Difference between revisions of "Tariffs"

Revision as of 05:10, 16 January 2013

Tariffs are funds contributed by users of water, sanitation and hygiene services for obtaining the service (GLAAS, 2012). Users generally make payments to service providers for getting access to the service and for using the service. When the service is self-provided (e.g. when a household builds and operates its own household latrine), the equity invested by the household (in the form of cash, material or time) also fall under tariffs.

Tariffs are generally set by the water or sanitation service provider or by national (or local) governments through national or state policy. However, the public or private sector can also calculate tariffs for an individual project, sometimes at the community level (Fonseca and Cardone, 2003).

Tariffs are designed for different purposes, and often contain some elements to address poverty.

The goals of a tariff vary and may include (Fonseca and Cardone, 2003):

• Raising enough revenues to cover specific costs, for example expenditure on operation and minor maintenance, capital maintenance expenditure, etc.
• Making access to water and sanitation affordable for different income groups, which should take into account the ability to pay for water or sanitation service and the fact that there are major impacts for health, well-being, and poverty alleviation targets.

Other purposes include (Winpenny, 2011):

• Reflecting costs of water and sanitation service provision by giving signals to users about the true scarcity of water and the costs of supplying it. For example, volumetric tariffs (see Types of tariffs, below) give users an incentive to use water carefully.
• Protecting the environment, encouraging conservation, and penalising the discharge of untreated wastewater.

Types of tariffs

Next to a connection charge to provide access to a service, the main tariffs which are used in water and sanitation service delivery are (Cardone and Fonseca, 2004):

• Fixed Charge Tariff (also known as Single Tariff or Flat rate tariff); consumers pay a certain amount independent of the volume used. Sometimes there are different tariffs based on different types of users (industry, agriculture, etc.), property values or pipes diameters.
• Constant Volumetric Tariff (also known as uniform volumetric tariff); all users pay the same per unit of water used, independently of use (e.g. industry, commerce or household etc.). A volumetric tariff requires metering (or other cruder methods of measuring usage), which may not be necessary or feasible in every situation – such as rural connections or where there are low supply volumes to poor urban users. (Winpenny, 2011).
• Increasing Block Tariff; users pay different amounts for different consumption levels. The rate per unit of water increases as the volume of consumption increases. Higher rates are set for higher levels of use with industrial and commercial users paying a higher rate.
• Two Part Increasing Block Tariff; a fixed minimum monthly charge for all consumers, in addition to either a flat or variable tariff based on usage. This tariff combines a fixed service charge plus two or more blocks of prices that increase as consumption increases. Billing, for instance, which is independent of consumption can be covered by the fixed charge.

Sometimes Two Part Increasing Block Tariff are also called lifeline tariffs or social block tariffs because they aim to address the needs of the poor by providing a basic level of consumption either for free or at very low cost, with a form of block tariff for consumption above the lifeline level. A further refinement can be to provide a basic amount of water (e.g. 20 m³ per household per month) free of charge, and introduce the volumetric rate for amounts exceeding this (Winpenny, 2011).

• Decreasing Block Tariff; consumers are charged a higher cost per unit of water at lower consumption levels. As the consumption level increases, the price per unit decreases.
• Output-Based Tariff; users pay in exchange for improved service and based on a schedule of improvements promised by the water or sanitation supplier.
• Seasonal or zonal tariff; tariffs are dependent on seasons or areas where water availability varies or in areas which are not easily reachable by the service provider.
• Pay per use and subscriptions; for public toilets or communal sanitation blocks (i.e. toilet, shower and laundry facilities), users can be charged per visit (pay-and-use) or through household subscriptions for unrestricted use, or an agreed number of visits over an agreed period of time, per adult user or for the whole family. (Sijbesma, 2011)

Where wastewater services (e.g. sewerage, wastewater treatment and/or removal of sludge) are provided their costs are normally recovered through a surcharge on the tariff for drinking water. This is partly because the volume of wastewater is highly correlated with the use of clean water, and partly because of consumer resistance to paying for wastewater services separately (Winpenny, 2011).

Tariff collection

There are different mechanisms by which tariffs can be collected and stored. The most common systems are (Harvey, 2007):

• Reactive financing; when a system fails or breaks down the community or better-off households club together to pay for repair.
• Monthly tariffs; whereby each household (or adult) in the community is expected to contribute a given amount each month.
• Pay-as-you-fetch; require a caretaker to be present at the facility at all times (except when it is locked) to collect water tariffs from the community. Users pay a fixed amount per container which is filled by the caretaker.

Examples

Analysis by (GLAAS, 2012, page 26) indicates that household contributions in the form of tariffs account for a significant share of investment, accounting for 44% of funding in the water and sanitation sector (see table 1).

Table 1. Contribution of household tariffs (and costs associated with self-supply) in percentage (%)

Source: GLAAS, 2012

Tariffs may cover operating costs but are rarely enough to cover all other costs (OECD, 2009). For example, one-third of the 66 countries in the GLAAS country survey (2012, p. 36) indicates that collected revenue with tariffs covers less than 80% of operating costs for urban utilities.

In many countries, water tariffs have not been adjusted for years and do not cover production and distribution costs (Ginneken et.al, 2011). Tariff adjustment for water is a very sensitive political issue, and governments have proven reluctant to approve increases. For instance, tariffs have remained unchanged in the Republic of Congo since 1994, in the Central African Republic since 1998, and in Togo since 2001.

India: Pay-per-use and subscription for sanitation

In Trichy in the state of Tamil Nadu, India, women self-help groups run most municipal sanitation blocks with the help from WaterAid India and their own federation (Water Aid, 2008). They use both payments per visit and monthly subscriptions for adult users, with locally set fees. Typical single user fees are INR 0.50 (US$ 0.01) for defecation and INR 2 to INR 3 (US$ 0.04 to US$ 0.06) for bathing and doing laundry. Subscribers pay INR 16 to 32 (US$ 0.32 to US$ 0.64) per month. Use is free for children, the elderly and single women (WaterAid, 2008). Sijbesma (2011, page 49); The reported monthly expenditure indicates that households who pay per visit do not use the sanitation block every day. The reasons are not clear, but it is likely that under capacity and queuing for toilets at peak times motivate users to go back to open defecation.

Kenya: Increasing Block Tariff to empty toilet pits

In Kibera, Nairobi, Kenya, frogmen (so called because of their resemblance to frogs in the mud) manually empty pit toilets charge the equivalent of US$ 2.60 per foot (or about 30 cm) of excreta (Eales, 2005).

Water tariffs in Africa

Studies in African countries indicate that the average African water tariff of about $0.67 per cubic meter is well below the full cost of production and distribution of $1.00 per cubic meter (Foster and Briceño-Garmendia 2009).

Mozambique: Reaching the pro-poor through innovative connection charges

In 2010, the Mozambique water-sector asset owner and investment agency (FIPAG) reduced the connection fee by 50% and now allows fee payment over a period of 12 months. This has led to a sharp increase in the connection rate among low-income householders, most of whom previously paid much higher per-litre prices for lower-quality water from informal suppliers (on average about 40% more) (Norman et.al., 2012). The 5-year target is to expand from 100,000 to 300,000 utility-connected customers in the capital city of Maputo alone. Norman et.al. (2012, page 18); The cost to FIPAG of about $75 per connection, is being met: a) by streamlining connection processes and thus reducing per-connection cost, b) by levying a new surcharge on water supply to the country’s ports, and c) by setting up a revolving fund to finance the remaining balance.

South Africa: Free Basic Water

The South African government decided in 2001 to provide a basic amount of access to 25 litres of safe water per person per day, within 200 metres of the household free of charge to all citizens. A review of the implementation of the South African Free Water policy (Muller, 2008, page 67) suggests that the policy has helped not only to achieve social equity but also has supported the broader objectives of conservation and environmental sustainability. Muller (2008, page 67); The political legitimacy conferred by the approach has enabled water supply organizations to recover their costs and achieve the economic objective of financial sustainability. South Africa’s experience with free basic water thus demonstrates that addressing social and environmental dimensions together with economic dimensions can lead to more effective and sustainable policy.

Ghana: Lifeline Water Tariff

The Ghana Water Company Limited sets tariffs with the approval of the Public Utilities Regulatory Commission (Cardone and Fonseca, 2004). As of the end of 2002, metered domestic customers who consume up to 10,000 litres per month pay a lifeline rate of 990 Cedis per 1,000 litres (rate 2004 US$1 = 8,450 Cedis), an increase of 98%. Other domestic customers who consume more than 10,000 litres per month pay rate increases of 98% to 177%. Boreholes, wells and hand-pump users pay a flat rate of 3,000 Cedis per house per month. Consumers who obtain water from standpipes pay 1,000 Cedis per 1,000 litres, an increase of 150%.

Botswana: Increasing Block Water Tariff

In Botswana, the Ministry of Mineral Resources and Water Affairs has been responsible for the national water policy since 1993 (Cardone and Fonseca, 2004). A pricing system was implemented based on principles of equity, efficiency and cost recovery. Water from standpipes was supplied free, and households with private connections were provided with a lifeline-type tariff for the first 5 m³ consumed. Ranges for consumption were grouped according to bands. Table 2 below shows the ranges of consumption and tariffs charged.

Table 2. Botswana IBT Tariff in Botswana Pulas (US$1 = 2.82 P, rate 1996)

Source: World Bank, 1997

Uganda: Single-Tariff Pricing for water services

In Uganda in 1995, water tariffs were set by the National Water and Sewerage Corporation, which had a monopoly over service provision at that time (Cardone and Fonseca, 2004). Water charges included all operations and minor maintenance costs, depreciation and capital costs and also social equity (World Bank, 1997). As of April 1995, un-metered residential consumers paid flat rates that were based on the number of taps. Table 3 below demonstrates the difference between metered and unmetered connections.

Table 3. Uganda Flat Tariffs for Un-Metered Use in Ugandan Shillings (US$1 = 1-5 shillings, rate 1996)

Source: World Bank, 1997

Malaysia: Two Part Block Water Tariff

In Malaysia, Ranhill Utilities Berhad, a water supply group, received approval from the State Government of Johor in May 2003 to increase water tariffs for different users (Cardone and Fonseca, 2004). Multiple tariff structures are being used, such as an increasing block tariff for domestic users and industry; a uniform tariff for shipping and plantations, and a two-part tariff for government institutions. Details for the two-part tariff are presented in table 4 below, with minimum charge, and a flat rate for additional consumption. Based on the Kuala Lumpur Stock Exchange announcement, the tariff took effect on 1 July 2003.

Table 3. Malaysia – Two-Part Tariff in Malaysian Ringgets (US$1 = 3.8 R, rate 2003)

Source: Kuala Lumpur Stock Exchange announcement

Key documents

• Dinar, A. and Subramanian, A. , 1997. Water pricing experiences : an international perspective. (World Bank technical paper; no. 386). Washington, DC, USA: World Bank
• Eales, K., 2005. Bringing pit emptying out of the darkness: A comparison of approaches in Durban, South Africa, and Kibera, Kenya. (Sanitation Partnership Series) [online] London: BPD-Building Partnerships for Development (Published April 2005).
• Fonseca, C. and Cardone, R., 2003. Financing and cost recovery. (Thematic overview paper / IRC ; 7). The Hague, The Netherlands: IRC International Water and Sanitation Centre
• Harvey, P.A., 2007. Cost determination and sustainable financing for rural water services in sub-Saharan Africa. In: Water policy, 9 (4), pp. 373-391
• Hervé-Bazin, C., 2012. ‘3Ts’ : tariffs, taxes and transfers in the European water sector : short guide. Brussels, Belgium: EUREAU
• Muller M., (2008). Free basic water — a sustainable instrument for a sustainable future in South Africa. Graduate School of Public and Development Management, University of Witwatersrand, South Africa, Environment and Urbanization 2008 20: 67.
• Norman, G., Fonseca, C. and Jacimovic, R., 2012. Financing water and sanitation for the poor : six key solutions. (Water and Sanitation for the Urban Poor : Discussion Paper; DP#003). The Hague, The Netherlands: IRC International Water and Sanitation Centre and London, UK: Water and Sanitation for the Urban Poor (WSUP)
• OECD , 2009. Managing water for all : an OECD perspective on pricing and financing. Paris, France: OECD.
• Pezon, C., Fonseca, C. and Butterworth, J., 2010. IRC Symposium 2010 Pumps, Pipes and Promises: background paper: pumps, pipes and promises : costs, finances and accountability for sustainable WASH services. The Hague, The Netherlands: IRC International Water and Sanitation Centre.
• Sijbesma, C., 2011. Sanitation financing models for the urban poor. (Thematic overview paper / IRC; 25). The Hague, The Netherlands: IRC International Water and Sanitation Centre.
• WHO and UN-Water, 2012. UN-Water global annual assessment of sanitation and drinking-water (GLAAS) 2012 report : the challenge of extending and sustaining services. Geneva, Switzerland: World Health Organization (WHO)
• WaterAid, 2008. Community-Municipal Corporation-NGO partnership for city-wide pro-poor slums’ infrastructure improvement: Policy recommendations for community-managed toilets, bathing and washing complexes in urban slums. New Delhi: WaterAid.
• Winpenny, J., 2011. Financing for water and sanitation : a primer for practitioners and students in developing countries. Stockholm, Sweden: The European Union Water Initiative Finance Working Group, EUWI-FWG.

Links

• IRC International Water and Sanitation Centre is a knowledge broker, innovator and catalyst of change within the water, sanitation and hygiene (WASH) sector working internationally and in selected focus countries and regions. IRC seeks to extend WASH services to the less privileged, while ensuring that services are based on the sustainable use of water resources, are appropriately managed, and are better governed. IRC works in partnership with governments, the public and private sector, Dutch and international organisations, UN institutions, development banks and non-governmental networks and organisations. For more information see www.irc.nl

• Global Analysis and Assessment of Sanitation and Drinking-Water (GLAAS) is produced every two years by the World Health Organization (WHO) on behalf of UN-Water. It provides a global update on the policy frameworks, institutional arrangements, human resource base, and international and national finance streams in support of sanitation and drinking-water. For more information see who.int/water_sanitation_health/publications/glaas_report_2012/en/index.html