_Designing Pro-poor Water and Sewer Concessions_ _Kristin Komives_ Under SAMAPA, tariffs were never set to achieve full cost recovery. SAMAPA's governing board, with the complacence of the national tariff setting body, kept tariffs low, and the utility depended on central government subsidies. In response to financial hard times in the late 1980s, the national government began pressuring utilities to increase tariffs and reduce their dependence on subsidies. After repeated increases, SAMAPA's 1990 tariff still only allowed the utility to finance 25 percent of its investment costs out of its own revenues.<sup>5 5</sup> World Bank pressure to raise tariffs induced the government to make additional small tariff increases in the 1990s. The government's desire to obtain a loan from the IDB and to involve the private sector in the operation and expansion of the La Paz/El Alto water system finally provided the motivation for a major tariff revision in late 1996. CONATA - the national tariff board - approved this new tariff in December 1996, but SAMAPA did not apply the tariff until July 1997, less than one month before Aguas del Illimani took over operation of the water and sewer systems.

Table 4: Tariff structure for Aguas del Illimani (varies by user category and monthly water consumption)

|**Tariff**<br>**US$/cubic meter**<sup>**56**</sup>|**Domestic**<sup>**57**</sup>|**Commercial**|**Industrial**|
|---|---|---|---|
|1.1862|301m<sup>3 </sup>and above|21m<sup>3 </sup>and above|1m<sup>3 </sup>and above|
|0.6642|151<br>to 300m<sup>3</sup>|Ito20m<sup>3</sup>||
|0.4428|31 to 150m<sup>3</sup>|||
|0.2214|1 to 30m<br>3|||

This new tariff was designed with cost recovery in mind;<sup>58</sup> Aguas del Illimani will not receive any direct subsidies from the government. The concession contract provides for automatic renegotiation of the tariffs once every five years. The procedure for calculating the new tariff is based on the company's projected costs and on the cost of the expansion plan for the next five years. The contract also provides for extraordinary tariff revisions after the first two years of the contract if the concessionaire's costs go up more than 7 percent for any one of several reasons (expansion into _area no servida,_ change in tax code, etc.). Thus, in principle, the contract is designed to ensure that Aguas del Illimani always achieves total cost recovery.

On the other hand, public opinion may constrain Aguas del Illimani's ability to take full advantage of the contract's tariff revision procedures. The private operator met with much

> _55_ World Bank, November 6, 1990, _Bolivia: Major Cities Water and Sewerage Rehabilitation Project,_ World Bank Staff Appraisal Report, The World Bank: Washington, D.C.

> 56 The tariff, like all public utility tariffs in Bolivia, is indexed to the US dollar.

> 57 Ninety-nine percent of all domestic consumers use less than 150 cubic meters of water per month, so in practice very few consumers ever pay the same unit cost as the commercial and industrial users.

> 58 Whether the current tariff succeeds in covering costs, however, will be difficult to determine until the five-year tariff revision period. There is some evidence that cross-subsidy tariffs fail to achieve cost recovery if they do not take into account the price elasticity of demand of industrial and commercial users; when industrial and commercial customers fail to consume as much water as expected, they do not generate enough extra revenue to subsidize the domestic users. Guillermo Yepes, 1998, _"Do Cross-Subsidies Help the Poor Benefitfrom Water and Wastewater Services?"_ TWU Infrastructure Note, The World Bank: Washington, D.C.

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