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Water Prices in CEE and CIS Countries. Volume II: Case Studies

Chapter 4.
Institutional Framework And Policy Network Analysis

4.1 Purpose and structure of analysis

The purpose of this chapter is to describe political and institutional factors, which can be expected to influence the future process of setting water tariffs in Poznan.

Specifically, the chapter addresses the following issues:

	The process of water tariff setting: which actors are involved? Is the process open or closed? Do few or many actors determine the outcome?
	The current status of water tariffs as a political issue: is it a salient or non-salient issue? Have many different viewpoints been articulated? Is it perceived by the decision-makers as a sensible issue?
	The framing of the water tariff issue: how is the issue defined (and by who) and how will the framing of the issue influence the likelihood of getting acceptance of higher water tariffs?

Information was compiled during a fact-finding mission to Poznan in October 1999 during which the above subjects were discussed with representatives of the PWiK, the prominent parties on the Poznan political scene, different departments with the Poznan City Administration, NGOs, and research institutes. Please see Appendix 4 for a list of organisations and persons met.

4.2 The water tariff setting process 4.2.1 Description

In accordance with general provisions in force in Poland, the municipality of Poznan is responsible for setting tariffs for water and waste water. The current tariff setting procedure follows the following steps:

1. Material indexes for production costs (increases) are approved by Board of PWiK, as well as agreement on inflation; and a planned increase in power and heating costs.
2. Following the PWiK Board approval, the various departments make the actual calculations, coordinated and compiled by the Economist Department.
3. The tariffs are approved by PWiK Board and the PWiK Supervisory Board.
4. The tariff proposals are sent to City Board. The board may consult the Office for Competition and Consumer Protection (the antimonopoly office) and other institutions. There are no legal regulations describing how and when the Office should be involved. However, in reality the Office has during recent years always been asked for its opinion by the City Administration before the actual increases were approved.
5. The City Board seeks advice from the City's Committee of Municipal Economy and the Committee of Finance. Following recommendations from these bodies, it approves the proposals or request explanations and further documentation.
6. The tariffs are incorporated in the financial plans of the PWiK which are approved by the supervisory board and finally by the general assembly.

For the past two years the proposed tariffs by PWiK have been approved, as suggested by PWiK, without discussion.

It appears that the Poznan City Board is ultimately responsible for setting the level of tariffs increases and that three actors are involved: PWiK, the City Board, and the Office for Competition and Consumer Protection (anti-monopoly office), whereas other stakeholders, like NGOs, and political parties are not directly involved.

The process is therefore somehow "sheltered" from the central political scene, i.e. the City Council. It is the impression thus, that the decisions taken by the City Board are seen as of a predominantly administrative and "neutral" nature, compared to the City Board which is the arena for the explicit political decisions and controversies.

As a consequence, for a political party in opposition - currently the SLD party, the existing institutional set-up seems to make it more difficult to campaign on the water issue than if water tariffs were set by the City Council. In this case the opposition party would be more involved. Until a few years ago, water tariff setting was indeed within the competence of the City Council but the council assigned this competence to the Poznan City Board.

Also, in everyday activities and planning, PWiK does not interact much with the political system. Nor does the company involve itself systematically with e.g. NGOs and housing co-operatives. The housing co-operatives - in spite of representing the tens of thousands of tenants - have not received advance notification of changes in water prices, nor have they been directly included in the policy process as a stakeholder.

4.2.2 Assessment

The water tariff setting process takes place within a quite well established and closed framework where the main participants are PWiK and the City Board.

This may be a rational set-up in business-as-usual situations without drastic changes in the water tariffs. However, in the case of significant increases in water pricing which are to be made in the coming years, the existing procedures for tariff-setting could be complemented by a more participatory process during which public understanding of the intention and the need for changes should be targeted. Otherwise, one runs the risk that sudden and significant water price increases will be seen as arrogant and not justifiable. This could eventually lead to a decline in the political will to reform the water sector in Poznan.

4.3 Water tariffs as a political issue

The question of the future design of water tariffs in Poznan has not emerged as a significant political issue until now. Consequently, statements given by interviewees are of a very general nature. Thus it is difficult to anticipate what specific attitudes the dominant actors will articulate when - or if - the issue paves its way to the political agenda. However, different perceptions of water tariffs can be detected among e.g. the political parties.

4.3.1 The City Board

The City Board is an executive body made up of representatives from the ruling political coalition which, since the autumn of 1998, consists of the Union Freedom Party and the AWS party. The board finds that the provision of water should take place with respect to the cost-recovery principle. However, at the same time, the City Board has decided to fund major investments such as the refurbish-ment of the central wastewater treatment plant. Although subscribing to this guiding principle of cost-recovery, the two parties within the coalition have a somewhat different priority of the issue.

4.3.2 The Political Parties

There are three political parties represented in the Poznan City Council. A brief description is given in Table 4.1.

Table 4.1:
The political parties on the Poznan political scene - Attitudes towards future water tariff increases.

The UW party is willing to let the water prices reflect the full cost of water provision, even within a short period of time, whereas the SLD party advocates for a much slower development and requires that more attention be paid to the social impact of such changes. The position of the AWS party seems to somewhere in between. In conclusion, at the current stage, the political level acceptability of higher water prices seems to be neither high, nor low. The specific level of political acceptability depends on how the water issue actually will be framed. For a discussion hereof see Section 4.4.

4.3.3 The water industry

Peoples' attentiveness to water pricing is recognised by PWiK. The company is therefore exploring additional revenue sources other than higher water prices by which to finance investments. Alternative revenue sources under consideration are:

	to expand company activities to other cities (due to excess water supply capacity);
	to start selling water in bottles. The bottled water would be of the same quality as water distributed via the pipe networks. Already now PWiK is suspicious that some of the water sold on bottles is taped from the PWiK distribution system.

Producers of bottled water and individual water filtration systems also belong to the water industry.They have an economic interest in people perceiving the water quality as low as it will increase the demand for such products. According to information given by representatives from PWiK, the local administration, and research institutes filtration systems are promoted aggressively. However, the market research does not support this view.

4.3.4 Environmental groups

According to a representative of a local environmental group, called the Section of City Cyclists Environmental Friendly Transportation in the City, environmentalists find it difficult to deal with the water tariff issues due to its complexity. It involves environmental objectives, social impact, and (lack of) trust in public authorities. Environmentalist fully supports the environmental objectives (decrease water consumption, improve WW treatment) but they would like compensation schemes to be introduced simultaneously with introduction of higher water prices in order to lessen the negative social impact. Moreover, they would like PWiK to show itself as a company with transparent procedures and high management competence. They also would like to see PWiK reach out to the civil society and to interact with the NGOs directly, such as inviting them to meetings and discussions.

4.3.5 Housing cooperatives

Two housing co-operatives were interviewed. They find it, for various reasons, difficult to make water pricing a political issue. The reasons are, among others, that there is a common understanding within the general public that prices will eventually have to increase over the coming years, and the tenants are somehow reluctant to allow the representatives of housing co-operatives to involve themselves in political activities. Moreover, it is feared that their voices would not be heard within politicaladministrative circles if the housing co-operatives eventually were to engage in political activity.

4.3.6 Assessment

The case of a future application of the cost-recovery principle, for the provision of water services in Poznan, may become an emerging political issue. For now only some of the conjunctures are visible. However, it has been detected that the political parties put different emphasis on the issue and that they do, to a varying degree, consider the social impact of a water pricing reform.

4.4 The Framing of the Water Issue

4.4.1 Description

To frame a policy issue is to compose data, information, values and perceptions in such a way that it creates a certain perception of reality. Issue framing is therefore essential for policy outcomes. If a situation is framed as problematic it facilities other options and decision-making opportunities that if framed as non-problematic. Framing is thus not a "neutral" exercise but an important policymaking activity. It follows that political actors often are involved in more or less deliberate policy framing activities. They all create a different "reality" which facilitate the fulfilment of their interests and ideology.

A striking feature of the "water situation" in Poznan is that it is framed differently by different actors.

At least two different positions can be identified: one claiming that the water is of high quality and another perceiving the quality as mediocre. The first position is based on what is seen as "real" data; i.e. monitoring of water quality and scientific reports, the other being based on the sensing of the water.

The two positions are contrasted in Figure 4.1.

Figure 4.1:
Two different perceptions of Poznan water quality

High quality The assessment is forwarded by e.g. PWiK1 and Water Treatment Technologies Department, Poznan University.    Minor problems relate to the distribution of water as particles (rust) are released into the water but overall the water is of high quality.    Assessment based on "scientific proof".

Mediocre quality A significant share of the Poznan inhabitants gives low score to the water quality.      This perception is indicated in a recent survey on water quality perceptions. The survey shows that over three fourths of the respondents do not drink water from the tap.2 Also the SP study indicate this.3     Producers of bottled water and produces of individual water filtration systems stimulate this perception e.g. by advertisement campaigns.

During interviews with representatives of the political parties, some concern was expressed as to what degree increased water tariffs would go hand in hand with improved water quality. It appears clearly that the parties who either strongly (the UW party) or moderately (the AWS and SLD parties) support future water tariffs increases expect an improvement of the water quality.

They all see the issue as "higher water prices for better quality" and not "higher water price to sustain current quality". They therefore tend to see the water quality as not (sufficiently) good. As discussed in the following chapter, the political parties reflect the perception of the voters on this issue.

4.4.2 Assessment

Seen in this light, it could be interpreted as a political asset that a significant share of the inhabitants gives a low score to water quality. It will make it easier to get the population to accept higher water tariffs, provided improvement can be guaranteed, when the current situation is framed as "problematic".

A representative of the PWiK, however, rejects the somehow bold thesis that it is in the long-run interest of the decision-makers that the population - the voters - has a negative perception of the water quality on the ground that it will make them swallow price increases⁴. Rather, this person insists that PWiK will strive to close the gap between the company's measurement of water quality and peoples perception of the water.

No "truth" on the quality of the Poznan water exists; it is perceived differently by different actors. The political parties frame the water issue as a matter of "higher water tariffs in return for improved water quality".

It has been noted that producers of bottled water and individual water filtration systems have an economic interest in people perceiving the water quality as poor as it will increase the demand for such products. On the other hand PWiK wants the population to accept its product as good and healthy, but the company does not seem to have developed a strategy to counter the apparently false information/perception being given by e.g. bottle water producers.

To sum up, in the light of the future investments in e.g. the pipe system and the corresponding expected increase in water tariffs, the fact that many inhabitants perceive the current situation as somehow "problematic" may increase the political and public acceptability of higher water tariffs.

4.5 Concluding assessments

This study of the political acceptance of higher water prices, and the description of the current setup for setting the tariffs, does not give a clear-cut picture of the Poznan case. The results should also been seen in the light of the limited scope of the study. However, the study gives grounds for drawing four conclusions.

1. Political acceptability. The political acceptability of significant higher water tariffs in Poznan is likely to be low if investments are not accompanied by tangible improvements. It is difficult to foresee a situation where the politicians will be able to "sell" the issue to the voters as a matter of service maintenance rather than improvement. However, as noted below consumers are willing to pay significant amounts to avoid service and quaity deterioration. This may make framing the water issue in terms of "higher tariff for higher service" easier.
2. Not one accepted "truth" of water quality. A second observation is that an accepted truth in regard of the quality of the water being provided by the PWiK does not exist. On the one hand we find statements, "proofs" and monitoring results pointed to high quality, on the other hand it can be observed that many decision-makers (and significant parts of the general public, according to the SP analysis) see the water quality as unsatisfactory.
3. Framing may determine outcome. A third conclusion follows from the above, namely that "framing of the Poznan water situation" probably will be of crucial importance for the future discussions on investments in water supply and WW treatment. The combination of 1) politicians having a need for a solid you-will-get-better-water argument in return for burdening the people of Poznan with additional costs and of 2) many people having a mistrust in the current water quality could lead to the delicate conclusion that:

   	it is a strategic and political asset that people have a "too negative" perception of the water they consume;
   	it is in the interest of PWiK to carefully consider the manner and timing of a correction of this attitude, as it may strongly influence peoples' willingness to pay and the politicians' willingness to support higher tariffs.

4. High degree of concurrence. There seems to be a quite high degree of concurrence between people's willingness to pay and politicians' willingness to decide.

The SP analysis shows that 49% thinks charges should be increased and service quality improved whereas 41% thinks charges and quality should remain at the same level as now. These figures seem to fit with the signals given by the political parties that the prices should either increase at only slow pace (if no improvement will follow) or significant increases should correspond with service improvement.

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