In a strongly worded report issued yesterday, the Bundeskartellamt (the Federal Cartel Office), criticised pricing practices in the German drinking water sector and the lack of effective regulatory oversight of water charges.
According to the Bundeskartellamt, prices for drinking water in Germany vary greatly from city to city. Average net revenues of water providers in the 38 largest cities in 2013 varied from 1.40 to 2.60 Euro / m3. These substantial differences can be explained in part by the different supply conditions, such as supply density or altitude differences in the area of supply. In individual cases, however, an effective regulatory control of water charges is essential to prevent providers from taking advantage of their monopoly to the detriment of consumers.
The report also considers the consequences of the 2013 removal of antitrust oversight of water tariffs. Tariffs are subject only to the municipal supervision of the federal states, which impose lower standards than competition law oversight. For municipal water suppliers this opens up the possibility of a "flight to tariff" if they want to avoid pricing abuse oversight.
The President of the Bundeskartellamt states:
"The Bundeskartellamt and individual regional cartel offices have successfully taken action in the past years against water companies that have charged excessive prices. It is regrettable that the legislature decided in 2013 to exclude the antitrust oversight of water tariffs. The resulting dichotomy of supervision makes no economic sense. For the consumer it makes no difference whether he pays an excessive price or an excessive tariff for his drinking water”.
The report concludes with a list of recommendations for action:
- The Bundeskartellamt recommends strengthening oversight of water charges. An extension of antitrust supervision to water tariffs would improve control over charges and end the economically nonsensical dichotomy of supervision. A "flight to tariff" would be avoided.
- In addition, further measures could be taken to increase water providers’ efficiency awareness in order to avoid excessive pricing in the first place. In light of the monopolies which exist in the sector, consideration could be given as to whether, for example, the expansion of benchmarking projects, through which water providers obtain information about their relative performance in comparison to other water providers, could identify opportunities for cost savings and instigate improvement processes. Additional measures to establish greater price and tariff transparency could enable consumers to better categorise the level of charge by their supplier. As a result, the incentive for providers to make their water supply efficient is likely to increase.