COST RECOVERY, EQUITY, AND EFFICIENCY IN WATER TARIFFS IN AFRICA constitutes a major knowledge base designed to achieve a substantial improvement of data on infrastructure sectors in Africa. The AICD Water Supply and Sanitation (WSS) Survey Database, which includes indicators on institutional structure, sector performance, and tariff structures, is referred to throughout the text.

Utilities covered are (1) national in the countries where there is a single utility, and (2) regional or provincial where there are many service providers in a decentralized system. In the case of the latter, we tried to include only the three largest utilities in a given country. Except in Nigeria, which has 36 state utilities, the database represents either all or a major share of the urban service areas in the countries represented. Nine countries have a single supplier, and only four countries—Cape Verde, Chad, Madagascar, and Rwanda—have the same service provider for both water and electricity. All but six of the utilities in the database belong to countries that have experienced recent reforms in the sector. Interestingly, though private investment in WSS has been relatively limited in Africa, 30 utilities in the sample have experienced private sector participation in the past 15 years (annex A).

# 2 An overview of WSS tariffs in Africa

Water service costs include (1) an initial infrastructure and connection cost and (2) operations and maintenance (O&M) and rehabilitation costs. The first is considered fixed, and the second variable. Rehabilitation can be considered as the “enhanced maintenance” of assets that need to be replaced on a periodic basis in a well-functioning system (Kingdom and others, 2004). Production and O&M costs are typically recovered from water tariffs that, theoretically, can have either one part or two parts. One-part tariffs have either a fixed charge or a water-use charge, which may be uniformly volumetric, a block tariff (increasing or decreasing), or an increasing linear tariff. The two-part tariff generally comprises both a fixed charge and a water-use charge (Whittington and others, 2002). The consumer has no control over the fixed charges, which can be exogenously determined by pipe size, location, number of rooms, and so on. The volumetric tariff, which is based on water use, usually takes the form of an increasing block tariff (IBT). Linear tariffs and flat charges are rarely used.

## The structure of metered water tariffs

The IBT has long been a common structure in developing countries. Under it, unit prices in the lower brackets of consumption (expressed in cubic meters per month) tend to be lower than the prices in higher brackets. In theory, the IBT allows utilities to meet the goals of efficiency and equity. Lowerconsumption bands are priced at a low level (sometime even at 0), or subsidized heavily to allow lowvolume consumers to take advantage of infrastructure services. It is believed that the poor who are connected to the network have lower levels of consumption, and that by reducing prices for the lower brackets of consumption, the service is made more affordable to the poor. At the other end, high-volume consumers pay a higher price, which is expected to be closer to the long-term marginal cost (Olivier, 2006).

Many countries in Africa have adopted a two-part tariff structure, which incorporates both a fixed and a water-use charge. Two-part tariffs aim to recover both production and administrative costs (such as 2