Renewal Investment in Water Infrastructure and Sustainability of Municipal Water Service Utility

Junichi Nagamine
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Junichi Nagamine: Professor, School of Policy Studies, Kwansei Gakuin University

Public Policy Review, 2016, vol. 12, issue 1, 127-154

Abstract: This paper estimates renewal investment in aging water infrastructure to investigate the fiscal sustainability of water service utilities operated by municipalities in Japan. Specifically, we focus on the water infrastructure in Nishiwaki City, Hyogo Prefecture and estimate the past infrastructure investment and the future renewal costs, and further forecast the future balance of payment in the water utility account. The past infrastructure investment is estimated on the basis of the actual record of water supply facilities such as water pipes developed and the actual construction costs at present, and the amount of future renewal investment is estimated on the assumption that investment would be made after the end of each facility fs service life. The estimated annual amount of renewal investment during the 50 years from FY2017 to FY2065 comes to 0.9 to 1 billion yen per year. It is about three times as large as the annual average of recent infrastructure investment by Nishiwaki City from FY2009 to FY2013, which stands at 334 million yen. The result suggests that the future renewal investment will be a huge fiscal burden on this city. Assuming that earnings from water supply services will decline in the future and the present revenues structure and water service charge will not be changed, the city will run out of its accumulated funds (internal reserve funds) in the water utility account by around FY2020 and will face revenue shortfalls. In order to renew infrastructure as needed while maintaining the present water services, the city must consider countermeasures such as the integration or abolition of facilities, revision of water charges, reform of the management approach, and the possibility of covering a part of expenses by general public expenditure, as soon as possible. It is also necessary to understand that this situation is not a particular problem faced by one local city but it is common to all municipalities throughout the country.

Keywords: aging infrastructure; water infrastructure; renewal investment; water utility account (search for similar items in EconPapers)
JEL-codes: H44 H54 H76 H83 L95 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:mof:journl:ppr012_01f

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