Cross subsidies - Differential tariff systems

This article is under development. You can help Akvopedia by expanding it.

The idea is to differentiate tariffs based on a specific factor common to a group of users, as the volume of water consumed or users' living area. This can also also be used for connection fees.

This approach is considered to be a good way to reach the poorest. However, the Asian Development Bank (ADB) concluded that whereas it helps to sustain existing systems, current approaches do not reach the poorest [1]. Tariffs based on volume are interesting, but metering is normally a problem, since it is costly. Customer involvement in the process is also very important. China’s Rural Water Supply program, for instance, has over 90% payment compliance in households with metered systems whereby the salaries of the operations staff are tied to monthly bill collection and raising tariffs if they do not cover operating costs [2]. Cross subsidies have high potential however, particularly for poor slum dwellers, but innovative ways of dealing with the problem of metering are needed.

Regarding sanitation, the landscaping study recognized differential tariffs in sewered systems charging below cost to poor users and above cost to others. These is a typical example of cross subsidies (non-poor users subsidizing poor ones).

It is considered a good approach that address the differences in users' income, aiming at recovering total system cost, which at present is often not the case. It is however difficult to ensure that subsidies reach the poorest groups in sanitation approaches [3] ; [4].

This approach has high potential for connecting more people, but it is costly and may reduce interest for dry alternatives.