Water pricing in water supply a case study of kukl

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a review of water pricing in water supply

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Water pricing in water supply a case study of kukl

  1. 1. 2013 Method of Water Pricing in water supply: A case study of Kathmadnu Upatyaka Khanepani Limited (KUKL), Nepal An assignment submitted for Water Resources Systems Water is a social good and it is people’s right to access to quality drinking water. But it is limited and vulnerable and it is challenge to use this resource wisely. Effective pricing in the use of water can also help to use it carefully. The pricing in the water supply is not only the charge for the use of water but also the charge for the effective management and treatment of wastewater generated from it. So the pricing of water supply should be done carefully. This assignment reviews the method of water pricing in KUKL, Nepal. Suwash Chandra Acharya Graduate student, Water Engineering and Management, AIT, Thailand 9/20/2013
  2. 2. Contents Introduction ...................................................................................................................................... 1 Water Pricing Concepts in Water Supply ........................................................................................ 1 Background : Kathmandu Upatyaka Khanepani Limited(KUKL) ....................................................... 1 Methods of water pricing .................................................................................................................. 2 Uniform rates ............................................................................................................................ 2 Declining block rates .................................................................................................................. 2 Increasing block rate .................................................................................................................. 3 Seasonal rate ............................................................................................................................. 3 Flat rate ..................................................................................................................................... 3 Comparison of various methods ................................................................................................ 3 Pricing of Water Supply by KUKL ........................................................................................................ 4 Conclusions and Recommendations .................................................................................................. 6 Conclusions ................................................................................................................................... 6 Recommendations......................................................................................................................... 6
  3. 3. Introduction Water Pricing Concepts in Water Supply A water price is the price assigned to water supplied by public utility generally for both freshwater supply and wastewater collection and treatment. Water pricing itself is an important management tool that can be used to assist to improve the delivery of water and sanitation services. The water supply utilities needs fund to run the water supply system. The cost for conveyance of water to treatment plant, and cost of treatment and further distribution of water to consumer should be managed by the utility. The water pricing is done to run the system effectively and sustainably. Water pricing is done to discourage excessive use of water, and promoting the conservation of water. For consumers, the water price should be as cheap as possible. For utilities, it should be enough to cover all running cost so that the system can be operated effectively. But from the environmental point of view, it should be as expensive as possible so that the resource is not wasted. So, fixing water price is not an easy task. To make Water supply system socially, economically and environmentally sustainable, it is essential to define an appropriate price for water. Background : Kathmandu UpatyakaKhanepani Limited(KUKL) Kathmandu UpatyakaKhanepaniLimited (KUKL) is a public company whose objective is to undertake and manage the water supply and sanitation system of the Kathmandu Valley. It aims to provide quantitative, qualitative and reliable service to its customers at an affordable price. With its central office at Tripureshowar, Kathmandu, it provides its service to Kathmandu valley. KUKL is responsible for the operation and management of water and wastewater services in the Valley. Figure 1: Water Distribution Areas of KUKL 1
  4. 4. Along with providing services to its consumers, it also collects tariff on behalf of the water supplied. But, water is a social good and is essential for human life, social justice and human right should be considered in fixing the water price. Various methods can be applied in fixing the water price as per its suitability of the method. And, this report reviews the pricing method adopted by KUKL in providing water to its consumer. Methods of water pricing There are various methods prevailing for the water pricing. The tariff to be paid by the consumer should be fixed after careful analysis of the source of water, its cost and the targeted consumer group. It should not be controversial and should be free from public criticism. The various methods that can be employed for fixing the tariff for water supply are: Utilities might consider uniform rates when Price($/cubic metre) Uniform rates Uniform water rate is expressed as constant cost per metered volumetric unit of water used in certain time.This method of pricing requires metered service and can be applied to all type of consumer (residential, commercial, or industrial). Uniform rates are relatively simple for water utilities to implement and for customer to understand. A uniform 1 rate sends customers a usage based price signal. 0.8 Although the unit price is constant, customer bill will 0.6 increase with increased water use. 0.4 0.2 0  Customer groups or service classes exhibit similarities in usage (demand) characteristics.  Simplicity and customer understanding of the Figure 2: Relation between Quantity of water and unit price in Uniform rate method rate structure are valued highly.  Rate uniformity adequately addresses efficiency and conservation concerns. Price($/cubic metre) Declining block rates Declining block rate is a rate structure in which the unit price of each succeeding block of usage is charged at a lower unit rate than previous blocks. In areas with sufficient supply of water is available, declining block rate is frequently used. Although, this method seems to be a quantity discount and favorable to large volume users of water, this method reflects the manner in which costs are incurred by the utility. 0 10 20 Quantity(cubic meters) 30 1 0.8 0.6 0.4 0.2 0 0 10 20 30 Quantity(cubic meters) Utilities may consider using a declining block rate when  System costs decline with increasing water usage. Figure 3: Relation between Quantity of water and unit price in Declining block rate method 2
  5. 5. It seems essential to encourage specific largevolume users to remain in the system. Increasing block rate Increasing block rate charges increasing volumetric rates for increasing consumption. This method, if properly designed, recovers class specific service and gives more conservation-oriented price signal to the class. Price($/cubic metre)  1 0.8 0.6 0.4 0.2 0 0 10 20 30 Quantity(cubic meters) Increasing block rates should be considered by a water Figure 4: Relation between Quantity of water and unit price in Increasing block rate method utility when the utility  Is able to distinguish separate customer class for billing.  Would like to send a stronger price signal. Seasonal rate A seasonal rate is a form of time differentiated rate or a rate that varies by time period. It establishes a higher price for water consumed during a utilities peak demand season, usually reflecting the increased costs of providing service during those periods. The objective of seasonal rate is to match the price with demand patterns and provide a price incentive for customers to reduce their consumption during peak season. Seasonal pricing can be effective in the cases where  There is significant variation in costs between high demand and low demand periods.  There is significant variation in demand between high demand and low demand periods.  A utility is capacity constrained as a result of peak period demands. Flat rate In flat rate, the charge to be paid by consumer is same irrespective of the volume consumed. This system is used when there is abundant water available and metering is not needed to give people an incentive to reduce water consumption. This is the only method that can be used in case of nonmetered water supply. The fixed charges, without considering volume use, in the long term, do not generate revenues for future service expansion and also may lead to poor service. Comparison of various methods In overall, the Figure 5 shows the comparison between price per unit volume and Total volume in different pricing systems. In the Figure 6, the price rate and system used in Figure 5 is used to show the total price for the given volume of water for the different methods. This gives how the price varies in different systems on water pricing. 3
  6. 6. Price ($/cubic meters) 1 20 0.8 15 uniform rate 0.6 10 0.2 increasing block rate 5 0.4 decreasing block rate 0 0 10 20 30 0 Quantity (cubic meters) 0 10 20 30 Figure 5:Price of water versus quantity of water in Figure 6: Monthly water bill versus quantity of water under different pricing systems different pricing methods Pricing of Water Supply by KUKL The water is supplied to consumers by Kathmandu UpatyakaKhanepani Limited (KUKL) is of both type: metered and non-metered. The charges adopted are different for the metered and nonmetered cases. The charge of water supply by KUKLalso variesupon the pipe size (inch) used. The detail of the tariff(per month) used by KUKL for metered tap is presented in the Table 1.(Conversion from US$ to NRS is taken as 1US$ = NRs. 98.80, as per 19 September 2013) Table 1: Monthly water tariff of tap with meter (source: KUKL) Pipe size (inch) Minimum Use (cum) Minimum Tariff (NRs) 0.50 0.75 1 1.5 2 3 4 10 27 56 155 320 881 1810 55 1053 2184 6045 12480 34359 70590 Minimum Tariff (US$) 0.6 10.7 22.1 61.2 126.3 347.8 714.5 Tariff for every additional m3 of water(NRs) Tariff for every additional m3 of water (US$) 17.5 39 39 39 39 39 39 0.2 0.4 0.4 0.4 0.4 0.4 0.4 The waterpricing is done by two part tariff system. The total price is sum of two calculations: (a) a fixed charge and (b) a charge related to the amount of water used. The fixed charge is relatively low in value and used for recovering the fixed administrative costs associated with meter reading and billing. If customer uses within minimum use volume, then he/she will have to pay this fixed (minimum) charge. The additional charge will incur if customer uses more than minimum value. This additional charge is based on uniform rate of 0.2 US$ per cubic meter (for 0.50 inch pipe size). This combination of pricing system encourages the customer to use minimum amount of water to reduce the overall cost. But in case of larger pipe diameters which are used by industrial sector (or any 4
  7. 7. productive sector other than household), the additional cost per cubic meter is low and equal for pipe sizes 0.75 inch to 4.0 inch. This will encourage the large water users to use water freely and the method implied is uniform rate. Similarly, for non metered taps, the tariff for monthly water use is presented in the Table 2. This data reveals that the method of pricing in non-metered taps is Flat rate method. The monthly tariff is not dependent upon the quantity of water used as it is not possible to measure the actual quantity in absence of meters. The rate is higher than corresponding pipe size in metered taps. Table 2: Monthly water tariff for non- metered tap (source: KUKL) Pipe size (inch) Monthly Tariff (NRs) Monthly Tariff (US$) 0.50 432 4.4 0.75 2535 25.7 1 5265 53.3 1.5 14508 146.8 2 29952 303.2 3 82485 834.9 4 169416 1714.7 Charge (US$) Figure 7 shows the comparison of total charge in metered and non-metered taps with increasing in quantity used. As the method adopted for non-metered tap is flat rate, the amount to be paid is constant for each quantity. But for metered 35 tap, the minimum price for some volume is 30 fixed. So, after that, increasing in volume 25 used will increase the total price of water. If lesser volume is used, the price is low for 20 metered tap. But for higher volume, the 15 cost for non-metered taps will be low. 10 5 For example, for 0.5inch pipe, if 29 cubic 0 meters of water is used then the price for 0 20 40 60 80 100 metered tap and non-metered taps are equal. For the volume greater than this, Total volume of water used (cubic meter) non-metered taps seems to be cheaper. This Pipe dia 0.5"- metered Pipe dia 0.5"- unmetered will increase water use by non-metered users and will not use water efficiently. And, Pipe dia 0.75"- metered Pipe dia 0.75"- unmetered in the same area, if there are metered and non-metered taps, the people using non- Figure 7: Comparison of charge for total volume of water used in metered and non-metered taps metered tap will sell water to the metered one in cheaper price. This will further encourage not to preserve the water. 5
  8. 8. Conclusions and Recommendations Conclusions The water pricing methods adopted in distribution of drinking water in Kathmandu Valley by KUKL are two types: Flat rate method and combination of two pricing system. The former is used for nonmetered tap as it is the only method that can be applied for non metered taps. The later is combination of fixed minimum value and uniform rate. Although this is better one but fails to control water to large water users due to low and uniform rate. Recommendations There is huge difference in supply and demand of drinking water in Kathmandu Valley. So, it is essential to adopt some methods that can reduce unwanted use of water and reduce the deficit between demand and supply. The combination of pricing system should be done for the efficient use of water. At the time of deficit, the method adopted should be conservation oriented. The seasonal rate can be used in addition to increasing block rate so as to conserve water. The increasing block rate method is difficult in the sense that if it is poorly designed, will be inequitable. Also, the increasing block rate method is difficult in implementation regarding communication with customers and make them understand about the pricing system. Despite these difficulties, the deficit in water supply is the major issue to be solved by KUKL in present situation. So, the seasonal rate method coupled with increasing block rate is suitable method for the water pricing in Kathmandu Valley. References 1. Principles of water rates, fees and charges, By American Water Works Association 2. http://www.sswm.info/category/implementation-tools/water-use/software/economic-tools 3. http://www.kathmanduwater.org/home/index.php 4. Water tariffs and subsidies in South Asia, Series Editor: Clarissa Brocklehurst, December 2002 6

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