A study on the improvement of water price normalization policy in Korea

Abstract

In 2014, the Ministry of Interior and Safety (MOIS) promoted a water price normalization policy in order to solve problem of low cost recovery ratio, which is a chronic problem of water management in Korea. However, MOIS's policy to increase water price has failed eventually. The reason why MOIS's policy failed was due to the fact that, first, it did not take into account the various conditions of each local water service and applied uniform criteria in setting goals and promotion periods. Second, MOIS used cost covering ratio and water production cost as criteria to classify policy targets, but this classification criteria had some problems. This paper suggests policy target regrouping, goal level differentiation, and implementation period differentiation as an policy alternative to increase water price effectively. The research results show that factors related to economies of scale, such as length of water pipe, are significant factors to consider when classifying policy targets. In addition, a 75% of revenue water ratio was suggested as a factor to consider when deciding the timeline for raising water prices.