Up-front costs, tariff structures, and implications on piped connection
uptake
For households eligible for yard taps, if supplied water is clean and is delivered with the reliability currently seen in Ribáuè, then almost certainly the primary factor determining adoption is the re- lationship between cost and a household’s WTP. Costs for yard taps and household connections are incurred in terms of an up-front payment for the connection and tariffs based on water consump- tion.
In Ribáuè, the up-front charge for a yard tap connection was 1,273MZN, the equivalent of roughly half of a month’s income for
the average household, until August of2015183. This represented a 183
The median reported monthly income for Ribáuè in November2014 was2,500MZN. (See Table22.) contract fee and was either paid up front or could be split into two
equal payments to be covered within two months184
. STCC esti-
184
Payment in full must be completed before metering commences.
mates that the actual cost of installing a yard tap is roughly3,250 MZN, which covers materials, transportation, and labour. Thus, the charge to households was only roughly1/3of actual cost with the assumption that future water tariffs would cover this shortfall. As of August2015, this up-front cost has been modified so that house- holds must either supply appropriate pipes and fittings or purchase them from STCC as well as pay STCC for labour for installation of the yard tap. Thus, the up-front cost is now roughly3,000-3,250 MZN for the actual installation of the yard tap as well as a con- tract fee of1,273MZN (which can be split into two payments). The current cost to households now represents roughly1.7-1.8month’s income for the typical household and puts yard tap installation prices in line with Nampula185
.
185
The long-term effects of a higher up-front cost for yard tap installations on uptake are unknown, although a reported51yard taps being lined up for installation at last correspondence with STCC would suggest that it has not dampened demand in the short-term.
Small loan schemes, rotating savings, and credit associations, much in line with what was discussed for financing for water kiosk operators, could be used to make the cost for the infrastructure less prohibitive for families186
. However,Wedgwood and Sansom
186
M. Montgomery, J. Bartram, and M. Elimelech. Increasing functional sustainability of water and sanitation supplies in rural sub-Saharan Africa.
Environmental Engineering Science,26 (5):1017–1023,2009
[2003] recommend that water providers try to keep the connection charge low to keep this from preventing households from entering the market187
. This can be accomplished by the provider covering a
187
A. Wedgwood and K. Sansom.
Willingness-to-pay surveys: A streamlined approach. Water Engineering and Development Centre, Loughborough University,2003
payback plan (so, in essence, acting as a lender) or using slightly higher tariffs as a means of cost recovery.
Tariff structures for users of household connections and yard taps in Ribáuè as well as Nampula (for comparison) as well as busi- nesses in Ribáuè are as shown in Table29. These tariff structures consist of a monthly fixed cost corresponding to a meter fee and a variable cost based on water consumption188
. These fee structures 188
In the case of Nampula, the variable component includes a flat cost for the first5cubic meters of water. produce fairly similar monthly costs for households in the two
lcoations with the difference in cost between Nampula and Ribáuè anticipated to deviate by no more than15MZN per month except for consumption in excess of15cubic meters189.
189
For households using between4and 12cubic meters of water per month, total costs would be slightly higher in Ribáuè than Nampula.
Nampula Ribáuè Ribáuè
(Household) (Household) (Business)
Fixed cost 55MZN 50MZN 150MZN
Variable cost 70MZN (first5m3) 18MZN/m3 18MZN/m3 19MZN/m3(5-10m3)
22.5MZN/m3(>10m3
Table29: Monthly tariff structure for household connections and yard taps in Nampula and Ribáuè and businesses in Ribáuè in2014.
A variety of strategies can be used to make water more afford- able for users that may otherwise not be able to afford the cost, thereby increasing uptake. These include higher fixed and/or vari- able costs for businesses to help subsidise household costs, as is currently implemented in both Ribáuè and Nampula. Another com- mon strategy is the implementation of increasing block tariffs (IBTs) which increase the cost per cubic meter as water consumption passes certain thresholds. This approach is currently implemented for households and businesses in Nampula but not those in Ribáuè.
IBTs like those in Nampula have generally been implemented to subsidise costs for poorer low consumption households190
and en- 190
This is accomplished by having the price for water in the first block fall below marginal cost.
courage efficient water use. Despite these potential positive effects, however, if many poorer households share a single tap, then IBTs may actually result in them paying a higher per unit cost than if the IBTs were not in place, negating one of the major purposes of IBTs. Additionally, IBTs could run the risk of a water utility avoiding the connection of poorer households or those that are more costly to serve, as the relative cost and benefits of such provision repre- sents a larger commercial financial discrepancy with water service charges below the average191
. This is important because it demon- 191
J. Davis. Private-sector participation in the water and sanitation sector.
Annual Review of Environment and Resources,30:145–183,2005 strates the inherent tension in certain developing country contexts
in terms of making a social good such as water simultaneously profitable (and, hence, economically sustainable) and available to as many consumers as possible, including those of low SES. Thus, the social equality that was the driver of the IBT might actually be jeopardised if the piped network is run with an emphasis primarily on economic profit and sustainability, so it is important not to lose sight of social “fairness”192
. 192
P. Rogers, R. de Silva, and R. Bhatia. Water is an economic good: How to use prices to promote equity, efficiency, and sustainability.Water Policy,4:1–17, 2002
Considering these issues,Boland and Whittington[2000] claim that IBTs actually are more likely to promote inequalities, thereby potentially slowing the rate of uptake. These inequalities are par-
m e a s u r i n g t h e va l u e o f p i p e d wat e r t o h o u s e h o l d s 87
tially attributable to the fact that IBTs only redistribute costs among those with private connections, and the poorest members of so- ciety typically cannot afford the up-front cost of a connection, so they fail to benefit from IBTs. Additionally, the poorest members are more likely to share taps, meaning that they are more likely to pay above cost. Boland and Whittington further explain other difficulties in implementing IBTs that lead to issues, including de- termining the quantity of water allowed under the first block and the correct pricing for blocks to ensure cost recovery. They recom- mend a system based on uniform pricing with rebates (UPR). This two-part marginal cost-based tariff sets the marginal cost of water as equal to the volumetric charges with a fixed monthly credit to ensure the total revenue to the utility equals that obtained through IBTs, and a minimum charge to households is set to ensure no zero or negative bills. They demonstrate that this approach is likely to result in significantly lower bills for a greater percentage of house- holds, meaning that it is more effective at transferring costs from wealthy to poor households. Additionally, it is unlikely to produce less efficient use of water than use under IBTs. Furthermore, it “is simple, transparent, easy to implement, appears fair, is equitable in most circumstances, and requires less data for design and revenue estimation”193
. 193
J. Boland and D. Whittington. The political economy of water tariff design in developing countries: Increasing block tariffs vs. uniform price with rebate designs. In A. Dinar, editor,
The Political Economy of Water Pricing Reforms. Oxford University Press, New York,2000
These implications of tariff structure are important to understand because decisions in regard to tariff structure (typically made by the water regulator) can have a significant impact on the level of afford- ability for poorer income households and, thus, impact on uptake of piped water to the home. At present, Ribáuè is using uniform pricing, but this will almost certainly change in the near future. If IBTs are implemented, as in Nampula, then it is quite possible that uptake for poorer households and sharing of yard taps may slow, dampening the impact of the piped network. Additionally, unless the terms of the management contract for the private operator in- clude clear stipulations that ensure that certain benchmarks meant to ensure social fairness are achieved by specific timelines, market forces may prevent these from ever occurring, and only wealthy areas of the town may fully benefit from piped water.