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Updating water costs (TPAT)

On September 28th 1995, the Interim Agreement known otherwise as “Oslo II” agreement was signed between Israel and the PLO. The Agreement supersedes the 1994 Gaza-Jericho Agreement, and the subsequent agreements on transfer of civilian responsibility. Oslo II provides the details as to how the policies set forth in the 1993 Declaration of Principles are to be implemented. Article 40, Water and Sewage, has been the basis that governs the Israeli-Palestinian relationship on water issues to date. As by-products of Oslo II, and within the framework of the Joint Water Committee (JWC), the water pricing committee has developed and signed in December 1998 a Protocol Relating to Water Supply (also known as the Price Protocol). This Committee determines from time to time the price of water sold by Israel to the Palestinian Authority (which, according to Article 18 of the agreement on water purchases, is to reflect the true full cost of water ”incurred by the supplier, including the cost of production at the source and the conveyance all the way to the point of delivery”) and discusses ongoing problems. These Terms of Reference (TOR) have been developed by the Palestinian Water Authority (PWA) in the light of lengthy discussions and debates on the new cost of water.

Formula for Updating of Water Costs
Under the Protocol Relating to Water Supply agreed to by the Israeli-Palestinian Joint Water Committee a Formula for the Updating of Water Costs was agreed to. This formula was included in the Protocol as Annex III – refer copy of Annex III attached. In addition two agreed Water Cost Tables were included in the Protocol as Annex II(A) and Annex II(B) – refer copy of Annexes II(A) and II(B) attached. The Water Cost Tables set out the costs that the formulas are to be applied to. Note that Annex II(A) shows costs adjusted to 12/96 while Annex II(B) shows costs adjusted to 5/98.

Indices
As may be seen in Annex III, Formula for the Updating of Water Costs, the formula for the “rate of change of the dominant basket” is derived from the following three indices:

  1. Consumer Price Index (“C.P.I.”) indicated as the change in the known official C.P.I. published in Israel on the 15th of each month by the Central Bureau of Statistics;
  2. Electricity rates indicated as the average rate of change in the electricity rates published by the Public Services Authority; and
  3. Wage index indicated as the change in the official known wage index published in Israel each month by the Central Bureau of Statistics.

This assignment has three clear tasks:
Task 1 is to construct historical series of the three indices (Consumer Price Index; changes in electricity rates; and wage index) for the period from 1995 to date;
Task 2 is to calculate the “rate of change of the dominant basket” i.e. the cumulative rate of change of the three indices as set out in Annex III, Formula for the Updating of Water Costs; and
Task 3 is to apply the “rate of change of the dominant basket” to the initial costs set out in the Water Cost Tables.

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