Consumers in the provincial capital of Guangdong are facing a large hike in water rates because their water supplier is heavily in debt.

Accounts published by the Guangzhou Water Supply Company on Tuesday showed that it was deep in the red.

As well as increased operating costs, the company said it had invested more than 1.73 billion yuan ($274.5 million) and borrowed 6.8 billion yuan in bank loans to fund a project to divert water from the Xijiang River, the main branch of the Pearl River, to the city's waterworks. This involved building new pipeline networks and upgrading infrastructure.

The company had a deficit of 50 million yuan in 2008, but it grew to 390 million in 2010. It now has to pay interest of more than 416 million yuan a year to the bank and is more heavily in debt, according to the company's account book which has been published on its website.

A Guangzhou Water Supply executive said the company planned to introduce a new rating system for water charges.

"That means the more tap water you consume, the higher price you have to pay," the official, who did not want to be named, claimed on Thursday.

Since 2006, tap water has been priced at 1.32 yuan a cubic meter in Guangzhou. The Guangzhou Water Supply Company said it cost 1.716 yuan to supply a cubic meter.

Luo Jiaxiang, director of Guangzhou price bureau, said the government had invested a large sum of money in the Xijiang River water project, which now benefits more than 6 million residents in the city. It took three years to construct and was completed in late 2010.

So consumers now may have to help bear the cost, Lou warned, because the government did not provide full funding and the water supply company cannot always run in the red.

"But a public hearing will be organized before the water supply company is allowed to raise its water rates," he said.

The procedure will be open to public and media supervision, and any increases in water rates will still have to be finally approved by the city government, he added.

Han Zhipeng, a member of the Guangzhou Committee of Chinese People's Political Consultative Conference, said it was understandable that the water supply company would seek to raise its water rates as production costs had grown.

"But the company should not shift the investment for building the Xijiang River project and its debts onto residents and consumers," he said.

Many local residents are opposed to a rates increase.

Wang Fangbing, a Guangzhou housewife, said the price hike for tap water would certainly increase the burden on local households, particularly for low-income families.

"The government should not allow the increase of water rates and power bills when the cost of meat, rice, cooking oil, vegetables and other foods has greatly increased over past years," she said on Thursday.