In general, there is a strong relationship between cost recovery and the income level of the country. Overall, the correlation coefficient between water tariffs and per capita GDP stands at 0.39. Average tariffs rise from around US$0.10 per cubic meter in low-income countries, to US$0.30 per cubic meter in middle-income countries and US$1.00 per cubic meter in high-income countries. The percentage of utilities whose tariffs make some significant contribution to covering capital costs rises correspondingly from less than 5% in low-income countries to around 30% in middle-income countries, and 50% in highincome countries. In this context, it is striking that the performance of Latin America is substantially better than that of the group of upper-middle-income countries as a whole.

**<u>Table 3: Overview of average residential water tariffs</u>**

||Mean<br>(US$/m<sup>3</sup>)|Median<br>(US$/m<sup>3</sup>)|Standard<br>deviation<br>(US$/m<sup>3</sup>)|Range<br>(US$/<br>Min|<br>m<sup>3</sup>)<br>Max|Inter-q<br>range<br>(US$/<br>Min|uartile<br> <br>m<sup>3</sup>)<br>Max|Degr<br>cost r<br>(%)<br>Nil|ee of<br>ecovery<br>Partial<br>O&M|<br>Partial<br>capital|
|---|---|---|---|---|---|---|---|---|---|---|
|**Global**|0.53|0.35|0.50|0.00|1.97|0.13|0.85|39|30|30|
|**By income**|||||||||||
|HIC|1.00|0.96|0.45|0.00|1.97|0.60|1.37|8|42|50|
|UMIC|0.34|0.35|0.24|0.03|0.81|0.15|0.57|39|22|39|
|LMIC|0.31|0.22|0.19|0.04|0.85|0.19|0.39|37|41|22|
|LIC|0.11|0.09|0.09|0.01|0.45|0.05|0.16|89|9|3|
|**By region**|||||||||||
|OECD|1.04|1.00|0.45|0.00|1.97|0.70|1.37|6|43|51|
|LAC|0.41|0.39|0.19|0.12|0.81|0.22|0.54|13|39|48|
|MENA|0.37|0.15|0.39|0.03|1.17|0.03|0.60|58|25|17|
|EAP|0.25|0.20|0.13|0.04|0.53|0.18|0.30|53|32|16|
|ECA|0.13|0.16|0.07|0.01|0.20|0.08|0.17|100|0|0|
|SAS|0.09|0.06|0.05|0.02|0.22|0.05|0.12|100|0|0|

Sources: ADB, 2001; ADERASA, 2003; GWI, 2004; NIUA, 1999 Notes: Average tariffs are based on residential consumption of 15 cubic meters Data drawn from utilities serving 132 major cities worldwide, broken down as follows: OECD (47), SAS (24), LAC (23), EAP (19), MENA(12), ECA(6).

In summary, water tariffs in Latin America’s larger water utilities have not risen substantially on average over the period 1997/03, although some individual operators have made substantial efforts to increase prices towards cost recovery levels. As a result, the percentage of water utilities whose tariffs make a significant contribution to capital costs has declined slightly. However, at the other end of the spectrum, all of the utilities considered had managed to reach tariff levels commensurate with the recovery of operation and maintenance expenditures. As things currently stand, Latin America has the highest water tariffs of any developing region. At US$0.41 per cubic meter they are still only 40% of those applied in OECD countries; however given the higher cost levels faced by industrialized countries the percentage of utilities whose tariffs make a substantial contribution to capital costs is not so dissimilar. Finally, it is important to recall that the results presented here over-state the true extent of cost recovery to the extent that they are based on data from utilities serving major cities that tend to also be the ones charging the highest prices.

8