8.5.5 Setting and Appropriate and Equitable Tariff Structure

Categories: 8.5 Cost Recovery
Time of issue: 2022-04-28 11:01:03
Views: 0

Description:

Information

Tariffs are used primarily to recover costs and achieve financial sustainability, but also for efficient allocation of scarce sector resources, equitable distribution of income and benefits, and fiscal viability. Tariffs for sanitation services should be set taking into account the socio-economic situation of the community, the ownership of assets, responsibility for operation and maintenance, the level of service, and the willingness and ability to pay. Other factors may also be relevant. There could be merit in a special tariff setting process that would lead to different tariffs being applied for different income brackets and users in the community. Such a scheme requires that categories of users are readily identifiable and that the tariffs can be applied effectively. Some tariff structures impose higher fees for volumes of water above a basic amount. This also encourages conservation.

Setting up a tariff should be done with and by the community, as it will allow the community to bear full responsibility for applying the decisions made, and it will be better accepted since the community knows why this tariff was fixed as it is. However, this process may require technical support from county or municipal agencies.

Tariff design should consider several factors, including equity, demand for services, agreements on the costs to be recovered, deciding who will manage the tariffs, gender considerations, and possibly user or sector classifications. Once these factors have been addressed, hopefully a realistic and community supported tariff can be put in place.

Equity. Designing a tariff requires that equity be considered in conjunction with the affordability of the service, so that all members in the village (rich/poor, men/women) will have access to improved sanitation. O&M costs can only be recovered from users if they are both able and willing to pay for the services.

Demand for the services. Tariffs for improved sanitation can be designed to regulate demand for the improved services, based on the assumption that consumers behave rationally and are aware of and value the benefits realized by the improved services. It should be possible to make the case that ultimately the tariffs are cost saving for the public, because of the improved public and environmental health.

Agreements on costs to be recovered. While setting up a tariff, it is important for the entity that is listing the costs requiring recovery to present to the community all of the costs and the methods used to derive them. This transparency will avoid confusion and curtail future disputes once the village has adopted the fees.

Who manages the tariff? It is also important for the village committee to specify to whom the tariff will be paid and how it will be managed and used. This process will require the tariff ‘manager’ to set up organized and clear accounting systems that can be reviewed at least annually to avoid potential conflicts and maintain trust in the community. It is also important that the community agrees with the selection of the tariff ‘manager’. Provisions should be adopted so that the tariff ‘manager’ provides financial reports to the village committee and community as a whole on a regular basis, such as annually.

User classification. User class designations will depend on the complexity of the service provided and on any special administrative, legal or tiered tariff structure. A village committee may need to set up different tariffs if there are different types of users in a village, including residential, commercial, institutional, government, and industrial users. For example, these may include: small restaurants or hotels, schools, community centers, government buildings, small industries, and other users that may have a higher use or demand on the sanitation system than a single household. In these cases a tiered or block system tariff may be appropriate to apply tariffs in proportion to the actual flow or load discharged to a system.