[FDArchitects]

Cost recovery 


A simple definition of cost recovery for water services might read: to recover all of the costs associated with a water system, programme or service to ensure long-term sustainability
Which costs are we talking about?

•        Financial costs (operating costs, capital costs, cost of servicing capital);
•        Economic costs/benefits (lost value of water for other uses, gains from productive use,pollution created or alleviated, ..);
•        Support costs (institution building, HRD, information systems, monitoring and assessment, regulation, planning and strategy development).

How are costs recovered?

•        Tariffs (fixed or variable);
•        Subsidies (direct, cross subsidies, output-based subsidies);
•        Overseas development assistance;
•        Micro-credit;
•        Social development funds
•        Community funds.

There are five key steps to be followed in developing, setting and implementing user fees and cost recovery systems for urban services projects :

1.       Determining the economic, policy, and institutional context in the country, with respect to water and sanitation services;
2.       Setting cost recovery and service objectives;
3.       Undertaking investment planning, costing and appraisal, to determine costs to be recovered and overall revenue requirements;
4.       Determining the basis for charging user fees; and
5.       Implementation of user fees and cost recovery system.