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Egay Uy

IS another potable water provider in the city practical and feasible?  Will competition in the distribution of potable water really bring down water rates?

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These questions may be worth pondering upon in view of the realities in the water distribution world.

Water distribution, like electric distribution, may be regarded as a natural monopoly which exists as a result of the high fixed costs or startup costs of its operation.  Add to this the labyrinth of pipelines, conduits, and water distribution lines that have to be laid out from the pumping stations to the households, such that having more than one provider in a locality whose infrastructure is not yet ready could put us in a mesh of waterlines.

Yes, water distribution, while it is not a pure monopoly, could very well be a natural monopoly because of these factors.

A monopoly is allowed because it produces more significant output than smaller firms in a competitive environment. This is because of economies of scale which results in savings in costs because of higher production levels thus spreading fixed costs to a higher output.

Theoretically and simply stated, if there are two water service providers, and the number of concessionaires is equally divided and served by them, the costs will most likely double because there will only one-half of what used to be the divisor of the costs.  This way, the reduction in water rates may not be attained as expected.

The water district has entered into an agreement (joint venture) with another firm for the bulk supply of water.  Maybe it should also consider entering into a joint venture agreement with the cooperative sector in the distribution of water to the households instead of the latter group putting up a competition which may not work as envisioned.

Maybe, by putting in a cooperative perspective to the management of the water district, the welfare of the concessionaires will become the first and foremost concern of the water service provider.

Competition may not work.  Instead the cooperative sector and the water district may have to resort to “coopetition”.  After all, they both espouse similar goals.

Just my few cents.

 

(Egay Uy is a lawyer and vice chairman of the Cagayan de Oro’s price coordinating council.)

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