publications on pricing & tariffs | relevant links

Water and wastewater pricing plays a key role in sustainable utility operation. Tariff design goals include generating adequate and stable revenues to operate and maintain water systems; promoting conservation and efficient allocation of water; and equitably allocating system costs. In practice, different tariff structures can be used to meet these goals. The chosen approach is often justified by reference to the equity goal, itself politically defined. Because of the mix of economic, social, and political factors shaping water and wastewater tariff design, the undertaking is as much an art as a science.

Despite ample evidence that tariffs can be set high enough to finance efficient supply but low enough that poor citizens can afford the water they need for basic hygiene, too often developing country utilities charge prices that cover only a small fraction of supply costs. With inadequate income, utilities defer maintenance and repairs and are unable to connect new customers. Usually the poorest are left unserved and thus forced to turn to alternative, more expensive, suppliers.

Water metering plays a key role in tariff design. Without metering, volumetric tariffs cannot be used, taking away the economic incentive for water conservation. But metering, and meter reading, can be costly compared to the value of water consumed, making metering a good option primarily in water short areas. Where consumption is metered, some governments try to protect the poor by directing utilities to charge an extremely low, subsidized rate for a "lifeline" consumption volume. But in practice the subsidized volume often far transcends the 20 liters per capita per day that meet bare minimum subsistence drinking, cooking, and hygiene needs. As lifeline allowances rise, so does the subsidy inherent in the tariff structure. Whether compensated through cross-subsidies or direct government payments, too often this approach removes the incentive to serve the poor or, because government fails to make the subsidy payment, leads to revenue shortfalls and deteriorating service.

In appraising projects seeking World Bank support, the Bank requires government and utility commitment to tariff structures that fully cover the costs of efficiently managed water and wastewater operations. Actual tariffs will vary with local conditions, but the operating, conservation, and equity goals must all be addressed.

Relevant Publications

Do Cross-Subsidies Help the Poor to Benefit from Water and Wastewater Services? Lessons from Guayaquil (PDF)
Guillermo Yepes, 1999.

Management of Water Resources, Bulk Water Pricing in Brazil
Musa Asad, et al. World Bank Technical Paper #432, 1999.

Water Pricing Experiences, An International Perspective
Ariel Dinar and Ashok Subramanian, World Bank Technical Paper #386, 1997.

Willing to Pay but Unwilling to Charge: Do "Willingness-To-Pay" Studies Make a Difference? (PDF)
Water and Sanitation Program,1999.

Relevant Links

Trade at the World Bank

Environmental Economics and Indicators at the World Bank

Inter-American Development Bank: Publications on Infrastructure