COST RECOVERY, EQUITY, AND EFFICIENCY IN WATER TARIFFS IN AFRICA 17 have average tariffs (calculated at 10 m<sup>3</sup> ) higher than $0.40/m<sup>3</sup> , and only four utilities have a tariff more than $0.80/m<sup>3</sup> , which is high enough to cover O&M and partial capital cost. These four utilities that enforce a tariff of more than $1 are in South Africa, Namibia, and Cape Verde—all MICs. Cost recovery is much more evident in nonresidential tariffs. About 20 utilities enforce a commercial tariff of more than $0.8/m<sup>3</sup> in the first block. About 95 percent of the utilities charge a price of more than the O&M costrecovery threshold of $0.4/m<sup>3</sup> , at an average commercial consumption level of 100 m<sup>3</sup> (table 5).

**Table 5. GWI cost-recovery thresholds**

|Threshold|African utilities|% of utilities achieving the<br>threshold<br>(average residential<br>consumption = 10 m<br>3)|% of utilities achieving the<br>threshold<br>(average commercial<br>consumption = 100 m<br>3)|
|---|---|---|---|
|<US$0.20/ m3|Tariff_insufficient_to cover basic<br>operating and maintenance costs|16|3|
|US$0.20–0.40/ m3|Tariff_sufficient_to cover operating and<br>some maintenance costs|49|3|
|US$0.40–1.00/ m3|Tariff_sufficient_to cover operating,<br>maintenance, and most investment<br>needs|27|24|
|>US$1.00/ m3|Tariff_sufficient_to cover operating,<br>maintenance, and most investment<br>needs in the face of extreme supply<br>shortages|9|71|

_Source:_ GWI, 2004; Foster and Yepes, 2006; Kingdom and others, 2006; AICD WSS Survey Database, 2007.

More utilities are able to cover costs at extremely low or extremely high levels of consumption than at average levels. Though the capital cost figures vary based on the assumed consumption levels, it is still useful to compare cost recovery across different consumption blocks (figure 6). The degree of cost recovery decreases from 58 percent at 4 m<sup>3</sup> , to 38 percent at 10 m<sup>3</sup> , and rises to 64 percent at 40 m<sup>3</sup> . At even a higher consumption of 50 m<sup>3</sup> per month, 12 utilities cover O&M and partial capital costs compared to 10 utilities at 40 m<sup>3</sup> . It is clear that households at the low and high ends of consumption are contributing more to cost recovery than the average consumer (annex H).

Many utilities do not meet their investment cost threshold levels even at the highest block prices. The expectation of an IBT is that the prices at higher blocks will reflect the marginal cost of water provision. Not surprisingly, the highest block tariff is more successful in meeting the O&M cost than the capital cost in many utilities. Only nine utilities are unable to meet O&M expenses, while the same is true for capital cost of 30 utilities. All seven utilities represented from South Africa and Namibia realize investment costs at the highest block tariff levels; other utilities that achieve this are in Cape Verde, Benin, Niger, Rwanda, Senegal, Burkina Faso, Lesotho, and Cote d’Ivoire.

In sum, the experience of recovering WSS operating costs in Africa is positive, with many utilities setting tariffs at levels high enough to recoup O&M costs. The performance of African utilities is superior to that found elsewhere in the world. For instance, in Latin America and the Caribbean (LAC), which has the best record among developing countries, the degree of partial O&M cost recovery is only 38 percent (Foster and Yepes, 2005). In Africa, the tariff structures are designed in a way more conducive to meeting O&M costs at the high or low ends of consumption. At the highest block levels, 80 percent of the utilities are able to regain operating costs.

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