Water tariff and free water

January 11, 2014

The price in question


God gave us water so it should be free. Yes but he forgot the pipes. – Quote

The pricing of water in urban areas has firmly entered the political decision making space with the Delhi announcement of 666 litres per connection per day free. Here is a good look at what goes into decision making and how a solution is arrived at.

Cities get water from quite huge distances. Bangalore for example gets its water from the river Cauvery 95 kilometres away and about 300 metre below the city.  Typically there are three components to the investment requirement for water. First is the capital requirement to collect, treats, pump, store, distribute and measure through meters the water supplied to all the myriad connections. Then collect, convey and treat the consumed water which now emerges as wastewater. This is the Capital cost of the system.

Then there is the electricity bill to paid for pumping the water and treating the wastewater, the chemicals required in cleaning the water and wastewater, the salaries of the employees and meter readers , the routine repairs that are needed etc. This is the Operations and Maintenance Cost.

Finally there is a sinking fund to be collected to replace the entire infrastructure when the life of the equipment is over.

As a rough idea in Bangalore it cost Rs 80 for a kilo-litre of water to be produced and delivered to the consumer. The cost in Delhi is reported to be about Rs 28 a kilo-litre.

These three components make up the investments for water supply and waste water collection. There are three ways this can be funded, by the tax payer, by the consumer or by grants from foreign agencies.

Remember the true cost of water is when it is returned back to nature at a quality decided as appropriate not to cause pollution. The ecological cost would also include the preservation and management of the lakes and rivers and their catchments to continue to supply the water as well as the treatment plants needed to treat the sewage to appropriate standards.

Consumer: For the consumer there is usually a connection cost for water supply and sewerage and in a well functioning system a monthly bill based on the volumetric consumption as reported by the meter. In many cases if metering is not there is a flat charge or something linked to property tax.

Now if free water is given to the consumer of domestic connections the only way to recover the cost would be from two other categories of consumers the non-domestic consumers such as hotels and restaurants and from the industrial sector. However if the tariff for these sections go up too high there is a resource substitution with industries shifting to ground water or to private water supply.

Tariff: While it is a fact that no human being should be deprived of water due to the cost of it, it is also a fact that water is an economic good and requires monies to supply. A good via media would appear to be universal connections given to all families and houses in cities, a free 50 litres of water per person per day as prescribed by WHO guidelines and then a reasonable tariff to recover costs. A fact to be remembered is that about 50 % of piped water in a city goes as non revenue water, either physically leaking from the system or simply not billed or collected. It would be important for city utilities to bring this number to less than 20 %.

Way forward: It would be ideal for cities to put the data in public domain and go inform large scale consultations with its citizens on how to arrive at a tariff. With responsible fiscal behaviour will come sustainability and with universal connections will come equity. Sources such as groundwater accessed through hand-pumps can easily be made free if the aquifers are well maintained and are not polluted and do not go too deep.

Innovative dialogue is the way forward and this is the right time for urban India to enter into the dialogue and enter into a compact with its political parties for good water governance.



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