Rationalization of User Charges in urban water supply

Rationalization of user charges in urban water supply refers to the process of adjusting the charges levied on users for the provision of water supply services in a city or town, in a manner that is fair, reasonable and sustainable. This process involves assessing the costs incurred by the service provider, which includes the cost of water treatment, distribution, maintenance, and other related expenses, and then determining the appropriate charges to be levied on users to cover these costs.

The objective of rationalization of user charges is to ensure that the cost of water supply services is shared equitably among all users, and that the charges levied are based on the actual cost of service provision. This helps in promoting efficient use of water resources, reducing wastage, and ensuring sustainable and reliable water supply services for all.

The tariff structures used in urban water supply also vary across states like the institutions involved in its provision. A ‘tariff structure’ is a set of procedural rules used to determine the conditions of service and monthly bills for water users in various classes or categories. The water charged could be in form of non volumetric flat rate tariff, non volumetric water tax, uniform metered tariff, metered block tariffs or a combination of above.

Non volumetric flat rate is usually charged in absence of metering wherein the monthly water bills are independent of water consumed. Flat rate could be charged either on the basis of size of the ferrule or could be set by the concerned authority on its own judgment. As per a study conducted by NIUA in 1999 in 260 class I and II cities in the country, ferrule based flat rate were charged in certain metropolitan cities and it varied from Rs.120 (Surat) to Rs.750 (Pune) per year for a 1/2″ domestic connection and the average payment for 1/2″ ferrule size was approximately Rs.296 per annum (NIUA.2005). Non ferrule based flat rate varied from Rs. 240 (Madurai) to Rs. 1680 (Hyderabad) per year with the average charge worked out to approximately Rs.668 per year.

The challenge in water supply pricing.

1. the institutions responsible for the provision of such services do not receive enough revenues to improve and maintain them adequately, resulting in poor service for those served and reduced incentives to extend water to additional population.
2. cheaper services encourage those with easy access to use them excessively.
3. Such policies adversely affect distribution, as low–income and poor households pay a higher price than other higher income households.

The process of rationalization of user charges in urban water supply may involve the introduction of metering systems, tariff structures that incentivize efficient use of water, and differential pricing based on the type of user or level of consumption. It may also involve the use of subsidies to ensure that the charges remain affordable for low-income households, while recovering the full cost of service provision from high-income households and commercial users.

Rationalization of User Charges

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FD Planning Community Forum Discussion

• State Finance Commissions and Rural Local Bodies Devolution of Resources
• Interview with B K Sinha – The Municipal midas
• Municipal bond in India
• Bilateral and Multi-lateral Financial Institutions
• Cost recovery
• Investment needs and Budgeting for Infrastructure and Service in Metro towns
• Subsidy Reduction
• Revenue Sources of Controlling Authorities
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