Strategic Moves - Regional Environmental Center for Central and ...

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C H A P T E R 6
WAT E R A N D WA S T E U T I L I T I E S I N S E E — S TAT U S A N D R E F O R M
S T R AT E G I C M O V E S
Other considerations
in water and waste utility reform
Affordability
The affordability of water and waste tariffs (that is, the upper limit that can
be charged for services) refers mainly to affordability on the part of households,
enterprises and public institutions. Affordability thus implies that the amount
spent by households for services should not be a major part of the household income
— that is, it should by no means lead to households having to cut down
on basic necessities such as food or heating. The World Bank envisages the establishment
of an upper limit for household charges for water and waste management
services at 4 percent and between 0.7 and 1.5 percent of household
disposable income respectively. When designing a tariff policy, it is therefore
essential to carry out an analysis in order to obtain an overview of the average
household income, as well as the composition and distribution of that income,
based on which a decision can be made as to whether there is a problem of affordability
that needs to be addressed.
It is also important for project developers to recognise when affordability limits
will constrain the scale of a proposed capital investment. If adequate tariffs cannot
be imposed on the users of infrastructure, to cover at least the cost of operation
and maintenance, then project proponents (and the experts who prepare the investments)
may need to consider alternative solutions. This is a complex issue for
local governments and often leads to delays.
Willingness to pay
Willingness to pay refers to the “expected” charge that service users are ready to
pay for a given service, or for a given change in service level. The term describes
beneficiaries’ perceptions and preferences correlated to the level, quality and price
of the service, or changes to them. In assessing the potential effect of a tariff increase
subsequent to investments and service improvements, willingness to pay by
and large reflects the likely level of increase in payments that will not cause concern
to users or affect their readiness to pay for the improved service.
Willingness to pay for waste management services is influenced by a considerable
number of factors:
• current service level (scope) and quality;
• history of changes, in particular to service quality, and past tariff increases;
• fairness of charges;
• affordability of tariffs;
• transparency in tariff setting (i.e. public involvement in the decision-making
process);
• confidence in the service provider (public or private);