Environmental Economics & Policies; Water Conservation; Town
Water Supply and Sanitation; Water and Industry; Water Supply
and Sanitation Governance and Institutions Summary: The main
reason Lima failed to implement a concession was geographical:
the scarcity of water sources meant high marginal costs, partly
for pumping water from deep wells and building adequate storage
for dry periods. High extraction costs were compounded by years
of neglect; much of the system needed to be replaced. Attracting
private investors meant setting prices high enough to recover
these high costs and provide a reasonable return on capital. But
the government had subsidized costs for years, so a concession
would have required a sharp and sudden price increase to cover
marginal costs. Moreover, any forward-looking investor would
want to slow the pace of future investment by curbing demand
through more effective (meter-based) bill collection. And cross-
subsidies, which reduce the incentive to conserve water, would
also have to be re