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Private-sector involvement and proper pricing required to save Montreal’s crumbling water infrastructure

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Release Date: May 18, 2010
VANCOUVER, BC—Montreal should adopt the French model of water management, allowing the private sector to manage the city’s water delivery system if it hopes to repair its crumbling water and wastewater infrastructure, recommends a new study from the Fraser Institute, Canada’s leading public policy think-tank.

“A competitive environment that would promote efficiency gains and the participation of the private sector is needed to improve management of the city’s water services,” said Jean-François Minardi, Fraser Institute senior policy analyst and author of the study, Management of Water Services in Montreal.

Additionally, Minardi’s study recommends a move away from the current flat-rate pricing of water included in property taxes to a rate-based system, which may include the use of water meters.

“The current pricing system promotes waste and does nothing to encourage conservation, since the price paid is lower than the value of the resource,” Minardi said.

“Even if people regard water as a ‘right,’ the fact remains that it is not free. The provision and distribution of water is very expensive and consumers will only change their behaviour when confronted with correct price signals.”

The city of Montreal is facing a $4 billion bill to repair and upgrade its existing water and wastewater distribution system, which is in an advanced state of disrepair after years of neglect. The city loses 40 per cent of its water each year because of leaks and breaks in the water pipes. Sixty-seven per cent of the system of water lines will have reached the end of its useful lifespan within 20 years; 33 per cent has already done so. Moreover, water treatment plants must be upgraded to comply with provincial drinking water quality regulations.

Rather than raise taxes and appeal to other levels of government for additional funding—the conventional way municipalities attempt to fund large-scale infrastructure projects—Minardi says Montreal should look to France as an example of cost-effective water supply management.

In France, water system assets remain owned by the municipalities, but management and maintenance of water delivery systems are delegated to the private sector through calls for tender and leasing agreements.

Today, 75 per cent of France’s population receives water from private providers such as Veolia, Suez Environment, or Saur.

“Under current Quebec law, which allows municipalities to enter into public-private partnerships, the French model of water management would be the best fit for Montreal,” Minardi said.

Minardi points out that water prices will likely increase because rates have long been artificially low, and thus have failed to provide the proper signals to consumers of the cost of all the inputs used to supply them with water. However, under the French model, the private operator is remunerated directly by the users through a fee fixed under the concession contract. Therefore, there are limits to the rate increases that the operator can charge.

“Although the benefits of market mechanisms in the management of water are substantial and undeniable, the public remains skeptical. It is, therefore, essential to remind Quebecers that water is not free—its price is considerable once the costs of infrastructure maintenance and modernization are taken into account. Water-pricing reform and the participation of the private sector would help to cover these system costs in the most efficient way,” he concludes.


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