Water tariffs and service for all

By Silver Mugisha

Paying affordable and fair water prices also helps to promote efficient allocation of homestead resources

A multifaceted discourse has been raging on various platforms of the media regarding water tariffing and how it impacts the socio-economic life of citizens, especially the low income segment. I have observed strong commendations but also some areas of distortion that need ideological discussion. This opinion is aimed at contributing to knowledge about water tariffing as a concept and the status of water tariffs charged by National Water and Sewerage Corporation (NWSC).

The Concept of Water Tariffing: the traditional thinking has, invariably, alluded to water being a basic social good, God-given and a lifeline of mankind that should, if possible, be supplied free of charge to citizens.  Increasingly, this hypothesis has mutated, and rightly so, to regarding water as a socio-economic good that needs some configuration of inputs in order to be delivered as a potable product to citizens, at a convenient location. In other words, water is a social good that is basic to human life but also requires some level of funding to treat it (using chemicals, pumped systems and unit operations), transmit it (through pumping and transmission pipes) and distribute it to customers. Therefore, bringing potable water close to a homestead requires a combination of operating expenditure (OPEX) and capital expenditure (CAPEX) where the latter is predominantly a one-off sunk investment.

The question is: can this entire cost requirement be met by consumers in countries with citizenry of significant low income status? The answer is NO…..some cost has to be met by Government (assisted by development partners, sometimes). This is because, tariffing benchmarks suggest that water prices must be conserving, affordable, fair, enforceable and serviceable (CAFES). In order to comply with this criterion, water tariff must fit within the willingness to pay (WTP) – ability to pay (ATP) limits of the citizens. The quantitative benchmarks (universally accepted) of WTP and ATP are 3 percent and 5 percent of homestead income respectively. This empirical generalisation can be practically verified through a contingency survey; by asking people of various categories, how much they would be willing to pay if they got water services (of good quality) in their vicinity and save on time lost in walking long distances to fetch water (sometimes of unacceptable quality).

Status of NWSC tariffs: it should be noted that, save for annual indexation to cater for inflation and other exogenous economic factors, NWSC tariffs have never been increased since 1994. Accordingly, the prices of water per 20litre jerry can (including VAT) for the various customer categories are as follows: public stand post for low income communities (Shs32), domestic consumers (Shs50), Institutions/Government (Shs60), large industrial users (Shs58).

That means a milk factory, which sells a litre of milk at say Shs1500, will have use about Shs2 per litre of water (0.13 percent). A beer factory that sells beer at say Shs2000 per half-litre will have use Shs1.0 per half-litre of water to produce it. A low income person that takes a bottle of soda at Shs1000 (readily sold in rural shops) foregoes about 30 jerry cans of water. A child that takes a chewing gum of Shs100 foregoes three jerry cans of water.

Clearly, from this comparative analysis, one cannot say that NWSC tariffs are not affordable. The tariff structure recognises different income levels of citizens and is designed to promote national industrial development. The problem, really, relates to vendors that buy water from NWSC at a public stand post rate of Shs32 per jerry can and sell it at Shs200-500 per jerry can. This is exploitative behaviour.

Paying for water helps to serve all the people: Some elements of society have been advocating for a public policy that gives free water services to people. This theory is problematic in a number of ways. First, our country has taken strides to balance its national budget through an efficient taxation system. Asking for free water services and also pursuing a balanced national budget means that other taxes will have to increase to cater for implicit water tariff subsidies.

This set-up is further complicated by the fact that the urban water service coverage for a population of about 4.6million people is about 77 percent. It should be noted that Uganda’s population is largely rural and without piped water (albeit having other safe water point sources). Clearly, advocating for free piped water services, which means increased taxation on other services (discounting hand-outs from donors) implies that the rural poor are indirectly paying for the urban people (including the rich segment). This is not compatible with sound and efficient economic policies.

The correct strategy (which NWSC is implementing) is to differentiate the tariff so that people pay affordable prices according to their incomes levels. In so doing, services get extended to many more people through increased number of PSPs so that the profit-maximisation behaviour of the water vendors is curtailed through the law of supply and demand. Paying affordable and fair water prices also helps to promote efficient allocation of homestead resources, based on smart priorities.

Practical Steps taken by NWSC to reach a wider population:The NWSC tariff system, which is heavily based on an internal cross-subsidy arrangement, has enabled the corporation to extend its operational coverage from 23 towns as at June 2011 to a current level of 84 towns of Uganda. The number of connections per annum has also increased from 25,000 to 35,000 while the total connections have increased from 270,000 to 380,000. The corporation currently constructs over 1000km of network per annum compared the previous rate of 80km per annum. At this rate, we are committed to 100 percent service coverage by 2018.

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Silver Mugisha, PHD, is the Managing Director, NWSC