support water security in the region.

In summary, lowering the production cost of reuse water is a key factor to increase its consumption. Reuse water cost can be reduced through: (1) developing in country new development of wastewater treatment technologies through public and private research and development, (2) importing advanced wastewater treatment technology from world class reclaimed water facility operators (Fu, Pietrobelli and Soete, 2010[20]), (3) reaching economy of scale by grouping individual wastewater facilities and (4) designing economic incentive for those who increase their usage of reuse water including tax exemption or reductions.

Water reuse can be particularly attractive in the EEC due to drought risks, because it can allow permanent supply even during scarcity time. For industry production, which may require a constant volume even during drought periods, permanent supply can be a decisive factor for its settlement in a region such as the EEC. In addition, reuse water, by unlocking an additional water supply source for some sectors such as industry, could reduce competition between users of freshwater. For large agriculture producers, having high value crops requiring precise irrigation, reclaimed water can be an appropriate option instead of lacking supply and losing the production. In addition, freshwater users may be less subject to water restrictions in periods of water scarcity.

In the EEC, treatment of alternative sources of water adjusted to the quality standards of different applications can increase its demand. There are two broad categories of applications: potable and non-potable ones. Non potable uses include irrigation (for some type of crops, parks and golf courses), most industrial applications, some uses for households, including outdoor uses (such as gardening) and indoor applications (e.g. flushing toilets or washing machines). Alternative sources of water can be used for direct or indirect potable reuse (water is discharged into a water body before being used in the potable water system) (OECD, 2015[17]).

Water sector regulators need to be prepared to monitor water quality from a variety of different sources in multiple settings (in central plants, commercial and industrial buildings, and private houses). This requires capacity, financial and human resources.

As the EEC continues with its economic development, stringent standards for wastewater treatment and discharge will be required to stimulate supply and demand for reclaimed water. For example, in the European Union, the widespread of tertiary treatment, due to the introduction of Directives increasing environmental standards, contributed to wastewater reuse expansion (European Commission, 2019[21]). As part of the overall perception of sewage as an important source of water, and if treated wastewater is to be used for agricultural irrigation, sewage treatment must be done according to strict standards so that the effluent quality is safe for irrigation of all agricultural crops and for discharge in to water sources (rivers and aquifers).

It is key to raise awareness among citizens and policy makers that current levels of water security are jeopardised by climate change, urbanisation, and demographic and economic trends. This is a requisite to trigger policy and behavioural change.

Some countries has overcome this challenge through targeted communication campaigns. In Australia, research has shown how public perceptions of alternative sources of water (including reclaimed water) have changed over the last 10 years. Initial concerns for public health hazard now leave way to less resistance to use reclaimed water for garden watering and cleaning uses. This was achieved through targeting opinion leader groups and the media (OECD, 2015[17]).

If Thailand wants to scale up reclaimed water and unlock its potential as additional source of water, communication would need to be a main pillar of its strategy. Numerous cities such as Singapore have developed communication strategies specific to reclaimed water, to raise awareness among the population by highlighting its safety and numerous advantages in particular in regions already suffering water insecurity; see Box 3.9.

## References

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[18] Schaum, C., D. Lensch and P. Cornel (2015), “Water reuse and reclamation: a contribution to energy efficiency in the water cycle”, Journal of Water Reuse and Desalination, Vol. 5/2, pp. 83-94, https://doi.org/10.2166/wrd.2014.159.

## Note

← 1. The energy consumption for non-potable reuse is only about one-quarter of that for desalination. Economic evaluations show identical trends for annual costs (Schaum, Lensch and Cornel, 2015[18])

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