L q 7 q ^ Twelfth Meeting of the Urban Think TankTariffs and Subsidies

April 3-4, 2001 * Mumbai, Maharashtra

SanitationProgram

An internationalpartnership to help the poor gain sustainedaccess to improved water supply and ̂sanitation services

South Asia Region (NO EMPTY PRoMISES ,

Urban Think Tank Water and Sanitation Program- -

So.th A_ =I 1r - E L E TEJ'

FOREWORD --- r

by Hareshwar Patil SAFE WATER FOR ALL - TF{TNIK

Mayor of Mumboi AT A PRICE YOU OPCAt4 AFFORD T THAT!!

When I became Mayor two years ago, I 0

announced four major reform programs; the > . -_.

most important of these was to expand the --T -' -

water supply to all the residents of Mumbai, > ( { rwhether they lived in slums or elsewhere,

and to eliminate theft and seepage from the N _ '

system. Everyone has a right to clean water

and to correct bills, but while we have old -1. A h7

and corroded transmission pipes and broken I '

and faulty meters this cannot happen. Last

year I recommended that private suppliers > ,1 -> N -(N r ^N2- ,il - , f> p-, /,'

should be considered to provide water to ~ '>N fN .N f -

some areas. The political support is there 6" / 6 ' g .

both for privatization initiatives and an , ' ,, .,

increase in prices, provided this is linked to .. . - > *; ' -. ,.

an improved water supply forthe whole city, > *N'. ' . -g-.. .i - N . ' < f (>,- rich and poor alike. - . - . . 2 ¾,

As water is the most essential commodity ~ (o ( - ' -/--. ..

for all of us, I am hoping our deliberations .e. '~ -- g , <-.> S -'at this Think Tank will go a long way to N ~ ,\ -- N

help cill the citizens of Mumbai achieve a - tC- .- (=- -comprehensive, safe and affordable -,

water supply. .

11131$ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ I. . - _.bar

WORLDP U BLI c- P R I VA T Brihan Mumbai FI,

ADv[SCRY FACiLITY Municipal CorporationIN T U E

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MUNICIPAL MATTERS: A View from Three Cities

Bangalore, Karnataka and O&M costs are covered by the water tariff.

Bangalore's population of 6.0 million people Connection charges are at present Rs 1 2,000 forwill rise to 7.3 million by 201 1. More water domestic consumers and up to Rs 42,000 for

will need to be taken from the Cauvery River, which commercial connections. Group connections, whichalready supplies 80 per cent of Bangalore's needs. typically serve up to 10 people, cost Rs 3,000 afterWater is pumped over 100 km, and the associated the Rs 3,500 subsidy from the NSDP; there is noelectricity charges account for 60 per cent of the subsidy in the group tariff, only in the connection costs.tariff, which, according to a 1998 ADB survey, is the Water tax currently stands at around 1 8 per centhighest in the country. of property tax. The corporation introduced a six-

All water connections are metered and charges monthly comprehensive billing scheme in 1 995,are based on an increasing block tariff with a which includes property tax, water tax, etc, andminimum charge for the first band. The guiding recovery rates have improved from a low of 50-60principles are that commercial and industrial percenttoanormof90percent.ThisstilI leavesanconsumers should cross-subsidize the 15,000 annual O&M deficit of 0.23 crore perannum wh chpublic fountains and losses from the increasing is being met from the General Fund.volumes of unaccounted for water; and that highvolume domestic consumer should subsidize low- Mumbai, Maharashtravolume consumers. Bangalore Water Supply and Mumbai's population of almost 12 millionSewerage Board (BWSSB) can revise tariffs to meet people receives water for between 3-5 hourselectricitypriceincreasesbutrevisionsstemmingfrom daily; water losses are running at 20-25 per cent.salary increases, maintenance costs, or capital costs There are 3 lakh connections of which 220,000 areneed the prior approval of the State Government. In metered, but only 20 per cent of meters are inthe last 1 0 years the average tariff has risen by over working order. The reasons are common to most20 per cent per year and, despite these increases, cities in India, namely intermittent water supply,overall cost recovery is only 82 per cent of total tampering by consumers and inability to repair oroperating costs with domestic consumption covering replace faulty meters. Meters have an average life ofonly 35 per cent of costs. 5-7 years and analysis indicates that it is cheaper to

To ensure full cost recovery and to meetthe capital replace than repair non-working meters.costs of future expansion the tariff level in 2002-03 At the moment, metered consumers paywill need to be increased. Reforms are clearly needed sewerage charges equal to 60 per cent of the waterand, to this end, the BWSSB is investing in surveys to charges, whether or not they have a sewerageestablish social patterns, the possibility of more shared connection. Unmetered consumers pay 65 per centconnections, and the ability and willingness to pay and 39 per cent of the rateable value of their propertymore for better services. But successful tariff reforms as water tax and sewerage tax. In addition, to meet

For more information, contact: require firm political support. capital costs for infrastructure development, allBangalore, Karnataka consumers pay a 1 2.5 per cent water benefit tax andM.N. Thippeswamy Guntur, Andhra Pradesh a 7.5 per cent sewage benefit tax calculated onChief Engineer (Corporate Guntur was established as a municipal rateablevaluesthat remain frozen atthe 1940 levels.Planning] corporation in 1994 and now has an estimated The whole tariff structure and rateable values needBangalore Water Supply and population of 5.5 lakh receiving an average of 101 to be reviewed and charged on a realistic basis. TheSewerage Board (BWSSB) liters per capita of water daily. The water sources tariff also needs to take into account debt servicing

Guntur, Andhra Pradesh are up to 1 7 km away and pumping costs form a and repayment of loan, in addition to operation,N.V.R.K. Prasad large part of the water tariff. The majority of maintenance and capital depreciation.Deputy Executive Engineer connections (31,550) are unmetered with only To improve service levels for consumers, theMunicipal Corporation of Guntur commercial and industrial users on a metered supply Mumbai Corporation wishes to launch a pilot project

Mumbai, Maharashtra (1,120 connections). The corporation is encouraging in one zone (K East - housing roughly 10 per cent ofS.C. Srivastava the Group Tap scheme, which is subsidized by the the city population) which will grant a private operatorMunicipal Commissioner, National Slum Development Programme (NSDP), a five-year contract to (i) replace all meters andBrihon Mumbai Municipal and discouraging public standposts that have a high consumer connections within six months andCorporation tariff subsidy and are wasteful of water Water losses maintain them during the contract (ii) identify water

M.R. Sohoni are running at up to 35per cent with between 20-25 leakage and theft (iii) collect revenue for the waterHydraulic Engineer per cent lost during transmission and 1 0 per cent department (iv) reduce and monitor UAW. MWSSDBrihan Mumbai Municipal during distribution. will guarantee a 24-hour supply during this periodCorporation The tariff structure is very simple. Capital costs and, depending on the outcome, replicate the scheme

are recovered through a one-time connection charge throughout the rest of the city.

2

Twelfth Urban Think Tank: List of Participants -Ubn Think Tank

'Tariffs and Subsidies in the Urban Water and Sahitation Sector',April 3-4, 2001, Mumbai

CENTRAL GOVERNMENT Mr. NVRK Prasad Deputy Executive EngineerMr. AlokJoin Secretary (Water) Municipal Corporation of GunturGovt of Uttranchal, Secretary, Lytton Road, DehradunUttaranchal Tel: 0135 712055 Ms. Prema Cariapppa MayorMr. Ashwini Kumar Commissioner Bangalore Mahanagar PalikeSangli Miraz Kupward Municipal Corporation N. R. Square, Bangalore 560 002Sangli 416 416 Tel 080 2238540 Fax: 080 2223194Tel: 0233 323167; 9823058910 Fax: 0233 323907 Mr. PS.S. Thomas Principal Advisor

(SP, HUD&WS) Planning CommissionMr. Binay KJha Director (F&A) Govt of India, Room No. 248,Delhi Jal Board, Govt of NCT of Delhi Yoiana Bhowan, New Delhi 1 0 011Varunalaya II, Karol Bagh, New Delhi 1 10 005 Tel: 01 1-3710051 Fax:01 1-3717681Tel: :3620933 Fax: 7535937T Mr. Ravi Dass Chief EngineerDr. Bhogwan Sahai Director Municipal Corporation of DelhiDirectorate of Municipal Administration Town Hall, Choandni Chowk, New Delhi I 0 092Govt of Maharashtra Tel: 01 1-3976422; 7272185Mhada Building, Bandra (E), Mumbai 400 001Tel: :022 6453126 Fax: :022 6412812 Ms. S. Malathi SecretaryMunicipal Administration & Water SupplyMunicipal Corporation of Greater Mumbai Department, Govt of Tamil Nadu, SecretariatMunicipal Head Office Building Chennai 600 009Mahopolika Marg, Mumbai 400 001 Tel: 044-5360491 Fax: 044-5389866Tel : 022 262 0251 Fax : 022 262 0025 Dr. Sneha Palnitkar Director, RCUES* Mr. Bhatia Sthanikral Bhavan, C.D. Barfiwala Marg* Mr. Hareshwar Patil Mayor Andheri (W), Mumbai 400 058* Mr. K.C. Srivastava Municipal Commissioner Tel: 022 6206716/6284431 Fax: 022 6288790Mr. Deepak Sanan Secretary Finance - Mr. Sudhakar Rao Chairman & Managing DirectorGovt of Himachal Pradesh, Shimla Karnataka Urban Infrastructure Development andTel : 01 77221586 Fax: 0177221154 Finance Corporation, BangaloreMr. Elias George Secretary, Water Supply Deptt Tel: (080)223-2022 Fax: (080)223-2178Govt of Kerala, Thiruvanthapuram, Kerala 695 006 Email: sudhakar_rao@vsnl.netTel: 0471 333407 Fax :0471 333115 Mr. Suresh Patil MayorDr. G. Lokesh Health Officer (East) Sangli Miroz Kupwad Municipal CorpnBangalore Mahanagar Palike Mayohall Sangli 416416 Tel: 0233 323595Bangalore 560 001 Tel: 022 5583204 Mr. Yaduvendra Mothur Deputy Director (Sr.)Mr. Guruprasad Mahapatra Commissioner Lal Bahadur Shastri, National Academy ofSurat Municipal Corporation Administration, Mussoorie 248 1 79Muglisara, Surat (Gujarat) 395 003 Tel: 0135 632236,632367 Extn 2108; 2208Tel/Fax: 0261-422244 Fax: 0261 4221 10 Fax: 0135 632350; 632720Email: gpmohapatra @hotmail.com Email : ym@lbsnaa.ernet.inMr. H.P Uniyal General Manager NGOsGarhwal Jal Sansthan, Dehradun, Uttaranchal Mr. Minor Pimple Executive Director, YUVAFax: 0135 712014 52/53, Narepark Municipal School, Opp. NareparkMr. Jai Shankar Mishra Secretary Ground, Parel, Mumbai 400 012Department of Urban Development Tel : 022 4155250 Fax: 022 4135314Govt of UP., 824, 2nd Floor, Bapu Bhowan, Lucknow Ms. Neena Gulabani Director (Resource Planning)Tel: 0522-237314/238782 Fax: 0522-238263 Asian Centre for Organisation Research &Mr. Manikont Prasad Singh Commissioner Development (ACORD), C- 126, Greater KailashMunicipal Corporation of Chandigarh Part 1, New Delhi 1 10 048M.C. Building Sector - 1 7, Chandigarh 16001 7 Tel :01 1-6238495 Fax :01 1-011-6235933Tel: 0172 708765 Fax: 01 72 721234 Email : acrod@del2.vsnl.net.inMr. M.N. Thippeswamy Chief Engineer - Ms. Sheela Patel Director, SPARCCorporate Planning 1 st Khetwadi Municipal Marathi UpperBangalore Water Supply & Sewerage Board Primary School, 2nd floor, 1 st Khetwadi Lane9th Floor, Cauvery Bhovan, Bangalore 560 009 (NearAlankarTheatre), Mumbai 400 004Tel: 080 2276802 Fax: 080 2276802 Tel: 022 3865053 Fax: 022 3887566Email : secpbwsb@bir.vsnl.net.in Email : sheela@sparc.ilbom.ernet.inMunicipal Corporation of Greater Mumbai INSTITUTIONSBG KherMarg, Near Hanging Garden Dr. Dale Whittington Department of EnvironmentalMalabar Hill, Mumbai 400 006 Sciences and EngineeringTel : 022 262 0025 Extn 2004 Rosenau Hall CB#7400, School of Public HealthFax: 022 22270 University of North Carolina at Chapel Hill* Mr. M.R. Sohoni Hydraulic Engineer Chapel Hill, North Carolina 27599* Mr. S. V Hyuilkar Prof. Om Prokash Mathur National Institute of Public* Mr. Shringarpure Finance and Policy, 18/2 Satsang Vihar Marg,e Mr. TVShah Deputy Hydraulic Engineer Special Institutional Area, New Delhi* Mr. Vijay Khabale Publicity Officer Tel : 011 6569303 Fax :011 6852548

Dr. Pulin Nayak Delhi School of Economics PRIVATE SECTORDelhi University, Delhi Mr. A. Mahindra Deputy General ManagerTel: 01 1 766 6534 Fax: 01 1 766 6533 Feedback Ventures LimitedDr. Siddharth Mitra NCAER, Parisheela Bhowan Feedback House, 7 Local Shopping Centre11 IP Estate, New Delhi Tel : 331 7860 Fax: 3327164 Panchsheel Park, New Delhi 1 10 01 7Prof. Srinivas Chary Administrative Staff College of Tel: 01 1-6495766 Fax: 01 1-6495762India, Bella Vista Road, Khairatabad, Infrastructure Development Finance Company LtdHyderabad 500 082 Ramon House, 169 Backbay ReclamationTel: 040 3310952 Fax: 040 331 2954 Mumbai 400 020Tel : 022 2339143 Fax:022 2339159Ms. Usha Raghupathi Associate Professor * Ms. AditiJagtiani Manager -Policy Advisory GroupNational Instituteof Urban Affairs, Core 4B, 1 st Floor, * Mr. Anupam Rastogi Vice President - Policy AdvisoryIndia Habitat Centre, New Delhi 1 10 003 * Mr. Anish Nanavafy ABB OperationsTel: 01 1 461751 7 Fax: 01 1 4617543 * Mr. NirmalMohantyVice President - PolicyAdivsoryOTHER AGENCIES Infrastructure Leasing & Financial Services Ltd.Mr. Arun D. Kulkarni Reporter -Weekly Vritchap East Court, Zone VI, 4th Floor, India Habitat Centre,91/3, Trimurti Apartments, Tatya Gharpure Marg Lodi Road, New Delhi 1 10 003Mumbai 400 004 Tel: 022 388 0284 Tel: 01 1-4682063 Fax0 01 1-4682070The World Bank * Dr. Anand Chiplunkar Project Director70 Lodi Estate, New Delhi * Dr. Pradeep Singh Chief Executive (Infrostructure)Tel: 011-4619491 Fax: 011-4619393 Mr. C Sreekumar Manager* Mr. Christophe Bosch KPMG Consulting Private Limited*Mr. KMukandan Sr. Urban Specialist KPMG House, Kamala Mills Compound* Ms. Smita Mishra Sr. Environmental Specialist 448, Senapati Bapat Marg, Lower Parel Mumbai* Ms. Supriya Sen Sr. Financial Analyst Fax: 022 4913132 Email: sckumar@in kpmg.comThe World Bank Fx 2 9 13 mi cua~nkm.o1818 H Street, NW, Washington 20433 Mr. Dinesh K. Tandon Vice President

Tel : 00 202 4582492 Fax: 00 202 522 2418 Infrastructure Development SectorTemal : 00202s4582492 Fox:00r202b522k2418Mahindra & Mahindra Limited, Mahindra Towers,Email : llanssensl @worldbank.org 5th Floor, Dr GM Bhosole Marg, Worli*Mr. Jan G. Janssens Lead Specialist, SASIN Mumboi 400018. Tel:0224975078/4931441* Ms. MidoriMakino Finance Specialist, SASIN Fax 022 4975084Mr. James Stein Director Email: tandon.dinesh@mahindro.co.inRegional Urban Development Office, USAID Mr. Fabian Cox Regional Director -South AsiaAmerican Embassy, Shantipath, Chanakyapuri, General Utilities PLC- Representative Office in IndiaNew Delhi 1 10 021 B-1 Marble Arch, 9 Prithviraj Road, New DelhiTel: 01 1-4198000 Fax: 01 1-4198612/8454 Tel: 01 1-4651465 Fax: 01 1-4651469Mr. Javier Jarquin Environment Specialist Dr. Laveesh Bhandari Chairman & CEOWBI, The World Bank, Washington Indicus AnalyticsTel: 00 202 4582492 Fax: 00 202 522 2418 B- 1 7 Greater Kailash Enclave 11, New DelhiEmail : jjarquin@worldbank.org Tel: 9810173264,9810386143 Fax:011 6420436Mr. K. Rajivan Chief Executive Ms. Nandita Nagpal Vohra General ManagerTNUDF, Vairom Complex, 1 st Floor, 1 12, Theyagaroya Feedback Ventures LirnitedRoad, Chennai Tel: 044-8236578 Fax: 044-8236581 Bengal Chemicals Bhavan, 3rd Floor, 502 Veer SavarkarMr. Lindsay Shepherd AUSAID Consultant Marg, Prabhadevi, Mumbai 400 025Bangalore Water Supply & Environmental Sanitation Tel: 022 4613629; 4613632 Fax:0224613631Master Plan Project, BWSSB, 7th Floor, 709 Cauvery Email : nanditanagpal@yahoo.comBhowan, Kempegowdo Rood, Bangalore 560 009 Mr. R. Mohankumar Assistant Vice President -Tel : 080 2295371 Fax: 080 6653942 OperationsMs. Meera Mehta Sr. Finance Specialist, Infrastructure Development Finance Company Ltd.Water & Sanitation Program, WSP-Africa ITC Centre, 3rd Floor, 760 Anna SalaiHill Park, Upper Hill, Nairobi, Kenya Chennai 600 002Tel 00254 2 260 300 Fax 00254 2 260386 Tel: 040 8559440 Extn 144 Fax: 040 8547597Email: mmehta@worldbank.org Mr. Simon Montague Country Director

Northumbrian Water GroupMr. Nabaroon Bhattachariee Program Officer & Indian Liaison Office, Unit 1110, 11th FloorRegional Training Advisor, Regional Urban Development Prestige Meridian 1, 29 MG Road, Bangalore 560 001Office, USAID, American Embassy, Shantipath, Tel:0805098001/8002Fax:0805098004Chanakyapuri, New Delhi 110021 Email: nwgindioamantraonline.comTel : 01 1-4198000 Fax: 01 1-4198612/8454 Ggm759dial.pipex.comMr. Simon Kenny Engineering Advisor WSP_SADepartment for International Development(DFID) WSPSAB-28 Tara Crescent,Qutab Institutional Area, Water & Sanitation Program-South AsiaNew Delhi 1 10 016 (VSP-SA), 55 Lodi Estate, New Delhi 1 10 003Tel: 01 1-6529123 Fax: 01 1-6529296 Tel :01 1-4690488/89 Fax :01 1-4628250Mr. Subroto Talukdar Sr. Program Officer Dr. Junaid Kamal AhmadUrban Environment & Development Regional Team LeaderDevelopment Cooperation Deptt, Royal Netherlands Dr. VivekSrivastavaEmbassy, 6/50F, Shantipath, Chanakyapuri Team Leader - India Country TeamNew Delhi 110021 Tel :011-6884951-54 s. arissa ehurFax: 01 1-4103089; Email : st.taukdar@minbuza. nI Regional Urban SpecialistD.Pushpa Pathfak Urban SpecialistMr. V Satyanarayana Infrastructure Fin. Advisor Mr. Shane J. Rosenthal ConsultantIndo-US Financial Institutions Reforms & Expansion Ms. Soma Ghosh MoulikProject, E-3/4 VasantVihar, New Delhi 1 10 057 Urban Institutional SpecialistTel 011-6149836/6143551 Fax: 011-6141420 Ms. HarminderPaul Program Assistant

Water Tariffs and Subsidy Models in Indian Cities -. -

This article is based on recently completed research in 260 cities and towns

Water utilities have two main sources of subsidy models it seems clear that high volumerevenue, water tax, which is based on property domestic users subsidize low volume users,

values, and water charges, which are based on water especially where IBT tariffs are used; industrial andconsumption. Both have inherentflaws since tax can commercial concerns generate a massive subsidyonly be levied on registered properties, leaving an by paying a rate 5 to 10 times higher than domesticestimated 60 to 70 per cent outside the tax net, and consumers; free public standposts are subsidized bywater charges largely exclude the unconnected other consumers; and when revenues are insufficientpopulation living in informal settlements. Of the 260urban centers that responded to a recent NIUA survey,45 per cent used water charges, 1 7 per cent usedwater tax and 38 per cent used a mixture of the two Type of rates used No. of cities/towns %to fund water and sanitation services. Combination of metered and unmetered 98 38

Seventeen per cent of the cities used only meteredconnections and 38 per cent used a combination ofmetered and unmetered connections, but significant only unmetered 11 8 45numbers of meters are broken or unread and metering Tota l 260 100presents challenges for utilities. For meteredconnections there are two types of tariff structures, auniorm ter a3 respective of constumtion an Distribution of Indian cities by tariff structure for domestic connectionsuniform rate per ml irrespective of consumption andan increasing block tariff charging higher rates for Type of tariff used No. of cities/towns %increased consumption. The uniform rate was used Uniform volumetric rate + fixed rate per 51 20in 40% of the sample with rates varying from a low household per month

of Rs 0. 1'8 to a high of Rs 5.75 per 1,000 litres n). Uniform volumetric rate + ferrule-based rate 19 7The study found that 1 5 per cent of cities used anIncreasing Block Tariff (IBT). The number of blocks Uniform volumetric rate + tap rate 6 2usually range between 2-6 with the first block varying Only Uniform volumetric rate 28 11from a low of 10 m3 to a high of 50 m3. Some citieshove defined a fixed minimum monthly charge andthe IBT comes into effect only when consumers IBT + ferrule-based rate 18 7exceed the minimum usage. There is no uniformity Only IBT 16 6in the size of blocks, which makes comparisons and O f

anslysis difficult. 7 ~~~~Only fixed rate per household per rr, .-..... . ......- rJl, 94 3 analysis difficult. 36-The tarifffor unmetered connections in the survey Only ferrule based-rote 22 Q.

(118 towns) falls into three categories - a simple ------ -- --- -- -------- -------- -

fixed rate per month per household; a rate based onthe diameter of the water pipe and a rate based on i ..`- -

the number of taps per house.Though the study did not specifically look at to cover expenditure, the State subsidizes all users

by making up the shortfall.- - .J -. f X 17 ] There seems to be a consensus that tariffs should

- 1 i @ reflect cost; but for many towns and cities, especially"'?'. rtKl ithe smaller ones, deciding what real costs are is a

, -- > | ^ major part of the problem. They simply do not have-. x .- 'j 1 the right tools to calculate costs that may originally

have been set arbitrarily decades ago. The old, flowed,Xii _ = - - a rates may be reviewed and increased from time-to-

s- A _ j , - time but without tackling the real issues. Startling cost, * ^ i ~. U variations from as little as Rs 0.30 to Rs 300 per m3

emerged during this study. Despite the provision for For more information, contact:_____ 2 J--^>greater autonomy in local decision-making enshrined Usha P Raghupathi

in the 74th amendment there has been little devolution National Institute of Urban Affairsc., t $ of powerfrom the Centerwith respectto tariff-setting. New Delhi

State Governments still set the minimum tariff and-,. ,.3 ____ must approve all proposed increases.

3

Principles and Issues to Consider in Setting Tariffs andSubsidies and the Weaknesses of Increasing Block Tariffs

Water pricing isinevitably, a political FIGURE 1: Average Residential Water Tariffs -

process, and one that Selected Asian Cities (US$/m 3, 1997)typically raises controversy.It is also a process that Pricerequires compromise, and US$/ml Citiesthe need to find the right 0.70balance between different Jakartaobjectives and the rights and _needs of diverse groups. Singapore, Hong KongOne of the reasons why 0.50 _setting water tariffs is socontroversial is that in many _

cultures nd countres waterBangkok, Kuala Lumpur, Taipeicultures and countries water_is seen as a resource that Manila, Seoulshould be provided free; for 0.20many it is hard to give up Ho Chi Minh, Colombo, Lahorethis vision of free, abundantwater even when faced with Kolkato, Delhi, Beijing, Mumbai, Shanghai, Karachi, Dhakathe reality that we live in a 0.00world where water isbecoming an increasingly scarce commodity. based on property values or household size, or o

A water tariff is the set of rules and regulations volumetric charge based on measured water use.regarding prices, charges, and taxes that utilities use There are different kinds of volumetric charges -to collect revenue. There are a wide range of water uniform, decreasing, or increasing block structures.tariffs currently being used in Asian cities, and, in * a two-part tariff that includes both fixed andfact, compared to most neighboring cities, India has volumetric charges.very low residential tariffs (see Figure 1 ). With a two-part uniform volumetric tariff aol units

Different prices have different consequences of water used are billed at the same price with abecause tariffs have different functions. They fixed monthly charge. A two-part increasing blockdetermine the level of revenues that water utilities tariff (IBT) will typically have a fixed service chargereceive. For private utilities they are a method of with two or more block prices that rise asattracting capital. They create incentives for the consumption rises. Some variants of both these tariffproduction and use of water. They allocate costs structures would include a very low bottom block,among different groups of customers because usually called a lifeline tariff, which is often priceddifferent people design tariffs for different reasons, below cost; and seasonal prices in which prices varyusing a balance of the following different objectives: depending on the time of year. IBTs that are currently

C economic efficiency, which meons sending the in use have many common characteristics, forright signals to customers about the consequences example, large initial blocks, large numbers of blocks,of their decisions on water usage now and a forward and more differentiation in blocks for residentialsignal aboutwhat water might cost in future if supplies users (who typically pay less per unit for water thanbecome more scarce. commercial users.) IBTs are widely used in OECD

* fairness in the eyes of the consumers, which countries and actively promoted in developingmay be different in different cultures countries. In 1 993 the Urban Water Resources

I equity, a testable hypothesis demonstrating Management of the UN declared "water pricing is an,>, ... how different prices affect different income groups important instrument for stimulating efficient use of

* cost recovery, which has been the main water. A basic amount could be used at a relatively'-''a} objective of the World Bank for the last decade low rate while water consumption beyond that

steady, regular cash flow amount could be charged with progressively higher-: . [= * simple and understandable for consumers rates". Nevertheless IBTs from different countries look

In addition, the tariff should be seen as publicly very different (see Figure 2).; ________ } v/ and politically acceptable; it must be easyto implement Supporters of iBTs claim that they transfer income

,,______-------- and enhance the credit ratings of the utilities. from the rich to the poor and from businesses toTariff options entail a basic choice between: poor households, and thatthey discourage wasteful*a single-parttariff that is either a fixed charge use of water. IBTs depend on working, metered

4

connections so are unlikely to work effectively in -. ___ ;many places. But it is often not true that the rich / , < wUbanThinkTank

subsidize the poor. And while it is true that firms may - K a_ =subsidize households, these may not be poor ; X households. Moreover, there is evidence to suggestthat IBTs may drive large users off the piped waterdistribution system. There are other problems withIBTs. The size of the first block is typically far toolarge. South Africa is one of only a few countriesthat have restricted the size of the first block to thefirst six cubic meters of water. Most IBTs lack I --5.transparency and are difficult to administer. Where

there are shoeed connections, a common situation C-

in India, increased consumption pushes users intothe higher blocks so the poor pay more for their E_

water than better-off customers, thus creating a 3

situation that is actually the reverse of the IBT's intent. -

An alternative is to design a tariff based on lump

sum transfers for poorer users; this allows a utility .

to set a uniform price that sends the proper economicsignals about the true value of water. This UniformPrice with Rebate (UPR) tariff structure has a negative i Ifixed charge that is in effect a credit entitlement on A

In conclusion, the usual rationale for employing . .IBTs are either incomplete or incorrect, and thereare significant practical difficulties with IBTs in .developing countries, noticeably shared connedtions. Fr

If the purpose of an IBT is to redistribute income,then alternative tariff designs can do this moreefficiently. Tinkering around the edges of current -, ,

practices will not produce pro-poor results. Whileno single design fits all circumstances it is possibleto develop a systematic, betterthoughtoutapproach , / t

that builds on the lessons learned in othercountries, .and introduces the efficiency, equity, simplicity, and btransparency, which are typically lacking in the IBT 1tariff structures.

FIGURE 2

Cebu (Phillippines)|

0.8

Singapore

_ 0.6 Jakarta (Indonesia)

0.4ChagMi (Thailand) For mare information, contact:

Professor Dale WhittingtonUniversity of North Carolina

0.2 Colombo (Sri Lanka) I Chapel Hill, NC 27599 USAE-mail: Dale_Whittington@unc.edu

Delhi (India) Professor John Boland

______________________________g__________________________________________ The Johns H opkins U niversity0 - .I I Baltimore, Maryland

o lo 20 30 40 50 60 I E-mail: Jboland@jhu.edu(cu.m./month)

5

Speaking to the Poor in a Language they can Understand

In discussions about the water problems facing our cities today most of uswho are community activists working with the urban poor are unfamiliar - 'I

with the language of variables and marginal cost recovery which have dominated A

these proceedings. Our job is to deal with the crisis of people facing scarcityand lack of access on a daily basis. When we talk about how the poor pay most tfor water, the response is often "if they pay so much we can charge them more".

In most Indian cities between 30-50 per cent of the population live ininformal settlements and are treated, by most municipalities, like a block. Theyare not a block; they are individual people who want different choices andneither we as activists, nor city officials, have yet developed a meaningfullanguage to communicate effectively with these communities and ask what itfeels like to be ignored as consumers and to find out what they want changedover a period of time.

There has been a lot of talk about group connections but nothing about thegovernance issues involved; what happens when group connections are given? If there are problems whoarbitrates? The electricity company in Mumbai gives group connections to poor people and the cumulativeusage pushes bills up to industrial levels so poor people, without any representation or redress, are leftpaying five times more for their power than richer consumers. For many their only resort is to steal;

For more information, contact: companies complain they are losing 30-50 per cent of output through theft, yet where are the incentives forSheela Patel, Director, SPARC people to be honest, to do things more efficiently? It is easy to talk about the need to make things easy,2nd floor, 1st Khetwadi Lane, transparent and simple. But the reality is that poor people are disadvantaged even in paying their bills, whereMumbai 400 004 the procedures are time-consuming, problematical and frequently involve bribes.Tel: 022 386 5053thprcdrsaetm-osmn,polmtcladfeunlivlebie.Fax: 022 388 7566 So far NGOs have had a limited role in facilitating dialogue between poor communities and cityE-mail: sparcmain@yahoo.com authorities, but this is changing and NGOs will have an important role to play when tariff restructuring is

discussed. Explaining the details of choices available, strengthening peoples' understanding of things suchas privotization, and being honest about what we don't know are vital. The poor need these things explainedin a language they can understand. In today's environment of mistrust and fear poor people need demonstrableevidence that change can work for them.

DESIGNING TARIFF STRUCTURES FOR AN IDEAL WORLD?Having listened to all the discussions and presentations, participants at the Think Tank definitely agreed that water tariffreform was long overdue. But the difficulties and complexities which surround this subject in India today became apparentwhen participants were divided into groups and charged with designing a tariff structure fora "mythical city" for which detailswere provided. The intention was not so much to try and devise a set of figures but to consider the processes and theconstraints which people face when grappling with the conflicting objectives of tariff-setting in practice. Some groups nevergot beyond the wishful thinking stage. Others come up with fragmented solutions as members disagreed about the correctapproach. One group decided that achieving full cost recovery was so importantthat they proposed pricing water at a levelthat few consumers would have been able to afford.

It is interesting to note that almost all groups designed a tariff with an in-built subsidy related to consumption. However,one group designed a model that escapes the disadvantages of this approach; the group's tariff structure was designed tocover present (and future) costs while incorporating a pro-poor approach. It would do this by:

* Setting a flat rate volumetric charge that would be the same for everyone and reflect the full marginal cost of water. Allcustomers would pay the same unit charge for water so everyone would make decisions about consumption based on thetrue cost of the service.

* Applying a different fixed charge to each of three income groups - poor, middle, and rich; for poor consumers thiswould be a negative fixed charge, in effect a credit on their monthly bill; an arrangement that would be subsidized by positivefixed payments, commensurate with certain income brackets, from more affluent consumers.

But while this model solves one of the prime objectives of tariff-setting - economic efficiency - and adopts a pro-poorstance, it actually creates a number of new difficulties. Most importantly, it is a means-tested tariff and assumes that poor,middle and rich income groups can be readily identified; this is not an easy process in India. It might be hard to prevent bogusclaims for the negative fixed charge, and the regular update of income data required would create significant administrativecosts. The fixed charge could, paradoxically, actually result in the utility paying money to households with very low consumption,below the value of the fixed charge. Finally, this type of structure requires 100 per cent metering, an assumption that doesnot hold in most Indion cities at the present.

6

0/..a-I. The11 Heart§ o>f thbe Argument-Urb.n Thik Tank

Tariff Reform in the Indian Context

Six clear points emerged froni the deliberationsr of the 12th Urban Think Tank 'Tariffs and

Subsidies in the Urban Water and Sanitation Sector:Concern for tariff restructuring is widespread

and decision-makers are aware of the need for tariffreform. Over the last 10 years many cities havealtered their water tariff structure to try and bridgethe gap between revenue and expenditure but mostcontinue to face a growing deficit. d

a So for, attempts at tariff reform have been seen pu,,j, . 'as an isolated activity, divorced from institutional I -

change and reform. Unless the two are developed " ltogether as essential elements of the some process,any gains from improved tariff-setting will be lost. ,I

a Utilities face a common challenge: how to 1structure tariffs in order to recover O&M and capitalcosts? The subject is complex and no one design fits

all circumstances. The Think Tankstimulated debate on a wide range of

| N = i9 _ m l ,,'-contingent issues that opened up the

possibilities of improved, alternative,tariff designs.

tiS > lt> -- ! f oF- a w * Without better data and improvedaccounting systems it will be difficult tomake much progress with tariff

-. 1==n - -restructuring.a Awareness creation and the active

involvement of all those who will be[; l ll -affected are crucial to successful reform.

l z __9l -4iQ NGOs will have an important advocacyrole to play. Transition costs will be highand need to be planned for at the outset ofthe restructuring process.i;i-;- - '{} io dEF * ~~~~~~~~Pilot projects have both negative and

1-i -- -. ?-> - . ' positive externalities. They need to be*,>- :> .X carefully designed and should not be

treated as isolated experiments.

7 * I

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,, ,h |i U, F F .

7

ISSN 1020-7805

The Case for Institutional Reform

"Tariff reform can only bring in greater overlapping urban centers was resolved byefficiency and accountability if it is done centralizing municipal authority into one cityin the context of institutional reform and management but de-centralizing services such ascity restructuring" water, solid-waste collection, and public transport into

Institutional models for water service delivery in companies with different types of public/privateIndia can be broadly illustrated by the following partnerships. Both the companies and city politiciansanalogies: are now responsible for service delivery directly to the

* Stand Alone Model as found in Hyderabad citizen- an important structural change thataltered thewhere a Corporate Board delivers services to, but is nature of accountability and the efficiency of serviceseparate in many ways from, the municipality since delivery. The central govemmentfinanced some of thethe Board reports to the State Government. cost of the transition to the new system, acknowledging

* Too Close for Comfort Model similar to that city restructuring has a national impact.the arrangement in Mumboi where the Water Board To achieve a similar form of accountability infunctions as a department within the city India, city outhorities will need to develop a contractadministration. with the water boards to deliver according to the

* Split Personality Model as in Kolkata where needs of the city. At the same time, the state maythe Water Board provides the capital works and the also need to devolve more decision-making to the

Partnerships municipality is responsible for the O&M. city level, thus clarifying the role of the state and cityThe inefficiencies and inequities of each in the management of municipal services. But even

This Think Tank was supported by institutional model need to be resolved if tariff then, the public sector may find it difficult in terms ofthe World Bank Institute (WBI), the reforms are to have their intended impact. Far capacity or finances to turn around the water andPublic-Private Infrastructure example, a common thread in all these models is sanitation situation in India; the private sector needsAdvisory Facility (PPIAF) and the that Boards report upwards to the state or the city, to be brought in as a partner. If the objective of 24-South Asian Infrastructure not downwards to the clients. Broadly speaking there hour water supply in Indian cities is to be achieved,Department of the World Bank are two types of customers; the 'missing poor' living it will be important for decision-makers to take a(SASIN). As part of support to the in slums and getting waterfrom tankers and vendors holistic approach and, to get the sequence ofimplementation of the World at the local level; and the rest of the population - institutional change, transition, and finally, a moreBank's India Urban Water Sector 'the three-hour connectivity' customers who mimic appropriate tariff and subsidy policy, right.Strateg, WBI and SASIN, in a 24-hour service by pumping water into storage

tratnegy tanks. Tariff reform alone is not sufficient to bringpartnership with the Government better services to these households. For more information, contact:of India, and with funding from Some argue that the issue is not institutional Dr Junaid Kamal AhmadPPIAF, have mounted a two-year reform, but the need for an increased water supply. Regional Team Leaderlearning and policy dialogue But with unaccounted for water at levels of 35-45 Water and Sanitation Program-South Asiainitiative. The initiative's main per cent in many cities and towns, a supply approcch 55 Lodi Estateobjectives will be to: 1) focilitate would be akin to trying to fill a leaky bucket! New Delhi 110 003policy dialogue among decision- In Johannesburg, South Africa, to take one E-mail: wspsa@worldbonk.orgmokers and stakeholders to bring international example, duplication of services inabout policy reform; 2) enhancepublic awareness and build The Urban Think Tanksupport for reforms; and 3)increase capacity among those The Urban Think Tank is a participatory forum subsidy design in the water sector, and toinvolved in projects for enhanced that enables experts and practitioners to address develop some models and principles ofeffectiveness and sustainability of issues related to the delivery of water supply good practice.reform efforts. and sanitation services to the poorest sectors Through the publication of Nagari, the

of the community. The Think Tank is also proceedings and key issues of each meetingintended to spark policy level debate and provide are disseminated to municipalities all over

For more information, a forum where the issues ond concerns of India. The purpose of Nagari is to shareplease contact: municipal managers can be brought forward. lessons learnt, highlight emerging issues,

water ond Sanitation > Regular meetings have been hosted by the illustrate examples of best practice and provideP Water and Sanitation Program-South Asia a link between municipalities and otherProgram - South Asia ip

(WSP-SA) in collaboration with the UK stakeholders to foster a better operating55 Lodi Estate } Department for International Development environmentinthewatersupplyandsanitation

New Delhi 110 003 1 (DFID) since December 1994. sector. We would welcome your ideas on anyIndia India > The 12th Urban Think Tank was held in of the issues discussed and feedback forms

Telephone: 01 1-4690488-89 Mumboi on Aprl 3-4, 2001 at the invitation of are enclosed forthis purpose. Please alsowriteTelefax: 01 1-4628250 4 the Brihon Mumbai Municipal Corporation. The to us with any comments and suggestions on

E-mail: wspsa@worldbank.org - purpose of the meeting was to generate topicsthatyoufeelareimportantformanagersWeb site: www.wsp.org > discussion and debate on issues of tariff and of local urban bodies.

Editor: Kathleen Graham-HarrisonCreated by Write Media * Printed at Thomson Press

SWterand Twelfth Meeting of the Urban Think TankSraratnion

h . ... I. FEEDBACK FORAMwo atspplycn

1. Is the format of this publication easy to read? D Yes O No

2. Is the publication a comfortable length to read? D Yes D No

3. If no, would you prefer D more details/data Oless details/data

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Water and Sanitation Program-South Asia55 Lodi Estate, New Delhi 110 003 * Tel: 91-11-4690488/89 -Fax: 91-11-4628250

*E-mail: wspsa@worldbank.o6rg - Website: www'.wsp.org