Guidelines Glossary

The criteria for fixing the structure of tariffs are as follows:

(1) The financial yield should enable the provider to cover the full costs of operating and maintaining water supply (and wastewater) services and meet capital costs where possible.

(2) The tariff should reflect the cost of supplying each unit of water to the consumer, so that costs and benefits of the water can be equalised at the margin to ensure an ‘efficient’ allocation of resources. The tariff should also signal the relative costs of providing water to different classes of consumer, at different times and in different locations, so that uses with less social importance are charged at higher levels than those with more.

(3) The tariff system should be seen to be ‘fair’. It must bear some relationship to ability to pay – poor consumers should receive special consideration. But fairness also implies some link between payments and the amount of water consumed.

(4) It is in the public interest that every urban household should use enough water for personal hygiene, food washing and preparation, and for toilets. Thus there are important public health reasons to ensure that services are used and the tariff should not discourage this consumption. However, nor should it encourage waste.

(5) The tariff should attempt to internalise the environmental costs entailed in water supply, treatment and disposal.

(6) The charging system should be easy for the customer to understand and for the authorities to defend. It should not impose heavy administrative costs nor keep changing. This criterion is likely to run counter to some of the others listed above.

Tariffs or charges raise revenues for water services and are necessary for the operation and development of water supply and wastewater services. They also help to underline to users that water is a valuable resource. The most common kind of water charge is a flat-rate charge based on property values. The flat-rate charge has the benefits of certainty over the level of revenue and ease of administration and collection. Its major disadvantage is that charges are not related to the actual level of consumption. Thus this kind of charge cannot serve any economic purpose. Once the annual charge is paid, water becomes free, hence users have no incentive to restrain their consumption. The alternative to flat rate charges is volumetric charges, which vary according to the amount of water consumed (see also Metering). Most volumetric tariffs are of the two-part kind, with both fixed and varying elements. Some systems entitle the user to a free allowance of water for basic household needs, before volumetric charges begin to apply. Seasonal tariffs impose surcharges on water consumed at times of the year when it is scarcer and more costly to supply. In emergencies, such as drought, water may be rationed, or certain uses to be prohibited. Different systems of tariffs are needed for irrigation; industrial water usage; and for waste and wastewater removal and treatment when this is not automatically coupled to water supply.

Further information: Pricing of Water Services, OECD, 1987.

The waters of a number of major rivers are shared between two or more countries in the developing world. In some cases, notably in the Indian sub-continent, the geographical basin includes not only more than one single national territory, but several autonomous states within one of the countries. Although the idea of the international river basin organisations (RBOs) enjoys the support of international organisations, particularly UN bodies, it has so far been greeted with only modest success. This is not surprising since a high degree of common purpose is required to reach agreement over the sharing of the waters of large international rivers. However, since this is a potential cause of conflict, notably in the Middle East, efforts to bring the various countries and states together to plan water resources development on a mutually agreed basis clearly need to be emphasised. An organisation – the International Network of River Basin Organisations (INBO) – exists to promote such mechanisms, which can become a catalyst for inter-state co-operation. (See also River Basin Organisations, and National and International Water Law.)