Cost Recovery and Tariff Practices for UWSS Sector in ...documents.worldbank.org/curated/en/988601468267014866/pdf/699… · Cost Recovery and Tariff Practices for UWSS Sector in

Cost Recovery and Tariff Practices for UWSS Sector in India

Interim Report

on

Cost Recovery and Tariff Practices

for Urban Water Supply and Sanitation in India

Volume II

Detailed Case Study Report

Chandigarh Kochi

Dehradun Hyderabad

Indore Pune

Ludhiana

Prepared for

Water and Sanitation Program – South Asia

June 2008

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Summary

1

Introduction

To access funds for water supply and sanitation improvements under JNNURM, service providers are required to levy ‘reasonable user charges’ so that O&M costs are recovered within five years. This study reviews data from a range of case studies within India and beyond, to identify the challenges associated with cost recovery and suggest viable solutions based on international good practices. The national analysis examines data from 23 Indian cities. Of these, seven were studied in detail while secondary data from 16 further cities were used to supplement and to validate the findings. The secondary data are taken mostly from a study by the Asian Development Bank (ADB)_and the Ministry of Urban Development (MoUD) entitled 2007 Benchmarking and Data Book of Water Utilities in India. Based on this study, guidelines on cost recovery have been prepared for municipal managers and service providers. Cities studied

Scope of the study

The study set out to examine tariff and cost recovery practices associated with both water supply and sewerage services in India. Unfortunately, insufficient data were available on sewerage costs and revenue, even in cities with a substantial network, reflecting the fact that this is an underdeveloped and neglected area of service provision. As a result, the bulk of the discussion concerns water supply services, though efforts have been made to consider sewerage wherever possible. Generally, it was difficult to access reliable data from the seven cities studied in detail and, this being a ‘snapshot’ study, it was not possible to generate data independently.

Overview of tariff structures

Urban development is a state subject and tariff structures for water and sewerage services are usually set by the state governments or are subject to their approval. Some states (for example, Maharashtra and Gujarat) prescribe minimum or maximum tariffs for various user categories while others define tariff structures for different categories of municipality or even for individual towns. Tables 2 and 3 show that 19 out of the 23 cities operate a mixture of fixed charge and volumetric charges for water consumption.

Water and Sanitation Program –South Asia (WSP-SA) Study Cities

Dehradun, Ludhiana, Chandigarh, Indore, Pune, Hyderabad, Cochin

ADB-MoUD-GoI Study Cities

Ahmedabad, Amritsar, Bangalore, Bhopal, Chennai, Coimbatore, Jamshedpur, Kolkata, Mathura, Mumbai, Nagpur, Nasik, Rajkot, Varanasi, Vijayawada, Vishakhapatnam

2

Table 2: Tariff Structure of 23 Cities

Type of Tariff Structure

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Water Metered

Single part category-wise uniform volumetric tariffs6

Single part increasing block tariffs

Two part category-wise uniform volumetric tariffs7

Two part increasing block tariffs

Water Unmetered

Ferrule size-based @

ARV-based

(i) Part of property tax

(ii) Separate from property tax

(iii) Water tax

Tap-based

No. of time of supply per day

Area of land/plot size or building based

Free Water

Free water for domestic sector

Free water to poor

General Water Charge/Tax to all (Metered and Unmetered)

ARV-based

Sewerage Service

No service charge

Fixed charge

ARV-based



(iii) Sewerage tax

No. of WCs in premises


As % of water consumed

@ For poor, people who were earlier accommodated in rehabilitation colonies at Rs. 100 per month no mention of Ferrule size

6 A single part category-wise uniform tariffs means that the ULB/agency charges only volumetric tariffs but at

different rates for different categories of consumers, such as for domestic, commercial, institutional and industrial. 7 A two part category-wise uniform tariffs means that the ULB/agency levies both fixed charges and volumetric

charges. But different rates for different categories of consumers apply, such as for domestic, commercial, institutional, industrial.


3

Table 2: Tariff Structure of 23 cities (Continued)

$ For nondomestic sector; $$ for all unconnected properties; $$$ where ARV is not available (in case of Dehradun) # For all plots below 125 square yards


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Water Metered

Single part category-wise uniform volumetric tariffs


Two part category wise uniform volumetric tariffs $


Water Unmetered

Ferrule size based

ARV-based



(iii) Water tax $$

Tap-based $$$



Free Water

Free water for domestic sector #

Free water to poor


ARV-based

Sewerage Service

No service charge

Fixed charge

ARV-based



(iii) Sewerage tax $$

No. of WCs in premises $




4

Table 2: Tariff Structure of 23 cities (Continued)

* For poor, domestic independent connection, domestic joint connection, non-domestic **As water benefit tax * For nondomestic sector; ** for all unconnected properties (in case of Pune)

Government assistance to service providers

State (and sometimes federal) governments offer a range of capital grants, loans, loan guarantees and operating subsidies to public water and sanitation service providers. Some of these are intended to offset exceptional production costs due, for example, to high electricity requirements to pump water or the need to transport bulk water over a long distance. In such cases, as a general rule, subsidies should be designed to meet the gap between own source revenue of the service provider and unavoidably high costs of service provision, so that the consumer does not pay a higher charge for water. They should not, however, be used to compensate for operational inefficiency. In practice, government support to service providers is ad hoc and rarely linked to cost recovery strategies (Table 19). Dehradun, for example, receives sporadic O&M grants from the state government even when revenue is sufficient to cover operational costs. There is therefore little incentive to improve operational efficiency. Indore, too, receives operational subsidies (in the form of salaries and power grants) even though it could potentially recover all its operational costs from revenue, by improving operational efficiency.


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Water Metered

Single part category-wise uniform volumetric tariffs


Two part category wise uniform volumetric tariffs


Water Unmetered

Ferrule size based *

ARV-based



(iii) Water tax

Tap-based



Free Water

Free water for domestic sector

Free water to poor


ARV-based **

Sewerage Service

No service charge

Fixed charge

ARV-based



(iii) Sewerage tax

No. of WCs in premises




5

Capital grants can be justified in Hyderabad and Indore due to the need to transport water from remote sources and use multi-stage pumping. There are, however, no explicit criteria for providing capital grants and no performance benchmarks are set as the basis for accessing the funds. In some other cities where sourcing water is not exceptionally difficult and the revenue potential is high, it is difficult to make a case for further capital grants.

Table 3: State Assistance for Water and Sewerage Services

*KWA= Kerala Water Authority

Aspects of Cost Recovery

This section reviews data from the 23 cities and identifies the factors contributing to a generally low level of cost recovery. The findings must be treated with caution given that some of the source data were incomplete or unreliable. In particular, costs were often underreported due to poor accounting and recordkeeping and failure to disclose a range of operating subsidies relating to power, salaries, and interest on loans (amongst other things). In Dehradun and Kochi, for example, water supply and sewerage services are managed by parastatals and city units are unable to access data on expenses covered by headquarters. Nevertheless, it is possible to identify some broad trends across the 23 cities. None of the service providers consulted in the course of this research was able to provide information on total capital expenditure, the present value of the existing network or depreciation. It is nevertheless evident that capital costs in the water and sanitation sector are substantial and

8 Water charges including meter rent.

9 Only water cess.

10 Only sewerage cess

11 Only sewerage cess

12 Inclusive of other income, interest etc.

Particulars (Rs. million)

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Revenue grant for water service

Figure not available separately for water head

No grants, funds service from general account surplus

Figure not available separately for water head

Data gap No grants; it funds services from general surplus

No revenue grants

KWA* receives sizeable grant but data not available for Kochi

Capital grant for water service

Data gap

Figure not available separately

Total own source revenue from water service

Separate figure not available for water head

449.628 1014.70 2199

9 181.92

Revenue grant for sewerage service

As mentioned above

As mentioned above

As mentioned above

Data gap As mentioned above

As mentioned above

As mentioned above

Capital grant for sewerage service Data gap

As mentioned above

Total own source revenue from sewerage service

As mentioned above

23.0110

120.3 32911

0.03

Total revenue grant received by ULB/utility for both services

74.50 As mentioned above

11.39 Data gap As mentioned above

No revenue grants

Data for city not maintained

Total capital grants received by ULB/utility for both services

Data not available -- Data gap 4292

Total own source revenue of ULB/utility

110.61 225.01 275.50 Data gap 1135 2572 192.5712


6

their recovery through user charges would cause a substantial revision in tariffs. Recognizing this, JNNURM does not currently require recovery of capital costs.

Operating ratio

The operating (working) ratio is the simplest and most widely used measure of operational efficiency in an organization. It expresses a service provider’s operating expenses as a percentage of revenue, and if the ratio is greater than 1 it indicates that expenses exceed revenues and the operation is losing money. Conversely, if the ratio is less than 1 it indicates an operating surplus.

13

Of the 23 cities studied, the data indicate that 11 have an operating surplus while the others are operating at a loss. The surpluses range from 4 to 56 percent, while losses range from 14 to 373 percent.

Cost of service provision

O&M costs ranged from Rs. 2 to 22 per kl (Table 4) Table 4: Operation and Maintenance Costs

Operation and maintenance cost (Rs./kl)

Number of cities

Cities

1-2 5 Dehradun, Ahmedabad, Coimbatore, Nagpur, Nasik 2-3 6 Pune, Jamshedpur, Mathura, Rajkot, Varanasi, Vijayawada 3-4 5 Ludhiana, Amritsar, Bhopal, Kolkata, Mumbai 4-5 3 Chandigarh, Cochin, Vishakhapatnam 6-7 2 Hyderabad, Chennai

10-11 1 Bangalore 13-14 1 Indore

Note: These data do not factor in the depreciation costs of new assets. The wide range of costs is partly attributable to differences in power requirements for bulk supply and distribution. Where water is provided by gravity flow, as in Pune, Nasik, Varanasi and Kolkata, power costs are relatively low, while in cities such as Hyderabad, Bangalore and Indore a considerable amount of pumping is involved. More importantly, however, high costs arise from operational deficiencies such as technical losses, a low customer base, and inefficient billing and collection. The data in Table 5 suggest that, for 19 out of the 23 cities, Rs. 4 per kl would be a reasonable benchmark for current O&M costs. This takes account of the tendency to underestimate real supply costs. An earlier study by WSP-SA (2002) suggests Rs. 15 as a reasonable benchmark, but the current data indicate that this would only be valid for Bangalore and Indore.

13 Moody’s calculates the U.S. median figure of operating (working) ratio for water and wastewater enterprise projects to be approximately 0.6. In other words, operating expenses amount to 60% of operating revenue and there is a operative surplus of 40%.


7

Table 5: Cost Recovery and Tariff Levels (2006-07)

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Service provider’s overall operating ratio (on own source revenue)

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1.49 0.61 1.03 1.82 0.62 1.39 1.48

Service provider’s overall operating ratio (inclusive of operational grants)

1.02 0.57 0.54 0.74

0.62 No operative grants


0.90

Water service operating ratio15

(on own source revenue)

0.59 2.39 1.4616

5.54 0.76 1.39 0.39

Water service operating ratio (inclusive of grants) 0.35

2.39 No Grants

1.4017

3.30 0.76 No grants

1.39 Data not available

O&M cost per kl 1.67 3.26 4.22 13.18 2.76 6.6118

4.519

Total cost per kl20

4.09

21 5.00 7.04 15.85


19.4122

8.523

Average own source revenue per kl 2.84 1.49 3.66 2.38 2.78 5.12 3.53

Average tariff per kl24

3.33 1.12 3.79 3.27 3.9725

5.58 8.55

14. ULBs carry out various functions including water supply and sewerage. They also get revenue from various sources. So the service provider’s overall operating ratio means operating ratio of the ULB. 15. Water supply service operating ratio takes into account operative revenue and expenditure of water supply service only. Since some cities are served by water supply parastatals for comparison this ratio is taken into account. 16. Includes income from sewerage also. Since the expenditure for water and sewerage are not available separately, separate ratios cannot be worked out. 17. Since the grants for water and sewerage are not available separately, separate ratios cannot be determined. This figure includes grants spent on sewerage as well. 18. Inclusive of depreciation. 19. Exclusive of interest and depreciation. 20

Total cost here includes capital investment and loan repayment costs only but does not include depreciation.

As water service provider follow different accounting practices separate footnotes have been given regarding their accounting practices 21. Figure provided by Uttarakhand Jal Sansthan (UJS), Dehradun, based on the formula provided by the team. Calculations not available, 22

Inclusive of depreciation

23. Inclusive of interest and depreciation, 24. Annual billing (current demand) /annual water production/supply (whichever available). 25. Includes demand from sewerage as well. Separate figures for water supply and sewerage not available.


8

Table 5: Cost Recovery and Tariff Levels (2006-07) 26

(continued)

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Water service operating ratio (on own source revenue)

0.96 1.36 0.80 2.82 0.44 0.82 0.62 4.73

Water service operating ratio (inclusive of grants)

O&M cost per kl 1.34 3.74 10.13 3.00 6.09 1.33 2.43 3.46

Total cost per kl 2.34 4.42 11.26 3.04 21.32 2.63 2.70 5.13

Average own source revenue per kl

0.93 2.75 12.62 1.06 13.73 1.61 3.93 0.73

Average tariff per kl 1.39 9.34 20.55 0.60 10.87 3.66 4.51 1.13

Table 5: Cost Recovery and Tariff Levels (2006-07)

27 (continued)

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Water service operating ratio (on own source revenue)

3.05 0.49 0.76 1.18 1.61 1.30 1.14 0.78

Water service operating ratio (inclusive of grants)

O&M cost per kl 2.02 3.67 1.91 1.90 2.83 2.07 2.16 4.94

Total cost per kl 3.27 4.96 2.77 3.32 5.84 1.98 -- 406.24

Average own source revenue per kl

0.66 7.52 2.52 0.16 1.76 1.42 1.89 6.29

Average tariff per kl 0.62 4.60 6.60 4.32 5.07 3.17 2.18 8.55

Revenue per kiloliter

Actual revenue per kl water in the 23 cities ranges from Rs 0.16 to Rs 13.73 (Tables 5 and 6). Only in nine cities is this revenue higher than the average O&M cost per kl. Interestingly, data on operating ratios indicated that 11, not nine, cities have an operating profit, highlighting problems with the source data.

26. Since data of 16 cities are collected under different study and format, some of the data are not available for these cities. 27. As data of 16 cities are collected under different study and format, some of the data are not available for these cities.


9

Connection charges

Low official connection charges are an impediment to the expansion of the network in most cities. The fee charged by the 23 service providers for a new house connection is Rs. 2,594 on average while expansion costs are three or four times higher: typically Rs. 7,500 to Rs. 10,000. Only Pune has a comparable connection fee, at Rs. 8,541. Next in line are Vijayawada at Rs. 5,500 and Dehradun at Rs. 4,090. Twelve cities have a connection charge between Rs. 1,000 and 3,000 while the remaining eight charge less than Rs. 1,000.

Factors undermining cost recovery

The solution commonly proposed for improving cost recovery is to increase tariffs. There are, however, a range of matters to consider when planning cost recovery improvements, including:

Operational costs (especially power and staffing);

Tariff level;

Tariff structure;

Consumer base (coverage with registered connections);

Non-revenue water or unaccounted for water (waste and leakages, plus illegal connections);

Metering; and

Billing and collection efficiency. Very often it is a combination of these factors, not tariff levels alone, that explains the inability to recover costs. For example, non-revenue water

28 (on account of technical losses) often stand at

20-30% of production, non-revenue water (on account of non-technical aspects29

) at 10 to 20% and collection efficiency at less than 60%. Improving cost recovery depends above all, therefore, on operational efficiency, though some tariff modifications may also be needed. Improving operational performance need not involve major capital investments. It may be possible, for example, to increase the number of registered users or reform billing and collection processes (perhaps with the introduction of incentives) using the resources currently available.

Service coverage

Service coverage is commonly defined in terms of the geographical reach of the distribution network on the number of registered connections as a percentage of total households. While coverage is a useful indicator, it must be borne in mind that the presence of infrastructure does not in itself mean that people are receiving adequate water. A large proportion of poor households may be dependent on limited standpost supplies, while house connections can also be subject to low pressure and intermittent supply.

28

Term ‘non revenue water’ includes water lost or which has not yielded revenue due to technical and non-

technical reasons. For better clarity of causes, we have segregated it under technical and non-technical categories. 29

Non-technical component of non-revenue water results from water supplied free through standposts or water consumed by illegal connections or in-house water consumption by the local body itself or water consumer by anybody but not billed.


10

Table 6: Common Causes of Service Providers’ Inability to Recover Costs

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As of October 2007, there are 156,050 domestic connections for a population of 1.7 million. 31

Includes water lost due to lack of coverage in undeclared areas and captive production by industries. 32

Includes sewerage as well. Separate figures are not available for water supply and sewerage. 33

Due to lack of data, the figure has been taken from a recent study by ADB. 34

As of October 2007. there are 129,143 domestic sewer connections for a population of 1.7 million.

Particulars

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Network coverage for water supply in terms of area

95% 85% 100% 75% 100% 100% 100%

Population coverage for water supply 95%

85% (15% undeclared area)

100% 85% 85% 100% 100%

Total domestic connections as % of total households

45% 46%30

62% 42% 69% 39% 83%

Percentage of total NRW/Unaccounted for Water

30% Data not Available

38% 43% 30% 42% Data not available

Technical losses Data not available

Data not available

25% 30% 4.30% 14-15% 20%

NRW not caused by technical losses

Data not available

28%31

13% 13% 25.70% 27% Data not available

Total collection efficiency

37% 16% 66% 22% 22%32

54% 13%

Recovery against current demand (water)

Data Not Available

Data not Available

92% 52% 30% Data not Available

Data not available

% Recovery against arrears

Data Not Available

Data not Available

0% 10% 11% Data not Available

Data not available

Staff per thousand connections

5.47 7.63 7 18.733

1.94 5.42 2.06

Sewerage network coverage

30% 67% 100% -- 100% 70% 5%

Population coverage for sewerage



Data not Available

Data not Available

Data not available

Sewered households / total households

0.05% 38%34

Data not available

Data not Available

Data not Available

Data not Available

Data not available

Recovery against current demand (sewerage)

Data Not Available

Data not Available

Data not Available

Data not Available

Data not Available

Data not Available

Data not available

Recovery against arrears (sewerage)

Data Not Available

Data not Available

Data not Available

Data not Available

Data not Available

Data not Available

Data not available


11

Table 6: Common Causes of Service Providers’ Inability to Recover Costs (continued)

35

Calculated as domestic connections/potential households. Potential households were calculated as total population/5 on assumption of a household size of five members. 36

Calculated as (annual revenue/annual billings) x100.

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Network coverage for water supply in terms of area

-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --

Population coverage for water supply

74.5% 75.7% 92.9% 83.4% 89.3% 76.1% 74.4% 79.0% 70% 100% 91.5% 92.6% 98.1% 77.7% 70.5% 49.2%

Total domestic connections as % of total households

35

60.86% 71.64% 41.86% 33.28% 26.78% 53.82% 37.08% 29.75% 46.43% 98.4% 43.64% 44.84% 97.95% 37.05% 49.86% 41.55%

Percentage of total NRW/Unaccounted for Water

-- 57.4% 45.1% -- 17% 41.3% 12.8% 35.0% -- 13.6% 51.9% 59.5% 23.5% 30.0% 23.8% 14.5%

Technical losses -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --

NRW other than technical losses % of total supply

-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --

Total collection efficiency

36 67.45% 69.27% 111.95% 178.18% 152.29% 75.33% 100% 100% 106.27% 189.41% 79.72% 92.08% 45.33% 64.32%

114. 41%

86.10%

Recovery against current demand (water)

-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --

% Recovery against arrears

-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --

Staff per thousand connections

2.2 4.8 5.2 20.7 13.3 4.0 5.6 14.7 6.5 17.2 3.2 3.4 1.1 5.9 5.7 5.4

DATA ON SEWERAGE NOT AVAILABLE


12

In terms of house connections, Mumbai and Rajkot have the highest coverage at approximately 98 percent, followed by Kochi at 83 percent (Table 6). Most cities, however, have much lower coverage, with 15 in the range 25-50 percent. When the data in Table 6 are compared with those in Table 5, it becomes clear that cities with lower service coverage also have a have higher operating ratio. The majority of service providers in the 23 cities have ample potential to expand their consumer base and improve their revenue generation. Doing so would involve extending the distribution network while ensuring an adequate bulk supply. It would appear that many of the cities could improve revenues substantially by expanding coverage of house connections to 100 percent, assuming that adequate water is available to serve the entire population. For example, revenue in Ludhiana could (in theory) see an increase from Rs. 86 million to Rs. 252 million, while Pune could achieve Rs. 120 million (Table 7). Table 7: Revenue Potential of Increasing the Consumer Base

37

Nonrevenue water

NRW refers to water that is produced but not sold to consumers. It arises from technical losses occurring during transmission and distribution; water provided free through standposts or under exemptions (often for the poor); and theft including illegal connections. High levels of NRW are common throughout India. For the service providers assessed in this study, it was estimated at 30-40 percent of production, though it could not be measured

37

In case of four cities - Pune, Hyderabad, Cochin and Chandigarh extension of network is not required as cities

have claimed 100% area coverage by water supply network (Pl refer table 4) while in case of three cities Dehradun, Ludhiana and Indore extension of water supply network will be required for increasing the consumer base. This will involve capital investment but figures were not available.

City Existing Status/ Potential

Working of Revenue Potential

Ludhiana 15% undeclared area of city not serviced, potential water demand 62,000 kl

Supplying water to industries, which are presently not served. Potential water demand 60,000 kl per day

62,000 kiloliter per day (kld) water x Rs. 3.80 minimum rate x 365

60,000 kld water x Rs. 7.60 minimum rate x 365

Rs. 86 mn

Rs. 166 mn

Pune Only 18,500 slum households paying water charge while 181,500 slum households do not pay any water charge

Around 60,000 potential tax payers not in the water charge database

181,500 x Rs. 360 per year = Rs. 65 mn

60,000 x Rs. 900 per year minimum water charge

Rs. 65 mn

Rs. 54 mn

Hyderabad Around 100,000 potential consumers can be added as per estimate of service provider

100,000 new consumers x 240 kl water per year consumption x Rs. 6 per kl water

Rs. 144 mn

Indore Of potential 342,000 consumers only 161,000 consumers under water charges

181,000 potential consumers x Rs. 2160 per year minimum water charge

Rs. 391 mn

Chandigarh Of potential 210,000 consumers only 130,000 consumers under water charges

80,000 potential consumers less 30,000 slum dweller = 50,000 consumer x Rs. 720 per year minimum water charge

Rs. 36 mn

Cochin Of potential 130,000 consumer currently 108,000 consumers are under water coverage

22,000 potential consumers x Rs. 1,080 per year minimum water charge (240 kl water per year consumption x Rs. 4.5 per kl water)

Rs. 23 mn

Dehradun Of potential 135,000 consumers only 60,000 consumers under water charge

75,000 potential consumers less 25,000 slum dwellers x Rs. 1,800 per year minimum water and sewerage charge

Rs. 90 mn


13

accurately due to a lack of metering in production and consumption, or faults with existing meters. The lack of hard data on NRW complicates the planning of revenue improvements. Table 8 estimates the revenue potential of a reduction in NRW. A reduction to the internationally accepted level of 10 percent should mobilize huge revenue increases. Table 8: Revenue Potential of Reducing Nonrevenue Water

38

Collection efficiency

A common problem in determining a service provider’s collection efficiency is the lack of separate accounts for past arrears and current demand. Recovery of arrears is, however, known to be in the range of 10-30 percent. Municipal legislation does not have ‘write off’ clauses for old debts, hence the cumulative figure continues to grow. There are problems with the data provided and some of the cities have reported a collection efficiency of more than 100 percent, which is clearly not possible. Of the cities providing more reliable data, the highest reported levels of collection efficiency are in Jamshedpur (100 percent), Kolkata (100 percent) and Nasik (92 percent). Jamshedpur is, however, a special case in that a private company provides water, while Kolkata has no charges for domestic users. Coimbatore (75 percent), Nagpur (80 percent) and Vishakhapatnam (86 percent) are the next best performers while the lowest efficiency levels are reported in Ludhiana (16 percent) and Kochi (13 percent). Most cities lack user-friendly payment options; Chandigarh, Hyderabad and Pune being exceptions.

38

Reducing non-technical component of non-revenue water will not involve much of capital investment, as it

mainly requires improving operational efficiency and governance, while reducing technical loss component of NRW certainly involves additional capital investment but figures were not available. Overall 10% technical loss is accepted because reducing loss beyond this level involves huge capital investment and cost outweigh benefits.

City Existing Status/ Potential Working of revenue potential Revenue Potential

Ludhiana Reversing exemption of 72,000 households and imposing water and sewerage charge

Minimum annual water charge (Rs. 1,260) + sewerage charge (Rs. 1,260) = Rs. 2,520 x 72,000 households

Rs. 181 mn

Pune Technical loss if reduced from 25% to 10% will save 150,000 kld water

150,000 kld water x Rs. 3 per kl x 365 Rs. 164 mn

Hyderabad Technical loss at 15% if brought down to 10% will save 63,100 kl water per day

As per water audit illegal consumption of water is 7% of total water supply (96,320 kl water per day).

63,100 kl water savings per day x 365 x Rs. 6 cost of production per kl

88340 kl water per day x 365 x Rs. 6 cost of production per kl

Rs. 138 mn

Rs. 210 mn

Indore Technical loss at 14.4% if brought down to 10% will save 8,000 kl water per day

8,000 kl water per day x 365 x Rs. 12 cost of production per kl

Rs. 35 mn

Chandigarh Technical loss at 25% if brought down to 10% will save 52,627 kl water per day

Unutilized installed capacity is 8% (30,509 kl water per day) + 5% water through standposts (19,068 kl water per day)

52,627 kl water per day x 365 x Rs. 4 water charge per kl

49577 kl water per day x 365 x Rs. 4 water charge per kl

Rs. 76 mn

Rs. 70 mn

Cochin Technical loss at 30% if brought down to 10% will save 29,814 kl water per day

29,814 kl water per day x 365 x Rs. 2 minimum tariff per kl

Rs. 21 mn

Dehradun Technical loss at 30% if brought down to 10% will save 21,372 kl water per day

21,372 kl water per day x 365 x Rs. 2.66 average revenue per kl water

Rs. 21 mn


14

The study found that if collection efficiency was increased to 90 percent of current demand and at least 20 percent of past arrears, service providers could mobilize substantial additional revenue: as much as Rs. 1,650 million in the case of Hyderabad. In short, all 23 cities are failing to realize their revenue potential by a substantial margin -- up to 80 percent in some cases (Table 9). Table 9: Revenue Potential of Improving Collection Efficiency

Staffing levels

Most service providers have a variety of human resource issues to address, not least overstaffing and inefficient task allocation. Indore has the highest number of staff per 1,000 connections at 18.7, while Pune has the lowest at just 1.94. The majority have a ratio of 5 or more. In reviewing these levels, it should be noted that there is a growing trend of outsourcing O&M functions. For example:

Rajkot has outsourced pumping operations, mains and lines maintenance, sluice valve operations and leak repairs through service contracts;

Ahmedabad has outsourced production, operations and maintenance through management contracts; and

Nagpur has outsourced billing and collection through a management contract. Outsourced positions do not appear in service providers’ staff count and payroll, but are usually hidden in various operating expenditure accounts. This practice distorts comparisons between

39

Current demand in this table means amount billed for the current year consumption and does not include past

arrears

Existing Status/ Potential Working of revenue potential Revenue Potential

Ludhiana Total collection efficiency stands less than 20%

90% of current demand39

of Rs. 169.29 mn = Rs. 152.36 mn + 20% of past arrears of Rs. 913.71 mn = Rs. 182.74 mn making total potential recovery of Rs. 335.10 mn less current recovery of Rs. 170 mn.

Rs. 165 mn

Pune Current collection efficiency 59%, current demand Rs. 1,333 mn, current collection Rs. 790 million

90% of current demand of Rs. 1,333 mn = Rs. 1,200 mn less current collection of Rs. 790

Rs. 410 mn

Hyderabad Current collection efficiency 54% against annual billing/demand of Rs. 4,536 million, current collection of Rs. 2,433 million

90% of current demand of Rs. 4,536 mn = Rs. 4,088 mn less current collection of Rs. 2,433

Rs. 1,650 mn

Indore Total collection efficiency 22%, current collection is of Rs. 116 million

90% of current demand of Rs. 440 mn = Rs. 396 mn less current collection of Rs. 116

Rs. 280 mn

Chandigarh Current collection efficiency 66%, collection against past arrears 0%, current demand Rs. 485.24 million

90% of current demand of Rs. 485 mn = Rs. 436 mn less current collection of Rs. 402 mn

Rs. 34 mn

Cochin Total collection efficiency 13%, current collection is of Rs. 61 million, current demand Rs. 465 million

90% of current demand of Rs. 465 mn = Rs. 418 mn less current collection of Rs. 61 mn

Rs. 357 mn

Dehradun Total collection efficiency 37%, current demand Rs. 130 mn

90% of current demand of Rs. 130 mn = Rs. 117 mn and 20% of past arrears of Rs. 150 mn = Rs. 30 mn making total potential recovery of Rs. 147 mn less current recovery of Rs. 110 mn

Rs. 37 mn


15

service providers, and hence the impression given by the staff ratio may not reflect reality on the ground. Outsourcing can potentially enable significant efficiency gains, but its widespread adoption is currently impeded by restrictive labor laws and union practices and a lack of capacity within service providers to manage the precontracting process. Outsourcing should not, in any case, be seen as a solution to the inefficiency problems of service providers, and some cities that have outsourced operational tasks still have high staffing ratios. Bangalore, for example, still has 4.8 staff per 1,000 connections while Chennai has 13.3 despite outsourcing production and distribution through service, management, and build-operate-transfer (BOT) contracts. Workforce management can also remain a challenge even when services are outsourced. Managerial capacities of potential contractors are often overlooked in favor of technical expertise, and service providers do not always make good choices when considering which functions to outsource.

Tariff Practices

Economic efficiency and resource conservation

Economic efficiency has been compromised in the cities by tariffs that do not reflect the average cost of production, let alone the incremental cost of new sources which tends to be higher than that of water currently supplied. Water pricing should discourage wasteful consumption by making consumers aware of the true cost of the water they use. Metering is essential for economic efficiency, and measured tariffs should reflect the incremental cost of developing new water sources. Tariffs can, therefore, encourage resource conservation. Current pricing, billing and collection systems in the cities do not encourage conservation, but it would still be possible to create inbuilt disincentives for wasteful consumption through metering and the introduction of an increasing block tariff. However, metering in India has often proved problematic due to poor maintenance, malfunctioning of the meters (especially when the supply is intermittent), tampering by consumers and irregular meter reading by the service provider. As a result, many households that have meters are still billed on a fixed charge basis. Only seven of the cities have a high level of metering while four (Indore, Bhopal, Mathura and Varanasi) have no meters at all (Table 10). In Chandigarh, tariffs are set so low that even poor households have no incentive to limit their consumption (see Chandigarh City Report). In Kochi too, the slab sizes are poorly designed and discourage water conservation. Moreover, Kochi has a very high meter default rate; 30 percent meters are nonfunctional. In Hyderabad, the tariff structure is efficiently designed but there are high technical losses and the meter default rate is 25 percent. Irrespective of the presence of meters, the fact that water is only available intermittently in many cities (sometimes for just one hour per day) means that consumption is limited physically, whatever the pricing system.

Fixed Charges

The use of fixed charges is widespread but has inherent equity problems in that charges remain fixed irrespective of the number of occupants or households in a property, though limited hours of supply and low pressure may prevent users from consuming large amounts. When fixed charge tariffs are set, the intention usually is to generate revenue roughly equal to that which would accrue if a volumetric tariff was in place. Rarely is this achieved in practice, since fixed tariffs are often linked to factors such as plot size or property tax rates which are a


16

poor indicator of household consumption or ability to pay -- especially when property tax assessments have not been updated. Property tax data are prone to manipulation and annual rental value (ARV) assessments are often out of date, with many properties remaining unregistered. In Ludhiana, households with plot sizes of 50 to 125 sq yd consume 30 kl per month on average, yet are exempted from water charges. If these consumers had meters and were charged the volumetric tariff of Rs. 3.50 per kl, they would pay Rs. 105 per month. The cities of Pune and Dehradun use fixed charge water tariffs based on the ARV of properties. Under this arrangement, registered properties in Pune are charged between Rs. 75 to Rs. 208 per month while in Dehradun bills range from Rs. 80.50 to Rs. 172.50 (see City Reports, volume 2 of this publication). More than 40 percent of households in Dehradun are not registered for property tax and this results in substantial revenue losses. Pune Municipal Corporation, however, has an updated property tax register that is relatively free of manipulation in ARV calculations, and has generated enough revenue to create an operating surplus despite a high level of NRW and low collection efficiency. Distortions in the fixed charge tariff structures can be revealed by comparing what customers with unmetered and metered connections pay for the same monthly consumption, in the same city - assuming both systems are in operation. (See Table 10). It is assumed here that a typical household consumes 20 KL per month (130 lpcd) though there are some locations where supply constraints make this level of consumption impossible. The analysis shows that Ludhiana charges more for unmetered connections (Rs. 105-140 per month per connection) than for metered ones (Rs. 76 per month per connection). The same is true in Pune, which charges Rs. 75- 208 per month per connection for unmetered connections, Rs. 60 per month for metered ones. Table 10 shows that only in a few cities are charges for metered and unmetered connections broadly similar. The widespread use of unmetered connections is a significant barrier both to resource conservation and the recovery of O&M costs. Table 10: Equivalence between Tariff Rates for Metered and Unmetered Connections Particulars

Ah

me

da

ba

d

Am

rits

ar

Ban

ga

lore

Bh

op

al

Ch

an

dig

arh

Ch

en

na

i

Co

imb

ato

re

Deh

rad

un

Hyd

era

ba

d

Ind

ore

Ja

ms

he

dp

ur

Ko

ch

i

Minimum fixed charge per month (in Rs.)

73.25

40

60-120

No fixed charge connections

60 100 50 50/tap/month

80.50-172.5

No fixed charge connections

160 120-360

Water supplied through standposts paid by KMC*

Volumetric charge for 20 kl consumption per month (in Rs.)

60 64 156 70 26.2

5

150

3 kl free + 59.5

No volumetric charge for domestic consumers

130+90 min. monthly charge

240 158 50+2 minimum monthly charge

*Kochi Municipal Corporation

40

For ½” connection on pro-rata basis.


17

Table 10: Equivalence between Tariff Rates for Metered and Unmetered Connections (continued) Particulars

Ko

lka

ta

Lu

dh

ian

a

Ma

thu

ra

Mu

mb

ai

Na

gp

ur

Na

sik

Pu

ne

Ra

jko

t

Va

ran

as

i

Vij

ay

aw

ad

a

Vis

ha

kh

ap

at

na

m

Minimum fixed charge per month (in Rs)

Free for domestic consumers

105-140

12.5% of ARV

12.5% of ARV

75-350

67.5-90

41

75 -

208

40-120

30 80 8042

Volumetric charge for 20 kl consumption per month (in Rs.)

Free for domestic consumers

76 No metered connections

45 115 70 60 240 40 240.25

80

Charges to nondomestic consumers

The basis on which industrial consumers should be charged for water is a subject of much international debate. While some argue that they should be charged a high rate due to their ability to pay, others argue for low charges given the economies of scale offered by bulk supply to large consumers, with minimal distribution costs. In India, industrial tariffs are generally higher than domestic ones, sometimes six or seven times higher. In Pune, for example, the domestic metered rate is Rs. 3 per kl against Rs. 21 per kl for nondomestic metered consumption. In Hyderabad, consumption up to 15 kl is available at Rs. 6 per kl, while general industries pay Rs. 35 per kl and water-intensive industries Rs. 60 per kl. In the light of these charges, it is not surprising that bulk consumers often switch to alternative water sources if they become available. When this happens, public service providers lose substantial revenue and this can affect the recovery of O&M costs for the service as a whole.

Affordability

GoI currently defines the poverty line as a monthly income per month of Rs. 1,848 per family of five in rural areas and Rs. 2,795 in urban areas. To assess the affordability of current water charges, the cost of subsistence consumption in the range 5 to 20 kl per month can be expressed as a percentage of the monthly budget of a family of five living on the poverty line (Table 11). Of the 23 cities studied, five provide free water to the urban poor (Ludhiana, Ahmedabad, Amritsar, Kolkata and Rajkot). Current charges in Indore, Hyderabad, Bangalore and Vijayawada give rise to household expenditure above the World Health Organisation (WHO) benchmark of 5 percent of monthly income for 20 kl consumption. In the other cities, the burden of water charges is within the notional 5 percent monthly limit. It must be remembered, however, that in many cases poor households cannot access 20 kl per month from the public supply, and are forced instead to purchase additional water at high rates from private vendors. This can raise monthly water bills enormously.

41

Range based on frequency of water supply (once/twice a day). 42

For regular domestic connection while rates for below the poverty line (BPL) households are Rs. 50/month.


18

Table 11: Charge for Subsistence Level Consumption compared to Monthly Budget for People Living on the Poverty Line Particulars

Ah

med

ab

ad

Am

rits

ar

Ban

ga

lore

Bh

op

al

Ch

an

dig

arh

Ch

en

nai

Co

imb

ato

re

Deh

rad

un

Metered Water Tariffs

Free water for poor

Free water for poor through public taps

MCC is now converting fixed charge connections to poor into metered connections

No metering in domestic sector

Water tariff for 5 kl consumption

30 17.5 8.75 12.5 3 kl free + 7


156 70 26.25 150 3 kl free + 59.5

Water charge for 5 kl as % of monthly budget

1% 1% 0% 0% 0%


19% 3% 1% 5% 2%

Unmetered Water Tariffs

Fixed charge/month

60 100 50 116.9143

Water charge for unmetered connection as % of monthly budget

2% 4% 2% 3%

Sewerage Tariffs

Sewerage charge/cess

5/WC/month 1544

Sewerage charge as % of monthly budget

0% 1%

43

Based on average of ARV-based slab rates for water charges for registered domestic users. 44

Based on average of ARV-based slab rates for sewerage charges for registered domestic users.

Water Pricing and Cost Recovery Practices in India

19

Table 11: Charge for Subsistence Level Consumption compared to Monthly Budget for People Living on the Poverty Line (continued)

Particulars

Hyd

era

ba

d

Ind

ore

Jam

sh

ed

pu

r

Ko

ch

i

Ko

lkata

Lu

dh

ian

a

Ma

thu

ra

Mu

mb

ai


No metered connections. in slums

No metered connections in poor households

No water charge for domestic users

No metered connections In slums

No metered connections.


12045

1246

11.25


22047

5248

45


4% 0% 0%


8% 2% 2%


No unmetered connections

Through standposts paid by municipality

Exempt up to 125 sq yards

12.5% of ARV

Fixed charges per month

170 120

Water charge for as % of monthly budget

6% 4%

Sewerage Tariff

35% of water supply charges

No charge

No charge

Exempt up to 125 sq yards

45

30+90 minimum monthly charge. 46

10+2 service charge. 47

30+90 minimum monthly charge. 48

50+2 service charge.


20

Table 11: Charge for Subsistence Level Consumption compared to Monthly Budget for People Living on the Poverty Line (continued)

Particulars

Nag

pu

r

Nasik

Pu

ne

Rajk

ot

Vara

na

si

Vij

ayaw

ad

a

Vis

ha

kh

ap

atn

am


Poor provided group connections

No metered connections in slums

Free water for poor through public taps


65 10 116.5 20


115 40 240.25 80


2% 0% 4% 1%


4% 1% 9% 3%


Data not available

Fixed charges per month

No slab roof -25; Slab roof- 50

30 50 80

Water charge for as % of monthly budget

No slab roof -0%; Slab roof- 1.7%

1% 2% 3%

Sewerage Tariff

-- 4% of ARV

In summary, in all cities except Hyderabad, metered and unmetered water charges for consumption up to 20 kl per month lie well within the WHO affordability threshold of 5 percent. Arguably, the subsidies for poor consumers are over-generous (and benefit many nonpoor consumers, as discussed above) to the extent that it undermines cost recovery efforts. The data in Table 11 suggest that there is substantial unexploited cost recovery potential, and revenue could be improved substantially while still meeting the needs of the poor. While consumption tariffs may be affordable for many poor consumers, connection charges can be prohibitively expensive. Very few of the 23 cities currently offer assistance with connection charges. Vijayawada and Hyderabad are exceptions and allow payment in installments, a good practice that other service providers could also follow.

Simplicity, acceptability and practicality

In addition to meeting cost recovery objectives, the ideal tariff should be:

Relatively simple to calculate and easy for the user to understand;


21

Free from public criticism and acceptable to political leaders; and

Applicable in the local context. Both Hyderabad and Chandigarh have adopted a Citizen’s Charter to enable clear communication between the service provider and users on matters relating to water supply and sewerage services. An active complaints redressal system is also in place in each city; in Chandigarh this operates via ward committees, in line with the 74

th Constitutional Amendment

Act. Pune’s tariff structure is simple and user-friendly, with online self-calculation for property-based charges and bill payment possible through banks and kiosks in a variety of accessible locations For slum dwellers, too, the charges are easy to understand given their fixed charge basis. Indore recently produced a tariff structure valid until 2010 will enable the municipality to make long-term plans for revenue improvement. The tariff also has a simple, user-friendly design. Dehradun switched to a charge based on property tax following public criticism of faulty meters and meter reading.

Pro-poor approaches to cost recovery

Since water is a basic human need, all service providers have a pro-poor dimension to service delivery. However, this pro-poor water service delivery is rarely provided efficiently and effectively.

Pro-poor tariffs and exemptions

Increasing Block Tariffs (IBTs) are used by some service providers and are pro-poor in the sense that a subsistence level of consumption (the first block) is charged at a subsidized volumetric rate, with a higher rate applied to consumption beyond that level. The subsidy is poorly targeted, however, since it applies to all users of the service. Wherever water is supplied at a cost per kl, that is, below the unit cost of production, the consumer is effectively being subsidized, and this often applies to both domestic and commercial users in many cases. Additionally there are, of course, many nonpoor users who pay nothing because they have an illegal connection or their property does not appear on municipal registers. A number of cities offer complete exemptions from user charges to poor customers. Dehradun, for example, has a fixed charge water tax with an exemption for people whose property tax rate is assessed at less than Rs. 360. However, anyone (rich or poor) who buys a house connection becomes subject to a basic monthly charge of Rs. 75. There is, therefore, a disincentive to taking a house connection, especially for those on low incomes. Chandigarh charges a fixed charge of Rs. 100 per month per dwelling unit for poor households with a house connection, but average monthly bills for non-poor households with meters are only Rs. 79 for consumption of 30 KL water. In other words, the poor pay more than better off households based on typical consumption. In Pune, the tariff for poor households is Rs. 30 per month while other domestic consumers typically pay Rs. 75-208. Interestingly, poor households enjoy not only a lower tariff but a better level of service than others since poor settlements are mostly in low lying areas were water pressure is higher and the supply operates for more hours per day. Ludhiana is an unusual case. Here, the Government of Punjab operates a complete exemption from water and sewerage charges for plots of the area of 125 square yards (sq yd) or less. Since most poor households typically occupy plots no more than 40

49 sq yd in area, this exemption

benefits not merely the poor but also a wide range of better-off consumers. Most poor families do

49

Average holding of poor people/slum dwellers is considered between 25 to 40 sq m.


22

not, in any case, have house connections and were already using free standpost and tanker supplies before the exemption was introduced. Following the exemption, the poor continue to receive an inadequate service, without access to house connections. Table 12: Metered Connections and Connections with Non-Functional Meters in 23 cities Particulars

Ah

med

ab

ad

Am

rits

ar

Ban

ga

lore

Bh

op

al

Ch

en

nai

Ch

an

dig

arh

(M

CC

)

Co

imb

ato

re

Deh

rad

un

(U

JS

)

Hyd

era

ba

d

(HM

WS

SB

)

Ind

ore

(IM

C)

% Metered connections of total registered connections

3%

45%

95.5%

No Metering

3.5%

100 %

100%

11.3%

50

95%

No meters

% Connection with non-functional meters

Data not Available

Data not Available

Data not Available

Data not Available

Data not Available


25%51

25% No meters

Table 12: Metered Connections and Connections with Non-Functional Meters in 23 cities (Continued)

50

Based on data provided by UJS in March 2008: Total registered connections-76671; Meterised connection in non-domestic sector- 8701. These figures have not been used in the city report due to lack of supporting data. 51

Figure provided directly by UJS, Dehradun; workings not available 52

Meterised connection only in non-domestic sector. No meterization in domestic sector

Particulars

Jam

sh

ed

pu

r

Ko

ch

i (K

MC

)

Ko

lkata

Lu

dh

ian

a (

LM

C)

Ma

thu

ra

Mu

mb

ai

Nag

pu

r

Nash

ik

Pu

ne

(P

MC

)

% Metered connections of total registered connections

>1%

100%

1%

7%52

No Metering

75% 40% 80% 4%


Data not Available


Data not available

Data not Available

Data not Available

Data not Available

Data not Available

Although exact data is not available but meter default rate is around 70-75%


23

Table 12: Metered Connections and Connections with Non-Functional Meters in 23 cities (Continued)

Standpost supplies

Nearly all the 23 cities provide free water through standposts for the benefit of poor residents, but very few cities have a pro-poor dimension to regular tariffs. A common problem with standposts is the impossibility of ensuring that they are used exclusively - or even primarily - by their intended beneficiaries. In Kochi, Kerala Water Authority (KWA) acknowledges that there is widespread exploitation of standposts by commercial users. In Hyderabad, free water is supplied via standposts and handpumps but there is no subsidized rate for the poor within the regular tariff. This could discourage poor families from taking house connections and may partly explain the high number of illegal connections in poor areas. In Pune, more than 80 percent of slum households receive free standpost supplies, but another 12 percent who are formally registered as standpost users, pay a fixed charge of Rs. 30 per month for the same supply. These examples highlight a lack of well-designed and effectively targeted measures to help poor consumers. Either subsidies benefit too many nonpoor users, or there is free provision for the poor but with a very low level of service. Probably the best way to serve the poor would be to enable them to become regular customers by subsidizing access to metered house connections, and ensuring that the tariff structure makes consumption affordable. Currently none of the 23 cities operates such a system. As a result, poor people are underserved while service providers are missing an opportunity to increase revenue though expanding the number of house connections.

Coping costs

An additional burden for all service users is the coping costs arising from inadequate public supplies. For those with house connections, and who have the resources, this usually means installing ground or overhead storage tanks with pumps to cope with intermittent and low pressure supplies, or developing alternative supplies such as tubewells. Poor consumers who have no taps and cannot afford tanks or their own private supply incur other costs by buying water from private vendors (usually at very high rates compared to municipal water) and spending long periods queuing at public taps. It was not possible to work out coping cost under this study and there are few studies on this aspect, but it was earlier estimated that households with private connections in Dehradun and Delhi bore a coping cost of Rs. 3.5 per kl against consumption charges of Rs. 1 per kl in Delhi and Rs. 3 per kl in Dehradun. During this study, discussions with users in Dehradun indicated that current coping costs are in the order of Rs. 200 to Rs. 250 per month compared to monthly water charges of Rs. 85.

Particulars

Rajk

ot

Vara

na

si

Vij

ayw

ad

a

Ko

lkata

% Metered connection of total registered connections

>1% No Metering

6% 1.3%


Data not available

Data not available

Data not Available

Data not Available


24

Attaining tariff objectives: a composite scorecard

Tables 13 and 14 provide a scorecard for tariffs in seven of the cities, taking into account all the factors discussed in this report. The Tables show that affordability for users is the only key factor that has been given serious consideration in tariff setting. Apart from Pune, no city has been able to achieve recovery of service delivery costs, but even here the tariff structure fails to meet the objectives of economic efficiency and resource conservation. Table 13: Scorecard for Water Tariffs in Seven Cities

Particulars

Co

st

Re

co

ve

ry

Ec

on

om

ic

Eff

icie

ncy

Fre

e f

rom

Pro

-

po

or

Po

licy

Dis

tort

ion

s

Aff

ord

ab

ilit

y

Re

so

urc

e

Co

ns

erv

ati

on

Sim

pli

cit

y/

Pra

cti

ca

lity

Dehradun X Some extent Some extent X Some extent

Ludhiana X X X X Some extent

Chandigarh X Some extent X

Indore X X X X Some extent

Pune Some extent X X

Hyderabad X Some extent X X

Cochin X Some extent Some extent X

Table 14: Scorecard for Sewerage Tariffs in Seven Cities

Particulars

Co

st

Rec

ov

ery

Ec

on

om

ic

Eff

icie

ncy

Fre

e f

rom

Pro

-

po

or

Po

licy

Dis

tort

ion

s

Aff

ord

ab

ilit

y

Ec

olo

gic

al

Co

ns

erv

ati

on

Sim

pli

cit

y/

Pra

cti

ca

lity

Dehradun X X X X

Ludhiana X X X Good extent

Chandigarh X X X X

Indore X X X X

Pune X Some extent Some extent Some extent

Hyderabad X Some extent Some extent

Cochin X X X X

Implications for Service Providers

The principal finding of the study is that more than half the 23 cities make an operational loss, but low tariffs are not the primary cause. Instead, the losses arise from a combination of low coverage with registered connections; high levels of leakage and NRW; and inefficient billing and collection. Increasing tariffs is not, therefore, the most appropriate means of improving cost recovery; improved operational efficiency is the first priority. This can often be achieved without major capital investments.


25

Bibliography

Whittington, D., J. Boland and V. Foster. 2002. Understanding the Basics, Paper 1: Water Tariffs and Subsidies in South Asia, World Bank-Water and Sanitation Program and Public-Private Infrastructure Advisory Facility, Washington (www.wsp.org, www.ppiaf.org)

ADB. 2007, Benchmarking and Data Book of Water Utilities in India, Manila. Boland, J. 1993. Pricing Urban Water: Principles and Compromises. Water Resource Update, Universities Council on Water Resource, Issue No. 92 (Summer 1993), pp. 7-10.

http://www.wsp.org/

http://www.ppiaf.org/


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