CITY WATER ECONOMICS OVERVIEW

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CITY WATER ECONOMICSOVERVIEW

• OPEN FORUM DISCUSSION ON CITY WATERBIRMINGHAM,
  29/05/2009

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Questions

• An Urban Water Management Plan has cost
• How can it be financed?
• Are current financial resources adequate?
• Who pays and for what, esp. with regard to water
  services?
• What can be the consequences of alternative cost
  allocation schemes?
• Can full cost recovery be attained? What can be
  the impact for low-income users?
• Will subsidies be necessary?
• Will cross-subsidies be necessary?
• Do current (or potential) water pricing schemes
  offer incentives for the implementation of
  on-site solutions by the users?

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Economic instruments along the water cycle
Surface water
Groundwater
Tradable abstraction permits
Abstraction taxes
City Water Economics
Public Water System
Self Supply
Water prices
Taxes on water supply
Subsidies for water saving measures
Self-supplied uses
Potable water use
Sewerage charges
Subsidies for pollution control
Taxes on sewerage charges
Effluent treatment
Sewage Treatment
Effluent charges
Tradable discharge permits
Adapted from Kraemer et al., 2003
Surface water bodies/sea
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City water economics is about

• The analysis of alternative economic instruments
  for
• Recovering costs (i.e. ensuring financially
  sustainable water services)
• Meeting operation maintenance costs and loan
  requirements
• Ensuring adequate funding for the rehabilitation
  of water infrastructure
• Financing of new infrastructure
• Allocating water service costs in a fair and
  equitable way that
• Implements the polluter-pays principle
• Ensures access to the basic water services
• Provides incentives for
• Water saving
• Adoption of environmental friendly technologies

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Functionalities

• Mapping of the current framework for the
  provision of water services
• Freshwater
• Who provides potable water supply
• Who undertakes distribution and charges customers
• Similar for wastewater and stormwater management
• Cost recovery at this level
• Bulk water sales bulk water supply
• Environmental taxation (if any)
• Framework for setting charges
• To recover allocated costs
• Based on agreement (a fixed rate, depending on
  negotiations)

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Functionalities
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Functionalities
Conceptualization of the current framework for
the provision of water services
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Functionalities Tariff Schemes

• Definition of alternative tariff schemes
• Design criterion Cost recovery
• In areas serviced by the same provider (utility)
  the same tariff structure is applied
• Different options available for
• Volumetric charge recovery of variable costs
• Mains water supply
• Flat, uniform, IBT, DBT
• Wastewater collection and treatment
• Depending on mains volumetric charges or mains
  water supply
• Stormwater
• Property area, share of impervious area
• Fixed charge recovery of fixed costs
  (maintenance and part of capital costs)
• Seasonality in volumetric charges
• Formulation of schemes over a long time horizon
• Re-adjustment according to changes in costs

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Functionalities Definition of Tariff Schemes
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Functionalities Definition of Tariff Schemes
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Output indicators

• Affordability of water charges
• Share of household income spent on water services
  for different income levels
• Utility revenue pattern
• Collected fees (from water service charges) in
  relation to costs for operation and maintenance
• Collected fees (from water service charges) in
  relation to total financial cost (investment
  depreciation-amortization OM administrative
  charges)
• Impact of demand elasticity (sensitivity
  analysis)
• Water saving incentives
• Rate of return payback period for on-site
  interventions modelled in City Water Balance

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Functionalities Output Indicators
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Functionalities Elasticity Analysis
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Where Can CityWater Economics be useful

• Implications of cost recovery policies/objectives
• Analysis of distributive effects of current (or
  potential) tariff schemes
• Economic impacts of alternative (decentralized)
  interventions
• Users (change in income spent on water services)
• Water utility (change in revenue)
• Incentives for water saving
• Can a tariff scheme make an on-site system
  economically viable for the user?