ADB will also promote the inclusion of environmental externalities and the recovery of resource management costs in tariff systems adopted by the DMCs. Evidence from scores of water projects shows that the poor are increasingly willing to pay for water services that are predictable and effective. Governments have been consistently mistaken in their assertions that charging farmers for irrigation services is not possible because of their inability to pay. Several irrigation regimes in the region, including those in Indonesia, Pakistan, Thailand, and Viet Nam, show that farmers, including poor farmers, are willing to pay for irrigation services that are efficient and reliable. Likewise, requiring the poor to pay for the true costs of urban and rural water supplies is possible and has been found to be an effective means of sustaining the services and involving the poor in their management.
Subsidies are a controversial issue in the water sector.
Taken together, these circumstances may justify a limited lifeline element in tariff policy. Other forms of subsidies, such as cross-subsidization between systems, will be reviewed to ensure that targeting is efficient and transparent. However, in the long term, governments and regulatory agencies will be persuaded to phase out subsidies as economic conditions improve. To serve the best interests of both consumers and the managers of water resources, the system of pricing, incentives, and penalties, regardless of its simplicity or sophistication, requires to be regulated. Regulatory systems need to be established to ensure that laws, standards, rules, and regulations are equitably and consistently applied.