Innovations in retail water services tariffs

Abstract

An estimated 60 to 80% of water-supply costs incurred by South African municipalities are fixed, and do not decline as the volume of water sales decreases, but many municipalities still rely heavily on volumetric charges for revenue. This means that the structure of water tariffs is not aligned with the structure of expenditures incurred in providing water, leading to potential negative impacts on financial sustainability if water consumption patterns change. One solution to this is to include a fixed charge in the water tariff. This is a fixed amount that does not vary with volume of water consumption and therefore mimics the structure of expenditures and provides revenue stability in times of changing consumption. Fixed charges, however, can be regressive: they place a greater burden on poor households than they do on wealthy ones. This places water service providers in a difficult position, needing to balance revenue stability with affordability to their customers.

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