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Tariff structures

The criteria for fixing the structure of tariffs are as follows:

(1) The financial yield should enable the provider to cover the full costs of operating and maintaining water supply (and wastewater) services and meet capital costs where possible.

(2) The tariff should reflect the cost of supplying each unit of water to the consumer, so that costs and benefits of the water can be equalised at the margin to ensure an ‘efficient’ allocation of resources. The tariff should also signal the relative costs of providing water to different classes of consumer, at different times and in different locations, so that uses with less social importance are charged at higher levels than those with more.

(3) The tariff system should be seen to be ‘fair’. It must bear some relationship to ability to pay – poor consumers should receive special consideration. But fairness also implies some link between payments and the amount of water consumed.

(4) It is in the public interest that every urban household should use enough water for personal hygiene, food washing and preparation, and for toilets. Thus there are important public health reasons to ensure that services are used and the tariff should not discourage this consumption. However, nor should it encourage waste.

(5) The tariff should attempt to internalise the environmental costs entailed in water supply, treatment and disposal.

(6) The charging system should be easy for the customer to understand and for the authorities to defend. It should not impose heavy administrative costs nor keep changing. This criterion is likely to run counter to some of the others listed above.

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