DDP 689. Hasan Ali Biçak and Glenn P. Jenkins. "Costs and Pricing Policies Related to Transporting Water by Tanker from Turkey to North Cyprus." March 1999. 26 pp.

Water shortages in North Cyprus are quite evident and both supply and demand policies to alleviate these shortages are urgently needed. Due to a decrease in rainfall over a number of decades, and as a consequence of the over extraction of water from the aquifers, seawater intrusion has occurred in several areas. This has killed the citrus trees in some regions and made the publicly supplied water undrinkable in many areas, particularly in the Gazimagusa (Famagusta) region. On the conservation side, projects to convert traditional irrigation to modern methods and the introduction of new pricing policies are expected to address some of the water shortage problems in agriculture. Possible solutions to the potable water shortages include importing water from Turkey and applying better water management practices, and introducing pricing policies that more closely effect the marginal costs of supply.

This paper reports on an evaluation we have carried out on the financial feasibility of importing water by tanker from Manavgat (Turkey) to Kumkoy (North Cyprus). The break-even real price of water (1998 prices) reflecting the cost per cubic meter (m3) will be calculated at various stages of the delivery process. The cost of water to the shore of North Cyprus reflects only the transportation cost, while the cost to Kumkoy reservoir will include the cost of infrastructure to be built in North Cyprus. The cost of water to households will take into account the high rate of leakage in the distribution systems. In determining the effects of various financial arrangements on the cost of water, the model considers the financial cost of maintaining various length of billing cycles and payment terms for the water. It also includes an examination of the financial repercussions if there are only periodic adjustments made to the nominal price of water for inflation. In a very high inflationary environment like North Cyprus, such items not only affect the financial outcome of the project, but also require the authorities to consider a number of alternative pricing policy schemes.

JEL Codes: D61, H43, L95

Keywords: North Cyprus, evaluation, water transportation, tanker, price policy, inflation.

Hasan Ali Biçak is Head of Department of Banking and Finance, Eastern Mediterranean University, in Gazimagusa, North Cyprus.

Glenn P. Jenkins is an Institute Fellow at the Harvard Institute for International Development.