Estimating Residential Water Demand in Lesotho and Policy Implications

Purpose
In Lesotho, water has become a debatable subject, especially in the last few decades because there has been a gross mismatch between supply and demand, primarily in rural areas. Thus, it is necessary to carefully analyse decisions regarding the allocation of water resources. In this paper, an attempt was made to estimate the elasticities of residential water demand in both the short-and long-run in Lesotho by employing the ARDL approach through cointegration and error correction methods. It proposes a demand model for residential water by applying the Stone-Geary functional utility form, which views water consumption as either fixed or residual.

Research methodology
Residential water consumers in Lesotho are subjected to nonlinear pricing, with the same pricing schedule applied throughout all districts. In this pricing scheme, there are two types of charges: fixed and volumetric charges. The volumetric price is changeable and subject to four blocks of rising block pricing. In Lesotho, the Water and Sewage Company (WASCO) was the primary authority responsible for supplying clean drinking water and sanitation. WASCO splits Lesotho into 15 districts for administrative purposes, with decentralised billing and metering in these district offices. Therefore, this study used monthly time-series data from January 2015 to March 2018, whereby data from all WASCO districts were aggregated. Annual data on GDP per capita were sourced from the International Monetary Fund’s (IMF) world economic outlook and disaggregated into a monthly series using the linear interpolation method (Maddala, 1977).

Findings
The results shows that price elasticity was found to be -0.16 in the short run and -0.22 in the long run, using monthly time-series data from January 2015 to March 2018. The income elasticity of water demand is 0.16 in the short run, and 0.22, in the long run. Additionally, based on the findings, it was observed that the share of water consumption insensitive to price changes in Lesotho was 113 Lpcd. Moreover, the elasticity of residential water prices was low.

Practical implications
Water demand forecasting and cost-benefit analysis of future water supply projects can benefit from elasticity estimates. The long-run effects of water pricing on water use should be studied in the future using different datasets.

Originality
This study suggests that changing supplier revenue by changing prices may be more successful in Lesotho, and hence, in other developing countries.