COST RECOVERY, EQUITY, AND EFFICIENCY IN WATER TARIFFS IN AFRICA

**Figure 15. Comparison of formal and informal standpost and small-volume piped consumer prices**

<!-- Start of picture text --> 60%<br>50%<br>40%<br>30%<br>20%<br>10%<br>0%<br>Ratio of Unofficial to official price Ratio of Official Piped Water Price at 4m3 to Official Standpost Price<br>< 1 >1 and <2 >2 and <5 >5<br>% of Utilities<br><!-- End of picture text --> _Source:_ AICD WSS Survey Database, 2007. _Note_ : The DRC is not included in the graph because the formal standpost price is almost negligible.

The average price at standposts is $0.63/m<sup>3</sup> . Windhoek and GWCL are the only utilities with a standpost charge of more than $1. At the other end are standpost consumers in Kinshasa, Addis Ababa, Antananarivo, and Lusaka, who pay less than $0.20/m<sup>3</sup> for water. Comparing the standpost consumers with low-volume piped consumers presents interesting results. In about half the utilities, the standpost consumers are paying more. For the rest, the evidence suggests that piped consumers are crosssubsidizing the standpost consumers at the same level of consumption. The consequence would be severely inequitable if the standpost and average piped consumers are in similar income strata.

The formal tariff may not, however, be what consumers really pay. Operators and middleman come between the utility and consumers. The result is a highly dynamic market where informal or retail prices are much higher than the formal or official standpost tariffs. Except in Ouagadougou in Burkina Faso, where the informal and formal prices are roughly similar, the informal prices are higher by several degrees of magnitude compared to the formal price. For half the utilities, the informal standpost price is between two and five times the formal standpost price. This is true of dense periurban areas with piped water shortage who have a significant dependence on the standposts. For instance, in Kinshasa in DRC, the informal standpost price is about $1, while the formal standpost price is almost negligible. Similar is the case in Antananarivo, Lusaka, and Cotonou, where the informal prices are more than five times higher than formal tariffs. In Accra, for instance, the informal and formal standpost prices are $5 and $3, respectively, while low-volume piped consumers pay $0.52/m<sup>3</sup> (annex I).

A few conclusions on the equity of tariff structures emerge from this analysis. First, the subsidy to the low block under the current IBT structure is not exclusively received by small consumers (usually the poor); instead, a large amount of the subsidy leaks to large consumers. Second, because of the fixed and minimum consumption charges and the large size of the low blocks, small consumers often end up paying higher effective prices per unit than large consumers. Third, the connection cost is high for many utilities compared to GNI per capita, indicating significant affordability problems for expanding networks into unserved areas. Fourth, the retail standpost price is higher than the utility-imposed price, resulting in high rent-seeking behavior on the part of operators. Fifth, the nonresidential tariffs are typically higher than 23