Water- Getting the prices right

April 5, 2008






For long, economists have held the view that if getting the prices right is crucial to the sustainable delivery of piped water to households in urban areas.

For the customer the correct price of water ensures access to clean water at an affordable price but also signals that excess consumption has a penalty and therefore he is dissuaded from over consumption.

For the institution it means the ability to maintain the system for efficient delivery of water as well as to be able to invest for expansion of services.

Increasing block tariff: Many cities charge for water and include it as part of the property tax. This is a very indirect way of recovering revenue. Others charge a flat rate based on the dimension of the connecting pipe to the household. Say for example Rs 45/- per month for a 3/4inch pipe connection and Rs 30/- a month for a half inch pipe connection. This too is an arbitrary method of collecting water revenues.

There is increasing consensus however that an increasing block tariff makes the most sense. This is what cities like Bangalore and Hyderabad use for their water charges.

Bangalore’s tariff for water looks like this


0- 8000 litres Rs 6.00 per Kilo litre

8001-25000 litres Rs 9.00 per kilo litre

25,001-50,000 litres Rs 15.00 per kilo litre

50,001- 75,000 litres Rs 30.00 per kilo litre

And so on

There is a separate charge for NON-DOMESTIC consumption on an increasing block tariff too and for INDUSTRIAL consumption on a flat basis.

These city utilities therefore try to provide access to basic water requirement at affordable prices but ask heavier consumers to pay more. The non-domestic and industrial connections actually cross subsidize the domestic consumers bringing in an element of social justice.

Metering: For historical reasons, Bangalore has had an effective metering system thanks to farsighted decision makers, almost since water supply started to be provided to the city from Thippagondanahalli reservoir in 1932 and therefore is able to levy an effective volumetric charge. Without metering and a system of reading and recording the meters it is impossible to levy an increasing block tariff and to have any meaningful method of charging for water.

Production cost: While typically the price of water should depend on the long run marginal cost i.e. the cost of obtaining the next unit of water for consumption, knowing the production cost of water is important. On this will depend the pricing of water.

The Bangalore water utility charges a flat Rs 15 /- on the first 25 kilolitre of water as a sanitary charge. It goes to 15% of the water bill if the consumption of water is over 25 kilolitres and 20% of the bill if it is over 50 kilolitre. It is usually argued that the true cost of water is captured when it is returned to nature at the same quality at which it was appropriated. Obviously city utilities are yet to get there but ill do so through a system of selling tertiary treated water and recovering costs of sewage treatment through this value.

Lessons for smaller properties: Apartments and layouts have to manage with multiple sources of water. Most probably they will source water from the mainline, from bore wells, from private tankers, bottled water and even recycled water. There are lessons in water management that they will have to pick up if they have to manage conflicts. For one they will have to meter all individual connections so that each flat or each site is charged according to its consumption and not in an arbitrary fashion.

Associations will also need to know the combined cost of the waters they source. Metering the bore well and knowing the energy and maintenance cost of the water system will help. Private water tankers will have to be clearly measured volumetrically to understand the right costs incurred per kilolitre.

Based on the sewage treatment plant setup costs of sewage treatment will have to be calculated and recovered from the water consumed by each individual connection.

Slowly but surely water managers will need to come into play to ensure that a systematic and structured approach is adopted to ensure sustainability, equity and fairness in charging for water and making sure it is available to all when required.

By knowing the costs involved from various sources such as bore wells or private tankers optimization exercises can be undertaken to ensure lowest water and sewage bills.

As water gets to be an increasingly scarce resource, better management practice is the only option for continued and sustainable availability. Getting the price right is one aspect of water wisdom.


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