Tariffs

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 although 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):

• To reflect costs of water and sanitation service provision, giving signals to users about the true scarcity of water and the costs of supplying it. For example volumetric tariffs give users an incentive to use water carefully.
• Environmental protection. 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 (%)

Country	Contribution of household tariffs to total WASH funding	Contribution of household tariffs to total Operation and minor maintenance expenditure
Islamic Republic of Iran	61%	100%
Bangladesh	36%	87%
Thailand	32%	Data not available
Lesotho	30%	82%

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) indicate 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.

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

GLAAS

• 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 http://www.who.int/water_sanitation_health/publications/glaas_report_2012/en/index.html