Tariff rises outstripped by inflation

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A 3.6% rise in global water tariffs over the past year falls desperately short of what is required to support the forecast investment in the sector. GWI’s Hector Brown drills down into the numbers.

Global water tariffs failed to keep pace with inflation last year, rising by an average of 3.6% between July 2011 and July 2012 at constant exchange rates. This compares to a 6.8% rise over the preceding 12-month period.

The average water and wastewater tariff for the 310 cities in the 2012 GWI Water Tariff Survey is $1.98/m3. This average was produced by calculating the bill for a household that uses 15m3 a month, and then dividing the total bill by 15.

Governments are becoming increasingly unwilling to foot the bill for domestic water use. In Buenos Aires, the level of subsidies was raised in December 2011 to cover a 290% increase in the water tariff. The increase was not initially noticed by customers, but has been passed on through a phased withdrawal of these subsidies in 2012. By the end of the year, only the poorest customers in the city will still receive assistance with their water bills. The tariff increase was implemented partly to reduce the dependence of AySA, the local utility, on government aid.

In Belarus’, the government is seeking to reduce national deficits by passing on more of the costs of water supply provision to consumers. In September 2011, a full cost recovery tariff was put in place for customers using more than 140 litres of water per day. To meet the conditions of a crisis loan from the Eurasian Development Bank, water tariffs will achieve 40% cost recovery by 2013. Combined tariffs have risen by 104% since last year.

The largest fall in the combined tariff is in Oranjestad, Aruba, where our benchmark user will pay 27% less for water supply. The reduction is a result of the completion of large-scale investment projects, including the 24,000m3/d SWRO II desalination plant at Balashi. A consortium of unions, pension funds and government officials has agreed that the reduced rate will remain in place until December 2013. Water tariffs in Aruba are heavily dependent on the cost of energy, and a tariff increase will be renegotiated if there is a rise in the price of oil.

In Auckland, New Zealand, wastewater charges have been restructured to match last year’s changes in water charges. Domestic customers will now pay a single tariff throughout the region served by Watercare Services, and a benchmark user will see his wastewater bill reduced by 34%.

Water is still provided free to domestic customers in Ashgabat, Belfast, Dublin and Cork, although the Republic of Ireland is attempting to impose universal metering ahead of the introduction of domestic water charges in 2014.

Southern Asia has historically been the region with the lowest average combined tariff, although tariffs in this region have increased by 9.7% since last year, compared to a 3.2% rise in Western Europe.

In Karachi, local utility KWSB raised water rates by 82% in September 2011. The increase was required to meet rising labour and maintenance costs, as well as escalating tariffs imposed by the city’s electricity utility KESC. An April 2012 judgement by the provincial high court categorised the city’s water pumping stations as “strategic installations”, meaning that KESC cannot use restrictions to the electricity supply as a means of recovering PKR17 billion ($190 million) in unpaid KWSB bills. The dispute between the two utilities is threatening the supply of water in Karachi, with KWSB alleging that recent power outages are the result of supply restrictions, in violation of the court order. KESC, meanwhile, insists that the problems are caused by poorly maintained systems at the pumping stations.

Out of the five countries with the lowest non-zero average tariff, four are in the Middle East. The average customer in Saudi Arabia, Syria, Egypt and Bahrain still pays less than $0.05/m3 for water. Dubai was the only city in the Middle East to raise tariffs last year, and is already reaping the rewards in terms of its ability to borrow money on the international capital markets at more attractive rates (see story p24).

There is a correlation between economic development and a high price for water. Out of twenty countries which have an average combined tariff higher than $3.00/m3, sixteen have a GDP per capita higher than $35,000. High tariffs are required to support an extensive, highly developed water supply network, and to treat the wastewater that is produced.

In Germany, the regional and federal competition authorities have shown that they are willing to step in to prevent overcharging. Mainova AG, which provides water services to Frankfurtam- Main, is required to reduce water tariffs by 20% in 2012, and to refund the excessive cost of water bills charged in 2008 and 2009.

A similar case was brought against Berlinwasser by the Federal Competition Authority, with the result that the utility has been ordered to cut its water bills by 17% by 2015, a move which helped convince private partners RWE and Veolia to take the decision to exit from Berlinwasser’s capital structure.

Combined tariffs in sub-Saharan Africa have largely remained stable. The 8.2% increase in the average tariff has been driven by large increases in only a few countries. In Botswana, water sector reform has seen local utilities being brought under the umbrella of the state-owned Water Utilities Corporation. The WUC has increased the combined tariff by 45% to reduce its annual deficit. In Uganda, meanwhile, the national state-owned utility increased water and wastewater rates by 20% to mirror a corresponding increase in electricity tariffs. The utility is one of many where tariffs are linked to inf lationary changes and the international exchange rate.

In Latin America, tariff increases over the past twelve months have been close to the global average, with some notable exceptions. The national reference price that is used by local utilities to set the price of water in Venezuela has increased by 55% to offset increases in staffing and equipment costs.

In Mexico City, meanwhile, the increase in tariff rates has sharply defined the dividing line between domestic and commercial customers. The municipal government has reduced the volume of water that is provided free under a fixed charge to 5 m3 per month, and increased the basic water tariff by more than 40% for usage greater than 10 m3 per month. The rate of subsidy for higher-income consumers has been increased to partially offset this rise.

The average tariff in East Asia has seen the smallest increase this year. In most of the cities surveyed, the combined tariff has remained constant. However, the results of supplying water at less than the cost of production have become clear in Guangzhou, China. Previously, customers were paying $0.07/m3 less than the cost of supplying the water. The water tariff has been increased by 50% in an effort to recover these costs, and now incorporates an increasing block structure.

In previous years, customers in Manila, Phillipines using a separate sewer system have paid a percentage surcharge on their water bill. The surcharge, which was calculated at 50% of the basic water bill in 2007, was removed to ref lect the number of customers now served by combined sewerage and drainage systems. This decrease was partially offset by a 15% increase in the water tariff.

For commentary on water tariff developments in the United States over the past year, see AWI September 2012 pp 8-11.

The full GWI survey, which includes details of tariff structures, fixed charges, and taxes, will be available to download from our website at http://www.globalwaterintel.com/tariff-survey/ within the next month. GWI subscribers will receive an e-mail advising them when the spreadsheet has been uploaded. They will be able to access the data using their usual GWI login.