COST RECOVERY, EQUITY, AND EFFICIENCY IN WATER TARIFFS IN AFRICA Fixed and minimum consumption charges have a significant impact on the unit price paid by the small consumers. With a fixed charge, small consumers usually have to pay a higher price per unit than large consumers. This is evident in Mozambique, which imposes a minimum consumption charge up to 10 m<sup>3</sup> , has a regressive tariff structure, and whose effective tariff—at 4 m<sup>3</sup> of consumption—is very close to $1. The average price at 4 m<sup>3</sup> for utilities that impose a fixed-fee or minimum consumption charge is $0.64/m<sup>3</sup> , as opposed to $0.47/m<sup>3</sup> for those that do not. These charges comprise 100 percent of the effective price at 10 m<sup>3</sup> in all utilities in Mozambique, Tanzania (DUWASA), and Malawi (CRWB).

The size of the first block can also impact the price paid by small consumers. Generally speaking, the larger the size of the first block in an IBT structure, the higher the probability that subsidies for the low price of the first block will leak to large consumers. Out of the 45 utilities in the sample, only nine have a tariff design with a first block that rises above 10 m<sup>3</sup> (the rest have a flat or linear structure). For instance, in Kaduna and Katsina in Nigeria, households pay $0.16/m<sup>3</sup> and $0.19/m<sup>3</sup> for up to 30 m<sup>3</sup> of consumption. This effect, though important, is overwhelmed by the fixed-fee and the minimum consumption charges that can erase the positive impact of the block tariff structure on small consumers.

# Cross-subsidies between nonresidential and residential consumers

Cross-subsidization between residential and nonresidential consumers has been used to provide relief for poor consumers at the expense of nonresidential consumers. It is expected that these nonresidential consumers (which may be industrial, commercial, or governmental) should pay nearly the full price of water

**Table 8. Uganda: NWSC market structure**

|Consumer category|Share of<br>connections (%)|Share of<br>consumption<br>(%)|Share of<br>revenues<br>(%)|
|---|---|---|---|
|Public standpipes|3.2|4.7|2.1|
|Domestic|82.8|47.9|36.7|
|Institution/government|3.4|25.5|29.2|
|Industrial/commercial|10.6|21.9|32|

_Source:_ Uganda Ministry of Water and Environment, 2006.

provision. In most countries, the utility revenue is primarily generated from industrial and commercial customers, though the number of customers is relatively lower than residential consumers. For instance, in Uganda, the nondomestic consumers contribute more than 60 percent of the NWSC’s revenues while constituting less than 15 percent of the connection base (table 8).

The effective tariffs of nonresidential consumers can be compared with highend residential consumption at 100 m<sup>3</sup> . The nonresidential consumers pay more than the residential consumers to all utilities except REGIDESO, KIWASCO, WASA, LWB, Windhoek, Electrogaz Tygerberg, eThekwani, and Johannesburg. In Mozambique, the commercial consumers pay about seven to eight times more than residential consumers for 100 m<sup>3</sup> of water. The implicit subsidy is most

**Figure 13. Ratio of residential to commercial tariffs**

<!-- Start of picture text --> 22 Less than 1<br>25<br>Between 1 and 2<br>20<br>12 More than 2<br>15 10<br>10<br>5<br>0<br>Number of Utilities<br><!-- End of picture text --> _Source:_ AICD WSS Survey Database, 2007.

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