The history and application of shadow pricing in South African water projects

• Published: 2011
• Subjects: Shadow prices - South Africa; Water-supply rates - South Africa; Water resources development - South Africa
• Online Access: http://hdl.handle.net/10210/3721

M.Comm === This dissertation comprises of four parts that attempt to explain the history and application of shadow pricing in South African water projects with reference to water resource development and water pricing reforms. Water is a precious resource and people simply cannot survive without fresh water. It becomes a vital function to then price water correctly and therefore revolutionise the way water is treated. The application of CBA has become increasingly important over recent years Governments often finance these projects, but there is a need for a consistent or standard framework to evaluate capital projects to minimise the risk and possible losses. As a result a manual and method to evaluate spending priorities was developed in the 1980’s in South Africa. CBA has found extensive applications in the field of water development. Important issues such as the opportunity cost of water and a method to calculate the economic value or the opportunity cost of water have been developed further in South Africa over the past few years. It emphasises that pricing water can be a complicated process affected by various forces, many of which are difficult to define and model. The History and Application of Shadow Pricing in South African Water Projects Page v This dissertation demonstrates that the strategies employed in each country are different variations of CBA, with the use of shadow pricing and are adapted to each countries varying circumstance. The political experiences in South Africa have placed strain on the countries scarce national resources. As a result there is a need for some kind of framework and method to evaluate spending and pricing of infrastructure and importantly the development of water pricing reforms and management thereof. The study concludes that there is limited literature that actually defines and explains how shadow prices are calculated in water resource management. Wrong policy or planning decisions can often be a result of price distortions. Therefore, countries are becoming more aware that external factors, such as social welfare and the environment need to be taken into consideration.