The Government, through the Government Water Works that are administered by the Water Development Department, is the main service providing freshwater in Cyprus, providing services to both domestic users, through the provision of bulk water quantities to Water Boards, Municipal Authorities and Community Boards, and through the provision of irrigation freshwater on a retail basis to farmers, or on a bulk basis to irrigation Divisions and Associations.

The WFD describes that the assessment of cost recovery and incentive pricing is required at the river basin district scale for each category of identified water service. Since Cyprus has been identified as one river basin district data for financial costs and cost recovery rates are available at that level. Total costs for water services of abstraction, construction, regulation and conveyance of surface waters, by means of large dams, channels and pipelines, and water purchases from desalination units, as well as groundwater resources provided by the WDD have been estimated for 2005 to 42.1 million C£.

The cost recovery of water services is analysed for different uses, by considering storage and main transportation, distribution, sewage collection, waste water treatment and the environmental and resource cost. The analysed water services include:

• Freshwater provision to domestic use and irrigation, through the Government Water Works . The analysis for this case is conducted for all Government Water Works within the river basin district. It should be noted that, according to the current institutional framework, costs (and tariffs) for freshwater provision through the Government Water Works constitute the major factor regulating the imposed end-user costs, while the Government Water Works currently supply, more than 70% of the total freshwater within the river basin district. Domestic uses in this case include both households and industries, since both are serviced through the same conveyance and distribution networks;
• Urban wastewater collection and treatment provided by the Sewerage Boards of Limassol-Amathous, Pafos, Ayia Napa, Paralimni and Larnaca;
• Recycled water provision for irrigation, through the Government Water Works.

The results that will be presented in the following do not address water distribution through Water Boards, Municipalities and Community Boards for domestic water supply and Irrigation Divisions for irrigation water supply, as well as self-supplied services such as private (mostly groundwater) abstractions, industrial wastewater treatment and domestic septic treatment, for which no data exist.

For domestic water provision (households, tourism, industries) through the Government Water Works :

• Financial costs show an increasing trend, mainly due to the increase of operation and maintenance costs. Although several instruments have been realised during the period 2001 – 2005, their contribution to the total cost is surprassed by the augmentation of running costs, attributed to the high share of desalinated water in domestic supply sources;
• Environmental costs have minor contribution in the total costs, since groundwater abstractions from Government water works are only complementary for public domestic supplies;
• Resource costs show a continuous decline, due to the increasing water availability conditions, which minimises benefits foregone from agricultural water use;
• After the tariff increase effected in 01/01/2004, cost recovery of financial costs is improved, expected to reach approximately 73.1% in 2005.

For irrigation freshwater provision through the Government Water Works :

• Financial costs seem to be stabilised, since in most Government Projects no additional investments have been realised during 2001 – 2005. At the same time, operation and maintenance costs are more or less constant;
• Environmental costs make a minor contribution to the total cost, since groundwater abstractions from Government water works are only complementary, and surface water from dams is the main water resource used;
• Resource costs are equal to zero, since from 2002 and onwards no deficit is experienced in domestic water supply;
• Currently after the price increase, recovery of financial costs has considerably improved, reaching 67.4% in 2004, and projected to approximately to 77% in 2005. Cost recovery is expected to improve further by 2007, when irrigation tariffs will reach the final price of 0.11C£ /m³.

For urban wastewater collection and treatment by the examined Sewerage Boards:

• Cost recovery seems to be adequate; high rates ensure to a minimum extent the sustainability of the services provided and a possibility to finance system expansions without incurring extremely high additional costs to consumers;
• It is generally recommended that a more detailed assessment is undertaken after the completion of the majority of the projected sewerage and wastewater treatment projects, in order to be able to assess cost recovery on the river basin district scale;

For recycled water provision through the Government Works :

• Recovery of financial costs is low, expecting to reach only 15.1% by 2005. However, the assessment has not taken into account the environmental benefits of recycled water use, such as the reduction of urban effluent discharges, and the mitigation of water stress conditions.

In general after the pricing reform effected by the Government of the Republic of Cyprus, recovery of costs for freshwater provision has improved considerably. However, full cost recovery is still not=achieved, a fact that contributes considerably to the prolonging of the non-rational (from an economic point of view) use of the scarce water resources; the water consumption in the agricultural sector (with a contribution of only 4% to the GDP) is 75%, whereas in the industrial sector (22.5% contribution to GDP) the water consumption is only 1.5%.