Low rates lead to under-recovery of costs: Ministry

Low and infrequently revised water and sanitation tariffs have led to the under-recovery of costs and a widening gap between the cost of production and the tariff charged, the Union Ministry of Urban Development has observed. Concerned by the absence of cost reflective tariffs in cities and the poor management of funds, the Ministry has now asked all States to carry out tariff revisions for water and sanitation services at regular intervals and in a transparent manner.

It has also asked for ensuring a pass through of cost escalation on account of inflation in the tariff on an annual basis.

In an advisory to the States on tariff structure for urban water supply and sewerage services, the Ministry has recommended that tariff for water should not only include cost of operation and maintenance, but should also cover the capital replacement cost. Noting that water and sanitation tariff plans in several cities do not even cover the essential operation and maintenance, the Ministry has said tariff revision not carried out timely has led to a widening gap between the cost of production and the tariff charged.

“The Ministry has notified that desired service level benchmark for cost recovery in water supply services as 100 per cent. A study conducted in 2008-09 revealed that on an average the cost recovery is 67.2 per cent while only 5 cities recovered full operation and maintenance (O&M) cost and 16 urban local bodies could recover less than 65 per cent of their O&M cost,” the Ministry has said.

The concept of levying user charges has been appreciated on the grounds that it helps in maintenance and upgrading the services. “Water is considered to be essential good and provided at very low rates and even free of cost,” the Ministry has put forth.

It has recommended that user charges should be constructed in a way to meet the O&M cost, debt servicing, and depreciation towards the cost of the project. “In addition, they must also generate some surplus to enable building the equity base of urban local bodies, supported, where appropriate with viability gap funding.”

The Ministry has also recommended that where services can be measured and beneficiaries identified, user charges must apply rather than taxes.

“Where beneficiaries are not easily identifiable or benefits not easily measured, the cost of services should be recouped through a surrogate tax on an appropriate base.”

The efforts made to stem non revenue water and cover the costs will help curtail wastage of treated water, the Ministry has said, pointing out that about 30-60 per cent of water supplied gets wasted and 60 per cent of all losses occur because of unmetered or faulty connections.

As for sewerage charges, the Ministry has recommended fixing up sewage tariff as 50-75 per cent of water tariff according to the water use.