Water tariff
Encyclopedia
A water tariff is a price assigned to water supplied by a public utility
through a piped network to its customers. The term is also often applied to wastewater tariffs. Water and wastewater tariffs are not charged for water itself, but to recover the costs of water treatment
, water storage, transporting it to customers, collecting and treating wastewater
, as well as billing and collection. Prices paid for water itself are different from water tariffs. They exist in a few countries and are called water abstraction charges or fees. Abstraction charges are not covered in this article, but in the article on water pricing
). Water tariffs vary widely in their structure and level between countries, cities and sometimes between user categories (residential, commercial, industrial or public buildings). The mechanisms to adjust tariffs also vary widely.
Most water utilities
in the world are publicly owned, but some are privately owned or managed (see water privatization
). Utilities are network industries and natural monopolies
. Economic theory predicts that unregulated private utilities set the price of their product at a level that allows to extract a monopoly profit
. However, in reality tariffs charged by utilities are regulated. They can be set below costs, at the level of cost recovery without a return on capital, or at the level of cost recovery including a predetermined rate of return
on capital. In many developing countries tariffs are set below the level of cost recovery, even without considering a rate of return on capital. This often leads to a lack of maintenance and requires significant subsidies for both investment and operation. In developed countries water and, to a lesser degree, wastewater tariffs, are typically set close to or at the level of cost recovery, sometimes including an allowance for profit.
Social and political considerations often are also important in setting tariffs. Tariff structure and levels are influenced in some cases by the desire to avoid an overly high burden for poor users. Political considerations in water pricing often lead to a delay in the approval of tariff increases in the run-up to elections. Another criterion for tariff setting is that water tariffs should be easy to understand for consumers. This is not always the case for the more complex types of tariffs, such as increasing-block tariffs and tariffs that differentiate between different categories of users.
Many utilities apply two-part tariffs where a volumetric tariff is combined with a fixed charge. The latter may include a minimum consumption or not. The level of the fixed charge often depends on the diameter of the connection.
Volumetric tariffs can
The tariff for a first block on an IBT is usually set at a very low tariff with the objective to protect poor households that are assumed to consume less water than non-poor households. The size of the first block can vary from 5 cubic meters to 50 cubic meters per household and month. In South Africa
, the first block of consumption of 6 cubic meters per household and month is even provided for free (free basic water). Average monthly water consumption varies depending on household size and consumption habits between about 4 cubic meters for a single-person household in temperate climate (e.g. in Germany) with no outdoor water use and about 50 cubic meters for a four-person household in warm climate (e.g. in the Southern United States) including outdoor water use.
Wastewater tariffs typically follow the same structure as water tariffs. They are typically measured based on the volume of water supplied, sometimes after subtracting an allowance made for estimated or actual outdoor use. In the case of industries, wastewater tariffs are sometimes differentiated based on the pollutant load of the wastewater. In some cases wastewater tariffs are a fixed percentage of water tariffs, but usually they are set separately. In addition to regular bills, many utilities levy a one-time connection fee both for water and for sewer connections.
The database of the International Benchmarking Network (IB-Net) for Water and Sanitation Utilities includes tariff data from many developed and developing countries. Unlike in the OECD and GWI surveys they IB-Net shows revenue per cubic meter, including residential, commercial and other customers and independently of the level of consumption. Another tariff survey has been conducted by the International Water Association
. In addition, surveys of tariffs for commercial and industrial customers in selected OECD countries have also regularly been conducted by the consulting firm NUS.
, Mexico
, New Zealand, Norway and the United Kingdom
.
Concerning developing countries and transition economies
, in the non-representative GWI sample of 94 utilities in 54 countries, 59 used linear volumetric tariffs and 31 used increasing-block tariffs. However, utilities from Sub-Saharan Africa where increasing-block tariffs are very common are under-represented in the GWI sample with only 6 utilities. On the other hand, utilities from transition economies where linear volumetric tariffs are common are over-represented with 28 utilities. The survey thus probably underestimates the prevalence of increasing-block tariffs in non-OECD countries.
The comparison of water and wastewater tariffs across countries is further complicated by the choice of the appropriate exchange rate (nominal exchange rates for a given year or over the average of several years, or purchasing power parity
exchange rates).
Furthermore, providing a global overview of water tariff levels is complicated by the large number of service providers (utilities). In urban areas in the United States alone, there are more than 4,000 water utilities. In Germany there are more than 1,200 utilities. Few countries in the world maintain national databases of water and wastewater tariffs charged by utilities. England, which has only 26 service providers and a specialized regulatory agency for the water sector (OFWAT) and Chile are two of a few countries that maintain national tariff databases.
. The lowest residential water and wastewater tariffs were found in Ljubljana, Slovenia (equivalent to US$ 0.01 per m3), Saudi Arabia (equivalent to US$ 0.03 per m3) and in Havana, Cuba as well as Karachi, Pakistan (equivalent to US$ 0.04 per m3). The highest water and wastewater tariff were found in Denmark (US$8.00/m3 in Copenhagen), Honolulu (US$ 7.61/m3) and Glasgow (US$5.89/m3). However, an even higher combined water and wastewater tariff can be found in Essen, Germany, a city that has not been included in the OECD survey. The tariff in Essen is equivalent to US$8.41 (Euro 5.61) per m3 according to a survey carried out for the weekly magazine Der Spiegel
.
Concerning wastewater tariffs, in some countries such as Panama
and Egypt
there is no wastewater tariff at all. In other countries - such as Mexico, Turkey, Belgium, Portugal and Korea - wastewater tariffs are low relative to water tariffs. Finally, in many OECD countries - such as in Australia, Germany, Italy, the UK and the US - wastewater tariffs are now higher than water tariffs, reflecting increasing cost recovery rates and an increase in the prevalence of wastewater treatment.
Many utilities charge higher tariffs for commercial and industrial customers than for residential users, in an effort to cross-subsidy residential customers.
, stipulate by law that all the financial costs of service provision must be recovered through tariff revenues. Other countries define cost recovery as a long-term objective, such as in Mexico
. In the case of private service providers tariff adjustment rules are often laid out in concession or lease contracts, often providing for indexation
to inflation
.
In some developing countries, water tariffs are set at the national level. Tariff increases are often considered a politically sensitive issue and have to be decided by the Cabinet of Ministers or a National Pricing Commission. This is the case in many countries of the Middle East and North Africa (Egypt
, Jordan
, Lebanon, Morocco
, Syria
, Tunisia
), as well as in many countries in Sub-Saharan Africa. In many countries, there are no objective criteria for tariff adjustments. Adjustments tend to be infrequent and often lag behind inflation so that cost recovery remains elusive.
Some countries have created regulatory agencies at the national level that review requests for tariff adjustments submitted by service providers. The earliest and best-known example is the regulatory agency OFWAT, which was established for England and Wales in 1989. Some developing countries followed suit. They include Chile
(1990), Colombia
(1994), Honduras
(2004), Kenya, Mozambique
(1998), Peru
(1994), Portugal
(1997), and Zambia
(2000). The review process is typically based on transparent and objective criteria set by law, in an attempt to move decision-making at least partly out of the realm of politics. The track record of these agencies has been diverse, usually mirroring the political and administrative traditions of each country.
, which is defined as the percentage change in demand divided by the percentage change in price. The price elasticity of drinking water demand by urban households is typically low. In European countries it ranges between -0.1 and -0.25, i.e. the demand for water decreases by 0.1% to 0.25% for every 1% increase in tariffs. In Australia and the United States price elasticity is somewhat higher in the range of -0.1 and -0.4.
and Japan, 0.7% in France
and 0.9% in Germany
. However, micro-affordability is quite different. It measures the share of bills in the income of the poor, defined in an OECD affordability study as the lowest decile
of the population. This share varies between 1.1% (Sweden, Netherlands, Italy) and 5.3% in the Slovak Republic, 9.0% in Poland and 10.3% in Turkey. The OECD concludes that in half its member countries (15 out of 30), affordability of water charges for low-income households "is either a significant issue now or might become one in the future, if appropriate policy measures are not put in place." In developing countries the situation is more serious, not only because of lower incomes, but also because the poor are often not connected to the network. They usually pay a higher share of their meager incomes for lower quantities of water at often lower quality supplied by water vendors through trucks. On the other hand, utility bills paid by those fortunate enough to be connected to the network are often relatively low, especially in South Asia. Because of this situation the OECD does not recommend to use uniform "thresholds" for the affordability of water and wastewater bills. These "thresholds" are often quoted in the range of 3-5% of household income.
. Tariff-related measures keep the size of water bills low for certain groups (e.g. refinement of increasing-block tariffs, tariff choice, tariff capping). Examples of increasing block tariffs with a price of zero in the first block are found in Flanders
and South Africa
. Another measure is the cross-subsidization using different tariffs for different neighborhoods, as practiced in Colombia
. A similar approach has been used at the national level in Portugal
. The Portuguese economic water regulator carried out an affordability study that found out that 10.5% of the population paid more than 3% of their income for water and wastewater services. As a result, the regulator showed flexibility concerning tariff increases and tariff solutions in municipalities where affordability was a particular issue.
Public utility
A public utility is an organization that maintains the infrastructure for a public service . Public utilities are subject to forms of public control and regulation ranging from local community-based groups to state-wide government monopolies...
through a piped network to its customers. The term is also often applied to wastewater tariffs. Water and wastewater tariffs are not charged for water itself, but to recover the costs of water treatment
Water treatment
Water treatment describes those processes used to make water more acceptable for a desired end-use. These can include use as drinking water, industrial processes, medical and many other uses. The goal of all water treatment process is to remove existing contaminants in the water, or reduce the...
, water storage, transporting it to customers, collecting and treating wastewater
Wastewater Treatment
Wastewater treatment may refer to:* Sewage treatment* Industrial wastewater treatment...
, as well as billing and collection. Prices paid for water itself are different from water tariffs. They exist in a few countries and are called water abstraction charges or fees. Abstraction charges are not covered in this article, but in the article on water pricing
Water pricing
Water pricing is a term that covers various processes to assign a price to water. These processes differ greatly under different circumstances:- Bottled water :...
). Water tariffs vary widely in their structure and level between countries, cities and sometimes between user categories (residential, commercial, industrial or public buildings). The mechanisms to adjust tariffs also vary widely.
Most water utilities
Water industry
The water industry provides drinking water and wastewater services to residential, commercial, and industrial sectors of the economy. The water industry includes manufacturers and suppliers of bottled water...
in the world are publicly owned, but some are privately owned or managed (see water privatization
Water privatization
Water privatization is a short-hand for private sector participation in the provision of water services and sanitation, although sometimes it refers to privatization and sale of water resources themselves . As water services are seen as such a key public service, water privatization is often...
). Utilities are network industries and natural monopolies
Natural monopoly
A monopoly describes a situation where all sales in a market are undertaken by a single firm. A natural monopoly by contrast is a condition on the cost-technology of an industry whereby it is most efficient for production to be concentrated in a single form...
. Economic theory predicts that unregulated private utilities set the price of their product at a level that allows to extract a monopoly profit
Monopoly profit
- Monopoly Profit - Basic Definition :In economics, a firm is a monopoly when, because of the lack of any viable competition, it is able to become the sole producer of the industry's product. In a normal competitive situation, the price the firm gets for its product is exactly the same as the...
. However, in reality tariffs charged by utilities are regulated. They can be set below costs, at the level of cost recovery without a return on capital, or at the level of cost recovery including a predetermined rate of return
Rate of return
In finance, rate of return , also known as return on investment , rate of profit or sometimes just return, is the ratio of money gained or lost on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or...
on capital. In many developing countries tariffs are set below the level of cost recovery, even without considering a rate of return on capital. This often leads to a lack of maintenance and requires significant subsidies for both investment and operation. In developed countries water and, to a lesser degree, wastewater tariffs, are typically set close to or at the level of cost recovery, sometimes including an allowance for profit.
Criteria for tariff setting
Water tariffs are set based on a number of formal criteria defined by law, as well as informal criteria. Formal criteria typically include:- financial criteria (cost recovery),
- economic criteria (efficiency pricing based on marginal costMarginal costIn economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good...
) and sometimes - environmental criteria (incentives for water conservationWater conservationWater conservation refers to reducing the usage of water and recycling of waste water for different purposes such as cleaning, manufacturing, and agricultural irrigation.- Water conservation :Water conservation can be defined as:...
).
Social and political considerations often are also important in setting tariffs. Tariff structure and levels are influenced in some cases by the desire to avoid an overly high burden for poor users. Political considerations in water pricing often lead to a delay in the approval of tariff increases in the run-up to elections. Another criterion for tariff setting is that water tariffs should be easy to understand for consumers. This is not always the case for the more complex types of tariffs, such as increasing-block tariffs and tariffs that differentiate between different categories of users.
Tariff structures
There are numerous different tariff structures. Their prevalence differs between countries, as shown by international tariff surveys.Types of tariff structures
Water and wastewater tariffs include at least one of the following components:- a volumetric tariff, where metering is applied, and
- a flat rate, where no metering is applied.
Many utilities apply two-part tariffs where a volumetric tariff is combined with a fixed charge. The latter may include a minimum consumption or not. The level of the fixed charge often depends on the diameter of the connection.
Volumetric tariffs can
- be proportional to consumption (linear tariffs),
- increase with consumption (increasing-block tariffs, IBT), or
- decrease with consumption (decreasing-block tariffs, DBT).
The tariff for a first block on an IBT is usually set at a very low tariff with the objective to protect poor households that are assumed to consume less water than non-poor households. The size of the first block can vary from 5 cubic meters to 50 cubic meters per household and month. In South Africa
Water supply and sanitation in South Africa
Water supply and sanitation in South Africa is characterized by both achievements and challenges. After the end of Apartheid South Africa's newly elected government inherited huge services backlogs with respect to access to water supply and sanitation. About 15 million people were without safe...
, the first block of consumption of 6 cubic meters per household and month is even provided for free (free basic water). Average monthly water consumption varies depending on household size and consumption habits between about 4 cubic meters for a single-person household in temperate climate (e.g. in Germany) with no outdoor water use and about 50 cubic meters for a four-person household in warm climate (e.g. in the Southern United States) including outdoor water use.
Wastewater tariffs typically follow the same structure as water tariffs. They are typically measured based on the volume of water supplied, sometimes after subtracting an allowance made for estimated or actual outdoor use. In the case of industries, wastewater tariffs are sometimes differentiated based on the pollutant load of the wastewater. In some cases wastewater tariffs are a fixed percentage of water tariffs, but usually they are set separately. In addition to regular bills, many utilities levy a one-time connection fee both for water and for sewer connections.
International tariff surveys
The OECD conducted two surveys of residential water tariffs in 1999 and in 2007-08, using a reference consumption of 15 cubic meters per household and month. The 2007-08 survey covered more than 150 cities in all 30 OECD member countries. The survey does not claim to be representative. The OECD survey was complemented by a survey of the industry information service Global Water Intelligence (GWI) conducted in 2007-2008 in parallel with the second OECD survey. The GWI survey covered 184 utilities in OECD countries and 94 utilities in non-OECD countries. GWI repeated its survey in 2009 and 2010, covering 276 utilities in 2010. The data from the OECD/GWI surveys are widely quoted and, unlike the results of other global tariff surveys, have been indirectly made available to the public.The database of the International Benchmarking Network (IB-Net) for Water and Sanitation Utilities includes tariff data from many developed and developing countries. Unlike in the OECD and GWI surveys they IB-Net shows revenue per cubic meter, including residential, commercial and other customers and independently of the level of consumption. Another tariff survey has been conducted by the International Water Association
International Water Association
The International Water Association is a self-governing non-profit organization which aims to cover all facets of the water cycle. The body is headquartered in London, with a global secreteriat based in The Hague and offices in Beijing, Bucharest, Nairobi, Singapore and Washington DC.The group's...
. In addition, surveys of tariffs for commercial and industrial customers in selected OECD countries have also regularly been conducted by the consulting firm NUS.
Prevalence of tariff structure types
Linear volumetric tariffs are the most common form of water tariffs in OECD countries, being used by 90 out of 184 utilities surveyed by Global Water Intelligence in 2007 and 2008, either with or without a fixed charge element. Some eastern European countries (Hungary, Poland and the Czech Republic) use pricing systems based solely on volumetric pricing, with no fixed charge element at all. Increasing-block tariff systems are used by 87 of the 184 utilities in OECD countries surveyed, such as e.g. in Spain. Since the late 1980s there has been a trend in OECD countries away from decreasing-block tariffs, which are apparently only still found in some cities of the United States. Where fixed charges exist as part of two-part tariffs, there is a shift toward the reduction or even abolition of large minimum free allowances in OECD countries. For example, Australia and South Korea have both moved in this direction during the 1990s. Flat rates are still reported in CanadaWater supply and sanitation in Canada
Water supply and sanitation in Canada is nearly universal and generally of good quality. It is a municipal responsibility under the regulation of the provincial governments, in partnership with the federal government...
, Mexico
Water supply and sanitation in Mexico
Water supply and sanitation in Mexico is characterized by achievements and challenges. Among the achievements is a significant increase in access to piped water supply in urban areas as well as in rural areas between 1990 and 2006; a strong nationwide increase in access to improved sanitation ...
, New Zealand, Norway and the United Kingdom
Water supply and sanitation in the United Kingdom
Public water supply and sanitation in the United Kingdom is characterized by universal access and generally good service quality. A salient feature of the sector in the United Kingdom compared to other developed countries is the diversity of institutional arrangements between the constituting parts...
.
Concerning developing countries and transition economies
Transition economy
A transition economy or transitional economy is an economy which is changing from a centrally planned economy to a free market. Transition economies undergo economic liberalization, where market forces set prices rather than a central planning organization and trade barriers are removed,...
, in the non-representative GWI sample of 94 utilities in 54 countries, 59 used linear volumetric tariffs and 31 used increasing-block tariffs. However, utilities from Sub-Saharan Africa where increasing-block tariffs are very common are under-represented in the GWI sample with only 6 utilities. On the other hand, utilities from transition economies where linear volumetric tariffs are common are over-represented with 28 utilities. The survey thus probably underestimates the prevalence of increasing-block tariffs in non-OECD countries.
Tariff levels
There are different valid methods to compare water tariff levels. According to one method, the highest water and wastewater tariff in the world is found in Scotland, equivalent to US$9.45 per m3 in 2007. The lowest water tariff in the world is found in Ireland, where residential water is provided for free, followed by Cuba with a water tariff equivalent to US$ 0.01 per m3 and no wastewater tariff.Difficulties related to tariff comparisons
There are two basic ways to calculate water and wastewater tariff levels for the purpose of comparing tariff levels between cities: One way is to calculate an average tariff for the utility. This is done by dividing total tariff revenues by the total consumption billed across all usage categories and all levels of consumption. Another way is to determine a typical level of consumption and calculate the residential tariff that corresponds to this consumption. Depending on which of these two methods is used the resulting tariff can vary significantly for the same utility.The comparison of water and wastewater tariffs across countries is further complicated by the choice of the appropriate exchange rate (nominal exchange rates for a given year or over the average of several years, or purchasing power parity
Purchasing power parity
In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...
exchange rates).
Furthermore, providing a global overview of water tariff levels is complicated by the large number of service providers (utilities). In urban areas in the United States alone, there are more than 4,000 water utilities. In Germany there are more than 1,200 utilities. Few countries in the world maintain national databases of water and wastewater tariffs charged by utilities. England, which has only 26 service providers and a specialized regulatory agency for the water sector (OFWAT) and Chile are two of a few countries that maintain national tariff databases.
Tariff levels
Among the 276 cities in the GWI 2010 tariff survey the average combined water and wastewater tariff was US$1.81 per m3 for the 15 m3/month "benchmark" customer used by the survey. Only utilities in four cities provide residential water and wastewater services for free: Dublin and Cork (see Ireland), as well as Belfast and Ashgabat in TurkmenistanTurkmenistan
Turkmenistan , formerly also known as Turkmenia is one of the Turkic states in Central Asia. Until 1991, it was a constituent republic of the Soviet Union, the Turkmen Soviet Socialist Republic . Turkmenistan is one of the six independent Turkic states...
. The lowest residential water and wastewater tariffs were found in Ljubljana, Slovenia (equivalent to US$ 0.01 per m3), Saudi Arabia (equivalent to US$ 0.03 per m3) and in Havana, Cuba as well as Karachi, Pakistan (equivalent to US$ 0.04 per m3). The highest water and wastewater tariff were found in Denmark (US$8.00/m3 in Copenhagen), Honolulu (US$ 7.61/m3) and Glasgow (US$5.89/m3). However, an even higher combined water and wastewater tariff can be found in Essen, Germany, a city that has not been included in the OECD survey. The tariff in Essen is equivalent to US$8.41 (Euro 5.61) per m3 according to a survey carried out for the weekly magazine Der Spiegel
Der Spiegel
Der Spiegel is a German weekly news magazine published in Hamburg. It is one of Europe's largest publications of its kind, with a weekly circulation of more than one million.-Overview:...
.
Concerning wastewater tariffs, in some countries such as Panama
Water supply and sanitation in Panama
Water supply and sanitation in Panama is characterized by relatively high levels of access compared to other Latin American countries. However, challenges remain especially in rural areas.- Access :...
and Egypt
Water supply and sanitation in Egypt
Water supply and sanitation in Egypt is characterized by both achievements and challenges. Among the achievements are an increase of piped water supply between 1990 and 2006 from 89% to 99% in urban areas and from 39% to 82% in rural areas despite rapid population growth; the elimination of open...
there is no wastewater tariff at all. In other countries - such as Mexico, Turkey, Belgium, Portugal and Korea - wastewater tariffs are low relative to water tariffs. Finally, in many OECD countries - such as in Australia, Germany, Italy, the UK and the US - wastewater tariffs are now higher than water tariffs, reflecting increasing cost recovery rates and an increase in the prevalence of wastewater treatment.
Many utilities charge higher tariffs for commercial and industrial customers than for residential users, in an effort to cross-subsidy residential customers.
Tariff adjustment processes
The process of adjusting water tariffs differs greatly from one location to another. In many large countries (China, France, Germany, India, Mexico, South Africa and the United States) the process of price adjustment takes place at the municipal level. Rules for price adjustments vary greatly. In the case of public service provision, tariffs are typically adjusted through a decision by the municipal council after a request by the municipal utility. Some countries, such as GermanyWater supply and sanitation in Germany
Public water supply and sanitation in Germany is universal and of good quality. Some salient features of the sector compared to other developed countries are its very low per capita water use, the high share of advanced wastewater treatment and very low distribution losses...
, stipulate by law that all the financial costs of service provision must be recovered through tariff revenues. Other countries define cost recovery as a long-term objective, such as in Mexico
Water supply and sanitation in Mexico
Water supply and sanitation in Mexico is characterized by achievements and challenges. Among the achievements is a significant increase in access to piped water supply in urban areas as well as in rural areas between 1990 and 2006; a strong nationwide increase in access to improved sanitation ...
. In the case of private service providers tariff adjustment rules are often laid out in concession or lease contracts, often providing for indexation
Indexation
Indexation is a technique to adjust income payments by means of a price index, in order to maintain the purchasing power of the public after inflation....
to inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
.
In some developing countries, water tariffs are set at the national level. Tariff increases are often considered a politically sensitive issue and have to be decided by the Cabinet of Ministers or a National Pricing Commission. This is the case in many countries of the Middle East and North Africa (Egypt
Water supply and sanitation in Egypt
Water supply and sanitation in Egypt is characterized by both achievements and challenges. Among the achievements are an increase of piped water supply between 1990 and 2006 from 89% to 99% in urban areas and from 39% to 82% in rural areas despite rapid population growth; the elimination of open...
, Jordan
Water supply and sanitation in Jordan
Water supply and sanitation in Jordan is characterized by severe water scarcity, which has been exacerbated by forced immigration as a result of the 1948 Arab–Israeli War, the Six-Day War in 1967, the Gulf War of 1990 and the Iraq War of 2003. Jordan is considered as one of the ten most water...
, Lebanon, Morocco
Water supply and sanitation in Morocco
Water supply and sanitation in Morocco is provided by a wide array of utilities. They range from private companies in the largest city, Casablanca, the capital, Rabat, and two other cities, to public municipal utilities in 13 other cities, as well as a national water company...
, Syria
Water supply and sanitation in Syria
Syria is a semiarid country with scarce water resources. The largest water consuming sector in Syria is agriculture. The domestic water use stand only at about 9% of total water use....
, Tunisia
Water supply and sanitation in Tunisia
Tunisia has achieved the highest access rates to water supply and sanitation services among the MENA countries through sound infrastructure policy. 96% of urban dwellers and 52% of the rural population already have access to improved sanitation. By the end of 2006, the access to safe drinking water...
), as well as in many countries in Sub-Saharan Africa. In many countries, there are no objective criteria for tariff adjustments. Adjustments tend to be infrequent and often lag behind inflation so that cost recovery remains elusive.
Some countries have created regulatory agencies at the national level that review requests for tariff adjustments submitted by service providers. The earliest and best-known example is the regulatory agency OFWAT, which was established for England and Wales in 1989. Some developing countries followed suit. They include Chile
Water supply and sanitation in Chile
Water supply and sanitation in Chile is characterized by high levels of access and good service quality. Compared to most other countries, Chile's water and sanitation sector distinguishes itself by the fact that all urban water companies are privately owned or operated...
(1990), Colombia
Water supply and sanitation in Colombia
Water supply and sanitation in Colombia has been improved in many ways over the past decades. Between 1990 and 2004, access to sanitation increased from 82% to 86%, but access to water increased only slightly from 92% to 93%.. In particular, coverage in rural areas lags behind. Furthermore, despite...
(1994), Honduras
Water supply and sanitation in Honduras
Water supply and sanitation coverage in Honduras has increased significantly in the last decades. However, the sector is still characterized by poor service quality and poor efficiency in many places. Coverage gaps still remain, particularly in rural areas....
(2004), Kenya, Mozambique
Water supply and sanitation in Mozambique
Water supply and sanitation in Mozambique is characterized by low levels of access to an improved water source , low levels of access to adequate sanitation and mostly poor service quality...
(1998), Peru
Water supply and sanitation in Peru
The water and sanitation sector in Peru has made important advances in the last two decades, including the increase of water access from 30% to 62% between 1980 and 2004. Sanitation access has also increased from 9% to 30% from 1985 to 2004 in rural areas. Advances have also been achieved...
(1994), Portugal
Water supply and sanitation in Portugal
The Water supply and sanitation services in Portugal have seen important advances in access to services, technologies used and service quality over the past decades , partially achieved thanks to important funds from the European Union...
(1997), and Zambia
Water supply and sanitation in Zambia
Water supply and sanitation in Zambia is characterized by wide discrepancies in access to an improved water source between urban and rural areas. In peri-urban areas, access has been substantially expanded through the construction of water kiosks...
(2000). The review process is typically based on transparent and objective criteria set by law, in an attempt to move decision-making at least partly out of the realm of politics. The track record of these agencies has been diverse, usually mirroring the political and administrative traditions of each country.
Changes in water use in response to tariff increases
The responsiveness of demand to a change in price is measured by the price elasticity of demandPrice elasticity of demand
Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price...
, which is defined as the percentage change in demand divided by the percentage change in price. The price elasticity of drinking water demand by urban households is typically low. In European countries it ranges between -0.1 and -0.25, i.e. the demand for water decreases by 0.1% to 0.25% for every 1% increase in tariffs. In Australia and the United States price elasticity is somewhat higher in the range of -0.1 and -0.4.
Affordability and social protection measures
In about half the OECD member countries, affordability of water charges for low-income households is or could become a significant issue, according to the OECD. In developing countries, the poor are often not connected to the network and often pay a higher share of their meager incomes for lower quantities of water supplied by water vendors through trucks. On the other hand, utility bills paid by those fortunate enough to be connected to the network are very low in some developing countries. Different countries have introduced a variety of approaches to protect the poor from high water tariffs.Affordability
The affordability of water charges can be measured by macro- and micro-affordability. Macro-affordability" indicators relate national average household water and wastewater bills to average net disposable household income. In OECD countries it varies from 0.2% (Italy and Mexico) to 1.4% (Slovak Republic, Poland and Hungary). In the largest OECD countries the share is 0.3% in the United StatesWater supply and sanitation in the United States
Issues that affect water supply and sanitation in the United States include water scarcity, pollution, a backlog of investment, concerns about the affordability of water for the poorest, and a rapidly retiring workforce...
and Japan, 0.7% in France
Water supply and sanitation in France
Water supply and sanitation in France is universal and of good quality. Salient features of the sector compared to other developed countries are the high degree of private sector participation using concession and lease contracts and the existence of basin agencies that levy fees on utilities in...
and 0.9% in Germany
Water supply and sanitation in Germany
Public water supply and sanitation in Germany is universal and of good quality. Some salient features of the sector compared to other developed countries are its very low per capita water use, the high share of advanced wastewater treatment and very low distribution losses...
. However, micro-affordability is quite different. It measures the share of bills in the income of the poor, defined in an OECD affordability study as the lowest decile
Decile
* In descriptive statistics, any of the nine values that divide the sorted data into ten equal parts, so that each part represents 1/10 of the sample or population* In astrology, an aspect of 36 degrees-See also:*Percentile*Quantile*Quartile*Summary statistics...
of the population. This share varies between 1.1% (Sweden, Netherlands, Italy) and 5.3% in the Slovak Republic, 9.0% in Poland and 10.3% in Turkey. The OECD concludes that in half its member countries (15 out of 30), affordability of water charges for low-income households "is either a significant issue now or might become one in the future, if appropriate policy measures are not put in place." In developing countries the situation is more serious, not only because of lower incomes, but also because the poor are often not connected to the network. They usually pay a higher share of their meager incomes for lower quantities of water at often lower quality supplied by water vendors through trucks. On the other hand, utility bills paid by those fortunate enough to be connected to the network are often relatively low, especially in South Asia. Because of this situation the OECD does not recommend to use uniform "thresholds" for the affordability of water and wastewater bills. These "thresholds" are often quoted in the range of 3-5% of household income.
Social protection measures
Social protection measures to ensure that piped water remains affordable can be broadly classified into income support measures and tariff-related measures. Income support measures address the individual customer’s ability to pay from the income side (through income assistance, water services vouchers, tariff rebates and discounts, bill re-phasing and easier payment plans, arrears forgiveness). An example of income assistance to poor users is the subsidy system applied in ChileWater supply and sanitation in Chile
Water supply and sanitation in Chile is characterized by high levels of access and good service quality. Compared to most other countries, Chile's water and sanitation sector distinguishes itself by the fact that all urban water companies are privately owned or operated...
. Tariff-related measures keep the size of water bills low for certain groups (e.g. refinement of increasing-block tariffs, tariff choice, tariff capping). Examples of increasing block tariffs with a price of zero in the first block are found in Flanders
Water supply and sanitation in Belgium
Water supply and sanitation in Belgium is provided by a large variety of organizations: Most of the 589 municipalities of Belgium have delegated the responsibility for water supply and sanitation to regional or inter-municipal utilities. There are more than 62 water supply utilities, including 2...
and South Africa
Water supply and sanitation in South Africa
Water supply and sanitation in South Africa is characterized by both achievements and challenges. After the end of Apartheid South Africa's newly elected government inherited huge services backlogs with respect to access to water supply and sanitation. About 15 million people were without safe...
. Another measure is the cross-subsidization using different tariffs for different neighborhoods, as practiced in Colombia
Water supply and sanitation in Colombia
Water supply and sanitation in Colombia has been improved in many ways over the past decades. Between 1990 and 2004, access to sanitation increased from 82% to 86%, but access to water increased only slightly from 92% to 93%.. In particular, coverage in rural areas lags behind. Furthermore, despite...
. A similar approach has been used at the national level in Portugal
Water supply and sanitation in Portugal
The Water supply and sanitation services in Portugal have seen important advances in access to services, technologies used and service quality over the past decades , partially achieved thanks to important funds from the European Union...
. The Portuguese economic water regulator carried out an affordability study that found out that 10.5% of the population paid more than 3% of their income for water and wastewater services. As a result, the regulator showed flexibility concerning tariff increases and tariff solutions in municipalities where affordability was a particular issue.
Further reading
- Tom Jones, OECD Environment Directorate:Pricing water, OECD Observer No. 236, March 2003
- U.S. Environmental Protection Agency:Water and Wastewater Pricing
- France:Water pricing
- Australian government, National Water Commission:Water pricing