Pricing Approaches in the Case of Cross Border Water Supply

Cross - border water supply is defined as water delivery of drinking water between countries where the complexity of water supply management is increased mainly because of the doubled reality of administrative, legal, accounting and decision-making processes. The paper contributes to a debate about the problem faced by the water sector in general, namely that prices and tariffs are almost universally below the full-cost of supply. This means that inefficiencies exist and needs to be carefully examined based on proper allocation of variable and fixed costs of water abstraction. Analyzed water pricing of existing cross-border WSS clearly demonstrates a wide plethora of applied water pricing approaches mainly based on pure negotiation principles demonstrating different bargaining positions of partners. In order to overcome this situation applicable water pricing principles were analyzed. National guidelines and academic publications endorse two possible approaches: marginal cost approach and recovery of full cost approach. Paper presents the applicability of these approaches for cross-border water supply and provides a practical model for costs' allocation. The model is demonstrated on a real business case of Slovene water utility.