People in Ningxia get water at a supply station. (Photo/Xinhua)

The enforcement of new drinking water standards in China set five years ago will be further postponed by three years as loss-making water companies and financially squeezed local governments are unable to get funds to upgrade their water processing and distribution systems.

There are various water safety standards set by different government agencies, including those in charge of water plant construction and water pollution. But standards have traditionally been targeted mainly at water supply enterprises — though they have lacked binding legal power.

However, the Ministry of Health unveiled in 2006 unified nationwide sanitary standards for drinking water. The standards cover 106 inspection items, up from 35 under the old rules, effective July 2007. The water supply companies were given a five-year buffer period to comply with the new rules, which ended on July 1. Many plants have failed to meet the deadline due to the high costs of modifying and upgrading their facilities.

Around 17% of water plants have not been able to meet the standards and the quality of 20.4% of drinking water remains substandard, according to Du Ying, vice chairman of the National Development and Reform Commission, the country's chief economic planner.

Du said the 106-item standards can be fully implemented nationwide by 2015. This means an extension of three more years for actual enforcement of the new standards.

Water company executives interviewed by Beijing's Economic Observer newspaper explained that the key problem is that many water supply firms are operating at a loss. They estimated that it will take a total of 250 billion yuan (US$39.33 billion) for water companies to improve facilities at water plants and distribution networks.

An executive at a water supply association in Guangxi said some water companies in the southern region are even incapable of finding 3,000 yuan (US$472) for minor improvements at their plants. The poorer county governments have no way to raise necessary funds either. This leaves raising water prices as the only option if the administrations want to upgrade facilities to meet the new standards.

Du reported to the national lawmakers that 31% of water companies are operating at a deficit. But an executive at an organization of water companies in Guangxi said 68% of member companies are operating in the red. The percentage of loss-making companies reportedly dropped to 56% in 2010 because water prices were raised that year.

Yet raising water prices is no easy task, as water supply falls in the category of public utilities, which are subject to price rules and strict government controls.

The rules set in 2004 allow water supply companies a profit range of 8%-10% with that for state-run companies limited to 6%. Private companies that rely on bank loans, foreign capital, and issuing stocks or corporate bonds can raise maximum profit margin to 12% before the debts are repaid.

To solve the problems, industry analysts say the central government should provide 80% of the costs while local governments and enterprises share the remaining 20% to upgrade the facilities instead of passing increasing costs on to consumers.