Tariffs for WSS services
A tariff is the set of prices or charges used to generate revenue and is mostly set in one of the following ways.
- Fixed charge. This means that the tariff level per unit remains the same whatever the volume of water consumed. It is commonly applied where consumption is not metered, or when the meters are faulty or not read.
- Volumetric charge. Users are billed according to the volume of water consumed; this requires metering. Some service providers apply a flat rate per cubic meter (m3) irrespective of total consumption. Others use a Block Tariff, whereby one rate applies for consumption up to a certain level, while a different rate applies to consumption beyond that level. Many utilities use an Increasing Block Tariff in which the first ‘lifeline’ block costs less and equates to typical household consumption per month for essential purposes (typically 6-10 m3).This means that all households can access a basic level of service, while a higher tariff applies to consumption in the second block.
In some cases, a combination of a fixed charge plus a volumetric component is applied. A well-designed tariff i) enables financially sustainable service delivery, ii) allows affordable access to WSS services also to low-income households and iii) encourages users to avoid wasteful consumption.
Ideally, water tariffs should be set to cover the full costs of supplying the water. If the cost of supplying water from a new source is higher than for the existing source, it will be necessary to adjust the tariff. Water supply and sanitation improvement programs may result in changes in operating costs, which also need to be captured in revised tariffs. Tariffs should be responsive to changes in population, household income, and inflation, which affect demand and production costs. In the past, charges have remained fixed for long periods irrespective of these factors.
Equity in water and sanitation services means that all users have access to at least basic WSS services, which is also important from a public health point of view. User charges are often set in such a way that low-income groups have access to basic WSS services, causing an indirect cross subsidy from high volume to low volume users. When assessing affordability, it is important to consider both the costs of access (installation of facilities and connection to the city network) and consumption charges. Most utilities can plan for phased increases in tariffs to be compatible with users’ affordability willingness and ability to pay.
Taxes and subsidies
Approaches towards cost recovery in the water sector in developing countries need to recognise the economic and institutional environment in which service providers are operating. National and international goals and standards require countries to improve water and sanitation service provision faster than the rate at which such services might normally have developed. In such cases, at low levels of income, full cost recovery might not always be achievable.
In many developing countries the principle of paying for utility services such as power supply and telecommunications is relatively well established. This is not so however with respect to sewerage and water services. Key constraints include:
- The widespread tendency for people to believe that water is a free good, provided by nature and therefore free to consumers.
- Second, some countries have traditionally provided free or subsidized water so that user charges are now resisted, consumers having perceived that past prices represented present values.
- Third, because water is a basic human need, there is an appropriate desire that a minimum should be provided to sustain life, regardless of the income level of the beneficiary.
- Fourth, since provision of sanitation services has health benefits beyond the individual consumer, to society as a whole, it is often argued that direct recovery of costs is inappropriate.
Lower-income countries have traditionally supported their public water and sanitation providers through budgetary grants (from taxes) and low-cost loans (supported via transfers), not expecting or requiring full cost recovery. The result has usually been a poor quality of service, accessed mainly by higher-income households with governmental support nearly always less or later than anticipated leading to weaknesses in operations and maintenance. Absence of a credible cost recovery system means that the service provider cannot deliver needed maintenance, leading to deterioration of services and an even lower willingness of consumers to pay.
Because of the above, it is not recommended to stimulate subsidies and taxes for water and wastewater services. In cases where it is really needed, governments may establish contracts with utilities (community service obligations), subsidizing specific services to targeted communities (e.g. water for informal settlements, schools, health centres, etc.) to incentivize or force the service provider to extend services to poorer sections of society while at the same time allowing the recovery of costs.
References
- World Bank/WSP: Cost Recovery in Urban Water Services: Select Experiences in Indian Cities, March 2011 (https://www.wsp.org/sites/wsp/files/publications/WSP-Cost-Recovery-Urban-Water-Services.pdf)
- African Development Bank: Guidelines for User Fees and Cost Recovery for Urban, Networked Water and Sanitation Delivery, October 2010 (https://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2010_11%20Guidelines%20for%20User%20Fees%20Cost%20Recovery_Urban.pdf)
- IRC International Water and Sanitation Centre Delft, The Netherlands: Key Factors for Sustainable Cost Recovery in the context of community-managed water supply by François Brikké and Johnny Rojas, November 2001 (https://www.ircwash.org/sites/default/files/Brikke-2001-Key.pdf)
- Case Study: Solomon Islands Water Authority (SIWA), 2012: Financial Assessment and Tariff Review
