Water Pricing - Uniform Volumetric Charge

Compiled by:
Martina Ricato (seecon international gmbh)

Executive Summary

Water and wastewater tariffs determine the level of revenues that service providers receive from users in centralised or semi-centralised systems for the appropriate catchment, purification and distribution of freshwater, and the subsequent collection, treatment and discharge of wastewater. Water pricing is seen as an important economic instrument for improving water use efficiency, enhancing social equity and securing financial sustainability of water utilities and operators. Tariff setting practices vary widely around the world. Here, we will introduce uniform volumetric charge as a type of water tariff that is simple to manage and that enables to achieve various objectives of sustainable water management.

Uniform Volumetric Charge

In a uniform volumetric charge, or constant volumetric tariff, all water units are priced the same independent of the use, and consumers pay proportionally to their water consumption. With this type of tariff, all consumers (domestic, industrial and commercial) pay the same unit rate, and their water bill corresponds directly to the quantity of water consumed. Prerequisite for setting a uniform volumetric charge is that consumers have a metered connexion to the water system. The constant volumetric tariff can be designed as a single tariff or as a two part tariff combined with a fixed charge. This type of tariff is the most common water charge in OECD countries, and it is very common throughout the world (WHITTINGTON 2002). Volumetric price schemes present several advantages: first of all is easy to understand for consumers - because it is how most other commodities are priced – furthermore it sends a clear signal to the consumers about the cost of supplying them with additional water. Moreover, the tariff incorporates the concept of water conservation as the water bill increases with consumption.

Example: Uniform Volumetric Charge in Overijssel Netherlands

(Adapted from CARDONE & FONSECA 2004)

 

CARDONE and FONSECA fixed charge table

  CARDONE and FONSECA fixed charge graph

Price of water versus the quantity of water used. The graph and the above table show how the price per unit of water remains constant independently of the use. Source: CARDONE & FONSECA (2004)

In the province of Overijssel in The Netherlands, the water tariff consists in a constant rate per cubic meter of water used. In addition to this charge, consumers pay a tax for using the water pipelines: € 0,141 per m3 for the first 300 m3. Like this, all costs of operating and managing the system and water supply are recovered (see also water distribution and water purification).

 


Applicability

The uniform volumetric charge is applicable everywhere water is provided and/or wastewater is collected, and where a metering system is in place. The uniform tariff can be set at the service provider level or by national or local government. Involvement of local communities in the tariff setting process is important to identify the real local needs, the costs of providing a good quality service, and the best ways to recover the costs incurred (CARDONE & FONSECA 2004).

Advantages

  • Easy to administer, and providing a stable cash flow if set at appropriate level
  • It is easy to understand for consumers - people pay according to how much they actually use
  • Ensures cost recovery If set an appropriate level - revenues adjust automatically to changing consumption
  • Ensures economic efficiency if set at or near marginal cost of water
  • Process of tariff revision is simple
  • Ensures social equity
  • People can limit their bills by reducing consumption
  • Incorporates concept of water conservation, as the water bill increases with consumption

Disadvantages

  • Needs water metering system, which is expensive
  • Institutions that need a lot of water will have a high water bill, which may make them move to other sites with other tariffs. A nationally coherent strategy is thus necessary when applying this type of charging.

References Library

BOLAND, J.J.; WHITTINGTON, D. (2000): Water Tariff Design in Developing Countries: Disadvantages of Increasing Block Tariffs and Advantages of Uniform Price with Rebate Designs. Ottawa, ON, Canada: IDRC Research Paper. URL [Accessed: 20.07.2010].

WHITTINGTON, D. (2002): Tariffs and Subsidies in South Asia: Understanding the Basics. Washington, D.C.: Water and Sanitation Program; World Bank Institute; PPIAF. URL [Accessed: 20.07.2010].

WHITTINGTON, D. (2003): Municipal Water Pricing and Tariff Design: a Reform Agenda for South Asia. In: Water Policy 5 , 61–76. URL [Accessed: 20.07.2010].

CARDONE, R. ; FONSECA, C. (2004): Financing and Cost Recovery. (= Thematic Overview Paper 7). Delft: IRC (International Water and Sanitation Centre). URL [Accessed: 20.07.2010].

BLANC, D. le (2008): A Framework for Analyzing Tariffs and Subsidies in Water Provision to Urban Households . New York: DESA Working Paper n°63. URL [Accessed: 20.07.2010].

ROGERS, P.; SILVA, R. de; BATHIA, R. (2001): Water is an Economic Good: How to use Prices to Promote Equity, Efficiency, and Sustainability. In: Water Policy 4, 1–17. URL [Accessed: 22.04.2012].

Further Readings Library

Reference icon

BLANC, D. le (2008): A Framework for Analyzing Tariffs and Subsidies in Water Provision to Urban Households . New York: DESA Working Paper n°63. URL [Accessed: 20.07.2010].

This paper aims to present a basic conceptual framework for understanding the main practical issues and challenges relating to tariffs and subsidies in the water sector in developing countries. The paper introduces the basic economic notions relevant to the water sector; presents an analytical framework for assessing the need for and evaluating subsidies; and discusses the recent evidence on the features and performance of water tariffs and subsidies in various regions, with a special focus on Africa. The discussion is limited to the provision of drinking water to urban households in developing countries.


Reference icon

OECD (Editor) (2002): Social Issues in the Provision and Pricing of Water Services. Executive Summary.. URL [Accessed: 20.07.2010].

The main focus of the report (here: executive summary) is the affordability of water services in OECD countries, as well as the social measures currently in place aimed at resolving these affordability problems. The report also examines the potential role of the private sector in incorporating the social dimension into water pricing decisions, as well as issues related to making the transition towards higher levels of access to water services.


Reference icon

ROGERS, P.; SILVA, R. de; BATHIA, R. (2001): Water is an Economic Good: How to use Prices to Promote Equity, Efficiency, and Sustainability. In: Water Policy 4, 1–17. URL [Accessed: 22.04.2012].

This paper focuses on the role of prices in the water sector and how they can be used to promote equity, efficiency, and sustainability.


Reference icon

WHITTINGTON, D. (2006): Pricing Water and Sanitation Services. Human Development Report 2006. Human development office-occasional paper. New York: UNDP. URL [Accessed: 20.07.2010].

The purpose of this paper is to provide the reader with a better understanding of the main issues involved in the design of W&S tariffs. Keywords: Costs of W&S services, objectives of tariff design, tariff options, subsidies, development paths of W&S services.


Reference icon

WHITTINGTON, D. (2003): Municipal Water Pricing and Tariff Design: a Reform Agenda for South Asia. In: Water Policy 5 , 61–76. URL [Accessed: 20.07.2010].

This paper describes the major elements of a package of pricing and tariff reforms that are needed in the municipal water supply sector in many South Asian cities. Keywords: Increasing block tariffs; Pro-poor policies; Seasonal tariffs; Subsidies; Tariff designs; Water pricing.


Case Studies Library

Reference icon

CARDONE, R. ; FONSECA, C. (2004): Financing and Cost Recovery. (= Thematic Overview Paper 7). Delft: IRC (International Water and Sanitation Centre). URL [Accessed: 20.07.2010].

This paper provides an excellent overview on financing and cost recovery for the water supply and sanitation services sector in rural and low-income urban areas of developing countries. The document contains also case studies and mini reviews of best publications on financing and cost recovery.


Reference icon

IWA SPECIALIST GROUP STATISTICS AND ECONOMICS (Editor) (2010): International Statistics for Water Services. The Hague: International Water Association IWA. URL [Accessed: 22.04.2012].

This short leaflet presents water international statistics for water services, e.g. major cities’ water bills, abstraction sources for drinking water supplies, or a large comparison of water cycle charges.


Important Weblinks

http://www.un.org/ [Accessed: 20.07.2010]

The website of UN DESA (UN Department of Economic and Social Affaires) contains a section dedicated to water issues, including publications about water tariffs and subsidies in the provision of water services in developing countries.

http://www.unesco.org/ [Accessed: 20.07.2010]

The website of the World Water Assessment Program (WWAP) serves as a thematic entry point to the current UNESCO and UNESCO-led programmes on freshwater. It offers a review of case studies to highlight the challenges that need to be addressed in the water resources sector including water-pricing issues.