47Supply-driven programs continue to
4.1 Cost of Piped Water Schemes
Capital Cost and O&M Cost
The survey covered about 520 piped water schemes including mini water schemes in the 10 states. Out of these, cost data could be collected and analyzed for about 450 schemes. The capital cost (inflation adjusted) of piped water schemes per household served ranges from less than Rs 2,000 (US$45) to over Rs 25,000 (US$568). The average cost of piped water schemes per household is approximately Rs 6,000 (US$136). In about 45 percent of the piped water schemes, the capital cost per
household is less than Rs 4,000 (US$91), while in about 4 percent of schemes the capital cost per household exceeds Rs 20,000 (US$455). The O&M cost of piped water schemes per household ranges from less than Rs 200 (US$4.5) per annum to more than Rs 1,500
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(US$34) per annum. This translates into an average O&M cost per household of Rs 360 (US$8.2) per annum, or about Rs 30 (US$0.7) per month, across the schemes surveyed. In about 75 percent of these schemes, the O&M cost per household is less than Rs 400 (US$9) per annum, while in 7 percent schemes, it is more than Rs 1,000 (US$22.7) per annum.
Cost of Service Provision
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Figures 4.1 and 4.2, respectively, present data on the average capital cost and O&M cost per household for mini water schemes, single village schemes and multi village schemes, including regional schemes, in the 10 states surveyed.
A comparison of the data for the states shows that the capital cost per household for piped water schemes is the highest in Kerala and
In Maharashtra the capital cost per household is higher than in several other states (for example, Andhra Pradesh, Karnataka, Orissa, Punjab, Tamil Nadu, Uttar Pradesh, and West Bengal), but the O&M cost per household is the lowest
Figure 4.1 Comparison of the Capital Cost of Piped Water Schemes
Source: Cost data collected from piped water schemes in the survey.
Note: (i) Capital cost has been adjusted for inflation (2005-06 prices). (ii) No mini water scheme has been covered in Orissa, Punjab, and Uttarakhand. Only two
mini water schemes have been covered in Uttar Pradesh and only one in West Bengal, separate cost estimates are, therefore, not shown.
Uttarakhand, followed by Maharashtra and Punjab. The capital cost per household is comparatively lower in Andhra Pradesh,
Karnataka, Orissa, Tamil Nadu, Uttar Pradesh, and West Bengal. The O&M cost per household
is relatively high in Kerala, Punjab, and Uttarakhand, as compared to Andhra Pradesh, Maharashtra, and Uttar Pradesh. It is interesting to note that in Maharashtra the capital cost per household is higher than in several other states (for example, Andhra Pradesh, Karnataka, Orissa, Punjab, Tamil Nadu, Uttar Pradesh, and West Bengal), but the O&M cost per household is the lowest among the 10 states.
The explanation for the low O&M cost of Maharashtra schemes is possibly related to a higher subsidy for electricity charges. This is discussed further here.
(Average cost per HH)
Reasons for State-Wise Differences in the Cost of Schemes
A component-wise break-up of the O&M cost per household for multi village schemes28 in Maharashtra is presented in Figure 4.3 along with such break-ups for Tamil Nadu and Punjab.
28 To ensure a comparison across similar types of schemes, a special analysis of
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Figure 4.2 Comparison of the O&M Cost of Piped Water Schemes
Source: Cost data collected from piped water schemes in the survey.
Note: No mini water scheme has been covered in Orissa, Punjab, and Uttarakhand. Only two mini water schemes have been covered in Uttar
Pradesh and only one in West Bengal, separate cost estimates, therefore, not shown.
As may be seen from Figure 4.3, there is a large gap between the energy cost of multi village schemes in Maharashtra and that in the other two states. A part of the difference may be explained by differences in hydro-geological conditions across states with implications for varying depths of borewells. On an average, the depth of the borewell of piped water schemes is 85 meters in Tamil Nadu and 114 meters in Punjab, while it is only 37 meters in Maharashtra. This would reduce the energy requirements of multi village schemes in Maharashtra and thus lower the energy cost. But the observed gap in energy cost is too large to be explained by this factor alone. This difference may also be related to the subsidy for electricity in Maharashtra. Till recently, piped water supply schemes in Maharashtra were charged for electricity on the basis of horsepower of pumps, and not on actual power consumption. This might have lowered the payment for electricity charges. Maharashtra has recently changed over to a consumption-based charge for electricity for piped water supply schemes. But, it is possible that many of the schemes have not paid the arrears due to (Average cost per HH)
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them. The nature and magnitude of this subsidy has not been analyzed, due to a lack of
information and has, therefore, not been covered in the analysis of subsidy presented in the previous chapter.
It is interesting to note from Figure 4.3 that the cost of multi village schemes in Punjab is much higher than that of Maharashtra and Tamil Nadu. This is explained by the high cost of staff in the schemes in Punjab and by high overheads, which is included in the cost item, ‘others’. Turning to other cases of high cost, the relatively high cost of piped water schemes in Uttarakhand may be partly attributed to the small size of villages and dispersed houses in the hilly areas of the state. Another reason could be that the actual population coverage of schemes is less than the design. The actual population coverage of piped water supply schemes of Uttarakhand is less than the design by about 30 percent in the case of single village schemes and by about 25 percent in the case of multi village schemes.
It should be noted that in Uttarakhand, the cost of pumping schemes is higher than the cost of gravity schemes (see Table 4.1). Within the group of pumping schemes, there are cost differences between low head and high
Figure 4.3 Components of the O&M Cost of Multi Village Schemes head pumping schemes. High
head pumping schemes are particularly known to be costly. This may be reflected in the high costs of piped water schemes in Uttarakhand, as shown in Figures 4.1 and 4.2. In Kerala, there are several reasons for the relatively high cost of piped water schemes. For example, the service level is mostly private tap (similar to Punjab), rather than mostly standpost (for example, in Andhra Pradesh, Karnataka, Orissa, Tamil Nadu, and West Bengal) or a mixture of private tap and standpost. As households are not located contiguously, the expenditure on the distribution system is much higher as the total cost of the system (including the higher cost of distribution) is spread over comparatively fewer households. Consequently, most mini water systems are small in terms of the size of population served. In addition, in most cases, there are fewer households that depend on government schemes due to their preference for backyard well water. There are only a few standposts due to the linear profile of the settlements. Yet, the high cost cannot always be explained by the peculiarities of the situation; there are cases in Kerala and elsewhere in which the capital cost per household is exceptionally high, perhaps signifying a certain degree of inefficiency.
Comparison of the Cost of
Piped Water Schemes with the Norm
As the normative cost of piped water schemes is not readily available, it is difficult to establish to Source: Cost data collected from piped water schemes in the survey.
Technology Capital cost per O&M cost per HH (Rs) HH (Rs/year)
Gravity schemes 11,670 327 Pumping schemes 25,457 497 All 16,703 424
Source: Cost data collected from piped water schemes in the survey.
Table 4.1 Cost of Schemes per Household in Uttarakhand (Gravity vs Pumping Schemes)
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Figure 4.4 Actual Cost of Piped Water Schemes vs Cost Norm
what extent the cost of piped water schemes compare with these norms. For this study, data on the normative capital cost and O&M cost of schemes were derived from the economic evaluation reports of the World Bank rural water supply projects in Karnataka, Kerala, Maharashtra, Punjab, Tamil Nadu, and
Uttarakhand (see Annex 4.1). For Uttar Pradesh, the capital cost norms for piped water schemes were obtained from a report prepared by the Project Management Unit, Swajal, Uttar Pradesh. Figure 4.4 presents the proportion of piped water schemes in which the actual cost exceeds the norm. As can be seen from the figure, a number of schemes have exceeded the capital cost norm. In 18 percent of the schemes, the per capita capital cost exceeds the norm by 50 percent or more, and in 11 percent cases, the per capita capital cost exceeds the norm by 100 percent or more. The percentage of schemes in which the O&M cost exceeds the norm has also been assessed.
Findings show that in about 10 percent schemes, the actual O&M cost exceeds the norm by 50 percent or more, and in 7 percent schemes the actual cost exceeds the norm by 100 percent. A significant finding is that in about 60 percent of the schemes, the actual O&M cost was less than half the normative cost of the scheme. This
29 Two adjustments have been made to the cost data to work out the design
performance O&M cost. First, an estimate of electricity requirement at the design performance level is worked out taking into account the population to be served, the design lpcd, and the pumping head. The cost of electricity is computed based on the requirement of electricity. The other adjustment relates to maintenance and repair. Annual expenditure required for maintenance and repair for the design performance of schemes is taken as 2.5 percent of the capital cost (inflation adjusted). The actual expenditure on maintenance and repair being made is generally much less than this norm. Wherever the actual expenses on maintenance and repair exceed the norm, the actual figure was used to compute the design performance O&M cost.
is, however, not a sign of efficiency in O&M schemes, but rather a consequence of inadequate expenses being incurred on O&M.
The study also examined the ratio of actual O&M cost and ‘good practice (design performance)’ O&M cost (cost of providing water regularly at the design lcpd level and proper maintenance).29 The ratio varies from less than 20 percent to more than 80 percent. The average ratio is about 50 percent. In other words, the actual cost, on average, is only about half of what the cost would be if the schemes were properly managed and maintained.
As can be seen from Figure 4.5, in 8 percent of the schemes, the actual O&M cost is less than Source: Computed from scheme-level cost data collected in the survey. Norms
have been taken from Economic Evaluation Reports of the World Bank Projects, except UP for which a Sector Assessment Report is used.
Note: The total number of piped water schemes considered in the comparison
of actual cost with norm is about 450.
Figure 4.5 Gap between Actual and Design Performance O&M Cost (Piped Water Schemes)
one-fifth of the design performance O&M cost. The implication of such low expenditure on O&M is poor quality of services and inadequate maintenance of the infrastructure created. The ratio of actual to design performance O&M cost varies across states, and across schemes under an alternate institutional arrangement within a state. An indication of the extent of variation across state/institutional arrangement is provided in Table 4.4.
Source: Computed from cost of scheme data collected from survey. Note: The range of the gap between actual and design performance cost is
indicated on the x-axis. The bars show the % of schemes that fall in a particular range.
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Econometric Analysis of Cost
An econometric analysis of cost was undertaken to understand the factors that influence the cost of piped water schemes. The capital cost and O&M cost of schemes were analyzed separately. The econometric model has been specified as: ln C = f (ln HH, QL, TECH, WS, LPCD) + u
…(4.1)
In this equation, C = cost; capital cost or O&M cost; HH= number of households served; QL= dummy variable for quality problem/status; TECH = technology; WS = water source, ground or surface water; LPCD = design or actual lcpd of the scheme; and u = random error term. The cost functions were estimated using pooled data for about 450 piped water schemes in the survey for which cost data were available. Separate estimation of cost function was carried out for Uttarakhand and the other nine states. In the equations estimated for states other than
Uttarakhand, dummy variables representing technology made a distinction between mini water scheme, single village scheme, and multi village and regional schemes. The cost equation for Uttarakhand was specified differently and separately estimated, because the dummy variables representing technology made a distinction among gravity, low head pumping, and high head pumping schemes, as well as between single and multi village schemes.
The analysis confirms the commonly accepted understanding of varying costs across different technology types—the costs are relatively low for mini water schemes compared to single village schemes, and for gravity schemes compared to pumping schemes. In contrast, the costs are relatively high for multi village and regional schemes as compared to single village schemes, and high for high head pumping schemes as compared to low head pumping schemes. Another inference that may be drawn from the econometric results is that the capital cost is higher for surface water schemes than groundwater schemes. Moreover, there are indications from the results that the O&M costs are relatively higher for schemes that are situated in areas with water quality problems.
The results of the econometric analysis reveal significant economies of scale—as the number of households covered by the scheme increases, the capital and O&M cost rises less than
proportionately.30 To examine the issue of optimum scale, a U-shaped cost function for
capital and O&M cost was estimated separately for groundwater and surface water schemes. The cost per household was regressed on the scheme size in terms of the number of households served. A quadratic functional form was used. An important finding is that the optimum size of a groundwater-based scheme is 500 to 1,500 households. However, a large number of existing groundwater-based schemes serve 200
households or less, and are therefore not able to reap scale economies. For surface water-based schemes, the optimum size is about 4,000
Coverage (HHs)/ Annualized capital O&M cost per Economic cost per water source cost per HH (Rs/year) HH (Rs/year) HH (Rs/year)
50 to 100 1,310 500 1,810
500 to 1,000 960 350 1,310
1,000 to 1,500 830 310 1,140
2,000 to 2,500
- if based on groundwater 920 430 1,350
- if based on surface water 1,500 330 1,830
6,000 to 7,000
- surface water-based 1,700 300 2,030
30 The results of econometric analysis are presented and discussed in the Background
Report on Ten State Analysis.
Note: Annualized value of capital cost has been taken, annualized at the rate of 18 percent. Economic cost is obtained as the sum of annualized capital cost and
O&M cost. HH = household.
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Figure 4.6 State-Wise Comparison of the Capital Cost per HH of Piped Water Schemes, by Implementing Agency
31 In two cases, no community-implemented schemes have been covered in the study. 32
The word ‘community’ is being used here in a narrow sense to refer to a group of households in a village or habitation who are accessing a water supply scheme and are involved from the planning and construction stage to the management stage of the scheme. A distinction is being made between the schemes that are directly implemented and managed by the community of users and the schemes which are implemented/managed by Gram Panchayats (or Zilla Parishads).
33 In two cases, no community-managed scheme has been covered in the survey.
households. Many surface water-based schemes are serving 7,000 households or more, and thus are affected by scale diseconomies. For both categories of schemes mentioned here, that is, groundwater-based schemes serving less than 200 households, and surface water-based schemes serving 7,000 or more households, the cost of water supply could have been lower if the schemes were designed for the optimum size. Based on the cost functions, an estimate of capital cost and O&M cost of schemes of different size and water source is presented in Table 4.2. This brings out clearly that a groundwater-based scheme serving 500 to 1,500 households will be less costly than a groundwater-based scheme serving 50 to 100 households or a surface water- based scheme serving 6,000 to 7,000 households.
State-Wise Comparison of the Cost of Schemes According to Implementation
and Management Agency
One would expect the institutional arrangement for the implementation and management of schemes to have an important effect. Motivated by this consideration, the study explored the comparative capital and O&M cost of piped
water schemes across the 10 states according to the type of implementation/managing agency (Figures 4.6 and 4.7, respectively).
As can be seen from Figure 4.6, in five out of eight states31 the capital cost per household is relatively lower in community-implemented schemes as compared to those implemented by public utilities or government agencies.
However, when a comparison of community- implemented schemes is made with schemes implemented by Gram Panchayats, the cost of community-implemented schemes is higher.32 The O&M cost per household is relatively lower in community-managed schemes in five out of eight states.33 These states are Andhra Pradesh, Maharashtra, Orissa, Uttar Pradesh, and Uttaranchal. But, in Karnataka and Tamil Nadu, the community-managed schemes have relatively higher O&M cost per household. Source: Computed from scheme survey data.
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It is evident from this that no clear pattern emerges regarding the capital cost and O&M cost of schemes per household between the