COST RECOVERY, EQUITY, AND EFFICIENCY IN WATER TARIFFS IN AFRICA higher levels of consumption. An IBT structure would closely match the increasing marginal cost curve that rises with higher consumption. The price at the highest block is sufficiently high enough to meet the capital and O&M cost threshold in about 15 African water utilities. The nonresidential tariffs are usually set higher than residential tariffs, and the block structure is designed to recuperate the investment costs at least at the highest block. In some countries—particularly, in South Africa, Namibia, and across some utilities in Nigeria—the highest tariff block is substantially higher that the investment cost threshold, suggesting a negative impact on the cost structure of such commercial and industrial entities. These enterprises, in an attempt to control infrastructure input costs, would be better off with self-supply.

In summary, relatively high levels of metering and tariffs in Africa suggest that consumers are sent efficient price signals on water use. On the other hand, the use of fixed costs by some utilities can lead to inefficient resource use. But the necessity of water demand management is relatively less important in Africa. Most consumers in Africa survive on almost subsistence quantities of water. The situation in Africa is exactly opposite to that in South Asia, with its low levels of metering and tariffs, which send consumers distorted signals on the value of water.

# 5 Are tariffs equitable?

Threshold consumption levels can be used to compare tariff structures across countries in Africa. Though consumption varies across households in different countries, the tariff levels at these approximate estimates can be computed to understand how small, medium, and large consumers compare with respect to payment for water. The World Health Organization (WHO) has set a per capita consumption of 25 liters/day as minimum consumption for survival. The average and maximum consumption is derived from a recent survey by the Water Utility Partnership (WUP) in 2002. The consumption levels for a family of five can range from 4 m<sup>3</sup> /month at the subsistence end, to 40 m<sup>3</sup> /month at the high end; 10 m<sup>3</sup> /month can be considered average consumption. These three consumption levels will be used to compare effective tariffs and the degree of cross-subsidization among different categories of consumers.

**Table 6. Categories of residential consumers**

|Household consumption|Liters/capita/day|Household size|Approx. m<br>3/month|
|---|---|---|---|
|Minimum/small|25|5|4|
|Average/medium|60|5|10|
|Maximum/large|250|5|40|

_Source:_ WHO; SPBnet (WUP), 2002.

The tariff at a consumption of 10 m<sup>3</sup> is about $0.49/m<sup>3</sup> in Sub-Saharan Africa (table 7), and the median at this level is $0.38/m<sup>3</sup> . ELECTRA in Cape Verde is clearly an outlier, with tariffs amounting to above $3 for a consumption level of 10 m<sup>3</sup> . This is due to desalination, which raises the production cost of water. If Cape Verde is excluded, the average tariff is $0.43/m<sup>3</sup> . The tariff levels in Africa are comparable to the average in LAC, which at $0.41/m<sup>3</sup> at an average consumption of 15 m<sup>3</sup> is considered higher than other regions in the world, such as East Asia, Eastern Europe, and the Middle East. South Asian water tariffs are the lowest in the world, with an observed average tariff of only $0.09/m<sup>3</sup> . The average 14