Transcript Tariffs - SWAP-bfz
COST REFLECTIVE TARIFFS: A
Prerequisite For Financial Sustainability of a Water Utility
Innovative Water Sector financing .7
th – 12 th November 2011, Mombasa Kenya.
Eng. PETER NJAGGAH WASREB, Kenya
Contents
Why the need for a water tariff? Tariff Types Setting a water tariff Tariff design Water an economic or financial good?. Implementation and Monitoring.
Conclusion.
Water tarriff : a contraversial Topic?
Why Water Tariff?
Important economic instrument for:
improving water use efficiency,
enhancing social equity securing financial sustainability of WSPs .
Sustainable Water Management Price
<
Costs?
•
What effects?
– 1 Quality will fall – 2 Not sustainable – 3 Kills entrepreneurship – 4 Affects other projects – 5 Demand too high
Basic balance: Sustainability
Levels of service Quantity, Quality Income Tariffs Subsidy Infrastructure O&M Capital 6
Tariffs = Opex + Dep(CapManex)+ Cost of Capital Operating Expenditure – Labour – Chemicals – Power – Materials – Equipment – Overheads • Communications Capital Mtce Expenditure – Depreciation • Above ground – Infrastructure Renewals Cost of Capital • Loans -> Interest • Equity -> Dividends:
Incentive & Rewards for risk ‘profit’
KENYAN WATER SERVICES SECTOR Tariffs Types
Wasreb recognizes that WSP differ by category and size, and has developed different requirements accordingly.
Type 1 : Full coverage of Operations and Maintenance costs is still not achieved.
Type 2: Full coverage of Operations and Maintenance cost achieved, but repayment of debts is pending.
Type 3 : O&M costs are covered between 100% and 150% and repayment of debts is achieved or ongoing.
• • • •
Options for Calculating Tariffs
Leave tariffs as they are, hope for the best Aim for full recovery of operation and maintenance costs.
Set a tariff to recover operation and maintenance costs plus depreciation (capital maintenance) Set tariffs to recover operation and maintenance costs plus full amortization (interest payments and repayment of ‘principal’) of the capital costs .
The Water Utility Example
INCOME AND EXPENDITURE ACCOUNT 2002
'000s
2001
'000s
OPERATING INCOME Sale of Water Miscellaneous 5903 137 4506 131 6040 4637 OPERATING EXPENSES Chemicals Divisional adminstration Electricity Maintenance Salaries and wages 33 644 455 175 564 1871 31 455 448 119 464 1517
OPERATING SURPLUS
Depreciation FINANCE CHARGES Interest payable Less: interest receivables
4169
933 2212 -404
3120
588 1686 -461
SURPLUS FOR THE YEAR 1428 1307 BALANCE SHEET
ASSETS EMPLOYED
Fixed Assets Development Expenditure Stores (should) Opex + Accounts receivables = Other CURRENT LIABILITIES Accounts payable General Divisional HQ Dep Interest payable (CapManex)
+ NET ASSETS
FINANCED BY
Consumer Capital Contributions General Reserve Capital Reserve Long Term Loans
2002
'000s
30367
2001
'000s
27559 706 123 578 433 1318 4126 973 7551 122 352 440 932 4544 172 6562 1872 1135 737 1314 16 5074 2477
32844
1972 729 690 1097 14 4502 2060
29619
893 2516 3563 6972 25872
32844
892 1927 3137 5956 24369
30325
Tariff Objective(1)
Tariffs should be: • C onserving –
Structure of tariff should influence consumption to the extent that customers will purchase enough to satisfy their neds without being wasteful
• A dequate –
A level of resources must be produced which will enable financial commitments to be met
Tariff objective(2)
• F air –
This level of revenue must be allocated between consumer groups in a fair and equitable manner having particular regard to the needs of the poorer members of the community
• E nforceable and S imple –
The tariff should be simple to administer and enforce and easy for customers to understand
CAFES Tariffs – The Practice
• Flat rates/area charges/property charges • Metering
(metering costs - 25%?)
Fixed Charges ?
• Block Pricing
(increasing/decreasing)
• Prices for the poor: – –
Lifeline blocks (15m 3 ?6m
3 ?) Free Allowances (South Africa)
– – – –
Cross Subsidies (10 times ? 20 times?) Multi-users losing out Paying at standposts/kiosks Direct subsidies (Chile)
Water tariffs design(1).
Is water an economic or financial good?
• The Dublin Declaration said that ‘water is an ‘economic good’ – not a financial good • How should we treat it as an ‘economic good’?
• Does it relate to a ‘financial good’ ?
Is water an economic or financial good?
• Financial analysis details what has to be paid for in cash terms by a sponsoring agency, government department, customer, consumer or householder for any project and for subsequent outputs or services.
•
Economic analysis describes the total resource cost of a project to a country or region including potentially under-valued items such as voluntary labour and pollution
Tariffs
Profile of Water Tariff in Kenya
Average Tariff and Lowest Block Tariff per WSP Category 129
140 120 100 80 60 40 20 0
78 40 111 64 83 Very Large Medium Small and Large
Average Tariff Lowest Block tariff
Bigger WSPs tend to have lower tariff due to:
Lower operational costs.
Large customer base leading to cross subsidy, hence ability to address needs of the poor(lower block tariffs) without compromising their commercial viability.
CONCLUSION-
Cost Reflective Tariff is a Prerequisite for: Financial Sustainability of a WSP leading to improved and efficient service delivery.
Making access to drinking water affordable for different income groups.- tariffs should not be too high to drive consumers to unsafe alternatives .
Sending appropriate price signals to users about the relationship between water use and water scarcity ; Acessing Market finance
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