1. WATER TARIFFS: Balancing social and economic objective. Eng. PETER NJAGGAH WASREB, Kenya Waspa Annual Conference 8-9 th September 2011

2.  Financial Sustainability of WSPs  Barriers to Financial sustainability  Response to the Barriers  Why a Water Tariff ?  Tariff design and guidelines.  Tariff Implementation and Monitoring.  Conclusion. Contents

3. Financial Sustainability  Ability of a Utility to sustainably cover its O&M, Depreciation, and investments costs using  Tariffs - internally generated resources  Taxes – Externa; sources  Transfers- external sources.

4. 63% of WSPs within Very Large & Large Category achieve over 100% O&M cost recovery. Only 25% of Small WSPs fulfill the criteria for O&M cost recovery  This firmly establishes the case for clustering for commercial viability Viability of WSPs 0 20 40 60 80 63 55 25 Percentage of Viable WSPs(>100%) O&M cost recovery Very Large and Large Over 10,000 connections Medium 5000-9999 Small <5000

5. Biggest Barriers for Financial Sustainability –Operational inefficiency Barriers : Large inefficient work force with conflicting roles,High UFW, Poor Customer Care, Low Collection Efficiency etc –Management barriers: lack of business like culture, Poor Governance, poor leadership, poor organizational culture –Tariff Structure Barriers; eg. connection fees? –Lack of full cost Recovery Tariffs –Low economies of Scale.

6. RESPONSE TO THE BARRIERS FOR FINANCIAL SUSTAINABILITY. 6 Policy Level - change in Board & Management Operational Level –Long term Plans: Corporate Plan and Performance Contracts with Government. –Short – Term Strategies - Short Tactical turnaround programmes: eg 100 Days RRI.

7. RESPONSE TO IMPROVING THE OPERATING MARGIN. 7 Cost Containment–  Staff rightsizing:  Optimization of Administrative, Medical, and Vehicle Maintenance costs.  Strict Appraisal of Capital projects. Revenue Maximization. Improved customer care and interface with customers: customer call centers, e- water payment system, prepaid water systems. Amnesty for illegal users Market size increase. Operational Improvements Reduction in NRW.

8. RESPONSE TO MANAGEMENT BARRIERS – BUILDING AN EFFICIENT ORGANIZATION 8  Customer focus & stakeholder engagement  Organisational culture change.  Adopting private sector like management principles of commercialization and use of Incentives & competition to drive performance  Developed MIS - improved communication, operations and feedback systems  Increased accountability and effective monitoring systems  Capacity building of staff.  Networking and benchmarking with peers for best practices.

9. RESPONSE TO TARIFF STRUCTURE BARRIERS 9 Tariff reforms –  Protected Tariff through an Annual Indexation: Tariff adjustment to ensure real value of Tariff maintained (indexation etc). This improved financial sustainability. Easing access through review of one off connection and reconnection costs. Rebalancing to ensure Different customer categories pay an economic price. Eliminated Minimum charges

10. RESPONSE TO LOW ECONOMIES OF SCALE. 10 Growth in Customer Base  Review of connection charges.  Network expansion. Economies of Scope  Provision of Consultancy Services?.  Production of Mineral Water?

11. Water tarriff : a contraversial Topic?

12. Why Water Tariff? Important economic instrument for:  improving water use efficiency,  enhancing social equity  securing financial sustainability of WSPs.

13. 13 Basic balance: Sustainability Levels of service Quantity, Quality IncomeInfrastructure TariffsO&M SubsidyCapital

14. Water tariffs design(1).

15. Tariff Guidelines- Objectives These Guidelines: set out the methodology the Regulatory Board will use in reviewing, approving tariffs and making tariff adjustments over time, and set out the requirements and procedures that the WSBs and WSPs must follow for tariff adjustment.

16. Tariffs- Types Wasreb recognizes that WSPs differ by category and size, and has developed different requirements accordingly.  Type 1: Full coverage of Operations and Maintenance costs is still not achieved.  Type 2: Full coverage of Operations and Maintenance cost achieved, but repayment of debts is pending.  Type 3: O&M costs are covered between 100% and 150% and repayment of debts is achieved or ongoing.

17. Tariff Implementation  The WSP shall give Customers two months notice prior to a tariff increase.  The WSP shall ensure that the documentation of the current tariff is available to all Customers during business hours.

18. Tariff Monitoring.  In case the WSP has overcharged customers, it shall correct the tariff in the next billing cycle and issue a refund for the amount overcharged to each customer affected.  The WSP must also publish an apology to consumers in newspapers, and post copies on public notice boards and kiosks.  The Regulatory Board reserves the right to bring the WSB and WSP to court for charging excess tariff, and may revoke the SPA.

19. Profile of Water Tariff in Kenya Bigger WSPs tend to have lower tariff due to:  Lower operational costs.  Large customer base leading to cross subsidy, hence ability to address needs of the poor(lower block tariffs) without compromising their commercial viability. Tariffs 0 20 40 60 80 100 120 140 Very Large and Large MediumSmall 78 111 129 40 64 83 Average Tariff and Lowest Block Tariff per WSP Category Average Tariff Lowest Block tariff

20. CONCLUSION-  Cost Reflective Tariff is a Prerequisite for:  Financial Sustainability of a WSP leading to improved and efficient service delivery.  Making access to drinking water affordable for different income groups.- tariffs should not be too high to drive consumers to unsafe alternatives.  Sending appropriate price signals to users about the relationship between water use and water scarcity ;  Powerfull tool in sustaining gains in the provision of quality water and sanitation services.

21. “Be the change you want to see in the World” Mahatma Gandhi THANK YOU FOR YOUR ATTENTION 21