interim report on cost recovery and tariff practices for urban … · 2016. 7. 19. · interim...

Cost Recovery and Tariff Practices for UWSS Sector in India

Pune 1

Interim Report

on

Cost Recovery and Tariff Practices for Urban Water Supply and Sanitation

in India

Pune Case Study

Prepared for

Water and Sanitation Program – South Asia

June 2008

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Pune 2

PUNE Table of Contents

1 Context and Background ................................................................................................ 3

2 City Profile ...................................................................................................................... 3

2.1 Physical Environment and Topography ................................................................... 3

2.2 Demography ........................................................................................................... 3

2.3 Socio-Economic Profile ........................................................................................... 4

3 Institutional Framework for Water Supply and Sewerage Services ................................. 4

3.1 Water Supply and Sewerage Department ............................................................... 5

4 Existing Infrastructure and Services ............................................................................... 6

4.1 Water Supply .......................................................................................................... 6

4.2 Sewerage ............................................................................................................... 6

4.3 Key issues in Service Provision .............................................................................. 7

5 Water Supply and Sewerage Finances ........................................................................... 8

5.1 Cost recovery: current performance ...................................................................... 10

5.2 Tariff Structure ...................................................................................................... 13

5.3 Consumer Profile .................................................................................................. 14

6 Analysis ........................................................................................................................ 16

6.1 Cost Recovery ...................................................................................................... 16

6.2 Economic Efficiency .............................................................................................. 17

6.3 Equity and Protection of Vulnerable Sections ........................................................ 17

6.4 Affordability ........................................................................................................... 17

6.5 Resource Conservation ........................................................................................ 17

6.6 Acceptability and Practicality ................................................................................. 17

7 Summary ...................................................................................................................... 18

7.1 Recommendations ................................................................................................ 18


Pune 3

PUNE

1 Context and Background In order to access funds for water supply and sanitation improvements under JNNURM, municipal service providers are required to levy ‘reasonable user charges’ so that operation and maintenance costs are recovered within seven years. The Ministry of Urban Development, with assistance from the World Bank Water and Sanitation Program - South Asia, has prepared guidelines on the design and implementation of user charge reforms in line with JNNURM requirements. These guidelines are available as a separate document. The guidelines draw on lessons from a review of current user charges and cost recovery arrangements in 23 cities in India. This report focuses on one of those cities: Pune.

2 City Profile The Pune urban area occupies some 244 sq km. It is the eighth largest urban agglomeration in India and the second largest city in the state of Maharashtra. Though it has not developed as fast as Mumbai, Pune has steadily transformed from a traditional city with an agro-based economy into an industrial and educational center, and is often referred to as the Detroit of India and the Oxford of the East. It is also emerging as one of India’s top IT centers.

2.1 Physical environment and topography Pune sits at the confluence of the Mula and Mutha rivers, near the western margin of the Deccan Plateau, on the leeward side of the Sahyadri ranges and the Western Ghats. It is also in the seismically active zone of Koyna Region, which is located about 100 km south of the city. The zone has recently been upgraded to zone IV, which is the second most dangerous seismic zone in India. Rainfall is moderate, at 722 mm per year.

2.2 Demography As of 2008, the population of Pune agglomeration, which includes the industrial city of Pimpri-Chinchwad, is just over five million. In the last 50 years, the city’s population has grown more than five times. It has recently witnessed a sizeable investment in the software and automobile sectors, resulting in an influx of skilled labor from all over India.


Pune 4

Slum population

The Pune civic authorities need to prepare themselves to augment the city’s infrastructure (including provision of an adequate and uninterrupted power supply) to sustain and promote this vibrant economic activity.

2.3 Socio-economic profile

Pune as the Detroit of India

The city’s industrial prominence has its origins engineering-related industries. Today a host of automotive businesses operate here, for example Tata Motors, Bajaj Auto and Daimler Chrysler.

Pune as the Oxford of East

The city has nurtured six universities and currently has a student population in excess of 5,00,000.

Pune as an emerging IT hub

Over the last eight years, IT business in Pune has grown from Rs. 2,500 million to Rs. 65,000 million. The first software technology park in India was set up in Pune and today companies such as Tata Consultany Services, Wipro, Infosys, Mahindra British Telecom, Mastek and PCS have a significant presence in the city.

Pune as an agro-business center

The Pune hinterland is known for the cultivation of sugar and grapes, horticulture and floriculture. As a corollary, food processing units have also sprung up. As result of the buoyant economy, Pune enjoys a per capita income of Rs. 46,000. This is 50 percent higher than the national average and is comparable to that of Bangalore and Kolkata.

3 Institutional Framework for Water Supply and Sewerage Services

The Deliberative Wing of Pune Municipal Corporation (PMC) has 146 elected members and five appointed members. Assisting the General Body are various committees, the chief being the standing committee and the ward committee. The Municipal Commissioner is the head of the Executive Wing, under which are 14 functional departments. The city is divided into 14 wards, each headed by a ward officer.

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Pune 5

Figure 7.1: Organizational Structure of PMC

3.1 Water supply and sewerage department The Department has a current workforce of 1,177 against the scheduled limit of 1,630. There is 1.94 staff per 1,000 connections and 5 percent of the staff is directly engaged in billing and collection.

Standing Committee (SC)16 Corporators

Fn: Governance/Finance

Ward Committee (WC)

Corporators from Electoral WardsFn: Approve Works/Finance

General Body5 Appointed Members

146 Elected Members

Deliberative Wing

(Electoral)

General Administration

Municipal Secretary

Tax Collectin, Octroi

Public Security- Fire, Street Lighting

Education

City Development

Public Works

Public Health

Water Supply

Sewerage

Accounts and Audit

Slum Clearance/Improvement

Primary Health

Transport Department

Functional Departments

Ward Officers (14 no's)

Municipal CommissionerOverall management subject to approval of SC

Executive Wing

(Administrative)


Pune 6

Figure 7.2: Organizational Hierarchy for Water Supply and Sewerage

4 Existing Infrastructure and Services

4.1 Water supply Five surface water sources provide the bulk of the city’s water, the main source being Khadakwasala dam which currently provides 1,000 mld. Since the bulk supply flows by gravity, power costs are minimal. PMC is in the process of installing the necessary infrastructure to make 500 mld of treated water available for irrigation purposes, as required by the Irrigation Department which owns the dam. This arrangement to share the resources for the purposes of drinking and irrigation is unusual and shows that there is scope for mutually supportive arrangements.

The water supply network is divided into 17 zones and water is distributed via a mixture of pumping and gravity flow, depending on the silting of the zonal reservoir. There are no flow meters at source or treatment plant and the quantity of supply is estimated on the basis of approximate pump efficiency. The network has 100 percent geographical coverage and serves 85 percent of the population. Water is supplied for eight hours a day on average, providing 275 lpcd -- much higher than the national standard of 135 lpcd. However, actual household supply varies from 70 to 400 lpcd due to Pune’s undulating topography. Low lying areas, which are mostly slums, receive water for more hours and at higher pressure than elevated locations. Old and poorly laid distribution lines result in leakages and unaccounted for water is estimated at 40 percent.

4.2 Sewerage

The city has 100 percent sewerage coverage, plus 95 percent coverage to a number of neighboring villages. A total of 451 mld of sewage is generated in the city, of which 68 percent is treated and discharged into Mula and Mutha Rivers. Sewage generation for 2015

Junior Engineer

Sub Engineer

Assistant Engineer

Deputy City Engineer

Development Engineer

Additional City Engineer

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Pune 7

is forecast as 622 mld, hence it may be necessary to develop further treatment facilities in addition to the three plants already proposed. Table 7.1 Water Supply and Sewerage System in Pune

A. BASIC PROFILE OF CITY/TOWN

Total area of the city/town 237 sq km

Total population of the city/town 3.6 million

Total slum population 1.2 million

Number of slum settlements 564

Density of population

Number of wards 144

B. WATER SYSTEM DETAILS

Sources of Water Supply 1. Own Source

Source Production (in kl) /day

Khadakwasala Dam

Total water supply /water produced (in kl/day) 1000000 kld

Do you have flow meters at the production source? No

Total water demand or water shortage (in kl/day) 1000000 kld

Total shortage (in kl/day): demand-supply gap. Nil

Total area served by water supply 237 sq km

Total population served by water supply (population coverage)

3.6 million

Total water supply coverage (network coverage %) 100%

Population coverage 85%

Total sewerage coverage (in %) 100%

Daily hours of supply 8 hours

Per capita availability of water Average 200 lpcd

Total transmission infrastructure for water supply and sewerage

WATER SUPPLY

Total pipeline length: NA

Diameter range: NA

Rising main (in km): NA

Number of of standposts: NA

Number of tankers: NA

Number of handpumps: NA

SEWERAGE

Total length of sewer line: 1500 km

No of manholes:

No of pumping stations: 8 (proposed: 3)

No of STPs/sewerage farms: 5 (work in progress: 2)

Total water storage capacity Current Capacity Number Capacity

OHT: 20

Underground storage: 35

TOTAL 55 400 ml

Source: Data provided in questionnaire

4.3 Key issues in service provision Discussion with city officials and a review of available literature revealed the following constraints on service provision:

The lack of metering at source, distribution points and points of use makes it impossible to account for water production and consumption and monitor leakage;

No substantial initiatives have been taken to reduce leakage; There are no comprehensive maps of the network, hence staff have to rely on their

personal knowledge of the system; No demand assessments have been carried out to inform the management of the

distribution network and planning of new investments; and The topography of the city complicates equitable service provision.


Pune 8

5 Water Supply and Sewerage Finances PMC has enjoyed a growing operational surplus for the past six years, with a cumulative annual growth rate of 45 percent. A high rise in 2007-08 resulted from property tax reforms (Table 7.2) and improvements in billing and collection, with the aid of IT. In aggregate terms, however, the accounts have been in deficit over this period, during which dependence on grants has grown considerably (Figure 7.3). Income from water supply and sewerage services accounts for 1 percent of aggregate income to PMC. Establishment costs constitute 29 percent of total expenditure and, of these, water supply and sewerage services account for 12-14 percent. O&M costs account for 12 percent of total expenditure, with water supply and sewerage services responsible for up to 60 percent of the O&M total. However, the share of water and sewerage expenditure in total expenditure has decreased from 12 percent in 2003-04 to 9 percent in 2007-08 (Table 7.3).

Table 7.2 : Distribution of Own Source Revenue of PMC (in Rs. million)

Year General Tax

Octroi Sewage Tax (SWM)1

Tax Revenue

Water charges

Non-tax Non Tax Revenue

Govt. Grants

Total Revenue Income

2002-03 742.9 2467 226.0 3435.9 633.9 1193.8 1827.7 351 5614.4

2003-04 649.4 2652.7 280.1 3582.2 756.8 1221.4 1978.2 401.6 5992.1

2004-05 743.5 3249.5 290.4 4283.4 725.1 1548.4 2273.5 495.6 7052.5

2005-06 1104.4 4420.1 414.2 5938.7 886.1 3104.5 3990.6 539.6 10469

2006-07 1070.0 5250 392.5 6712.5 1210 3866.9 5076.9 740.6 12530

2007-08 1710.0 7450 525.0 9685.0 1370 4916.4 6286.4 2668.7 18640

1 PMC charges a tax for solid waste management (SWM) which is called Sewerage Tax whereas the benefit tax

for sewerage services is called ‘Jal Nis Tax’ referred as Sewerage Benefit Tax in this report.

Figure 3: Trends in Aggregate/Operative Surplus/Deficit

over 6 Years.

-2000

-1000

0

1000

2000

3000

4000

5000

6000

7000

8000

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Financial Year

Su

rp

lus/

Defi

cit

Operative Surplus/Deficit

Total Surplus/Deficit


Pune 9

Table 7.3 : Income and Expenditure Statement of PMC (in Rs. million)

Income Expenditure Surplus/Deficit

Fin

ancia

l Y

ea

r

Ow

n S

ou

rce

Incom

e

Cap

ital G

ran

t

Bo

rro

win

gs

To

tal C

ap

ita

l

Incom

e

To

tal In

co

me

Esta

blis

hm

en

t

Exp

end

itu

res

Pri

ma

ry

Ed

uca

tio

n

O&

M

Mis

ce

llane

ous

Inte

rest

an

d L

oa

n

Dep

recia

tio

n

To

tal R

even

ue

Exp

end

itu

re

Cap

ital

Exp

end

itu

re

To

tal E

xp

en

ditu

re

Op

era

tive

Su

rplu

s/D

eficit

To

tal

Su

rplu

s/D

eficit

1 2 3 4 5(3+4) 6(2+5) 7 8 9 10 11 12 13 (7+8+9+10+11+12) 14 15 (13+14)

16 (2-13)

17(6-15)

2002-03

5264 350.5 0 350.5 5614.5 2276.8 666.1 794.3 338.1 55.5 23 4153.8 2327.6 6481.4 1110.2 -866.9

2003-04

5594 398 0 398 5992 2467.8 628.3 811.9 418.7 51.3 24.9 4402.9 2676.6 7079.5 1191.1 -1087.5

2004-05

6559.1 493.4 0 493.4 7052.5 2629.9 739 1439.9 539.5 38.7 24.9 5411.9 2732.2 8144.1 1147.2 -1091.6

2005-06

8934.4 534.6 1000 1534.6 9469 2779.2 881.1 1042.4 653.7 40.6 24.2 5421.2 4197.6 9618.8 3513.2 -149.8

2006-07

11300 730 500 1230 12030 3150 1093.3 1218.3 1258.5 292.9 24.6 7037.6 5492.4 12530 4262.4 -500

2007-08

14982 2658 1000 3658 17640 3140 1140.6 1741.3 1418.7 292.7 24.6 7757.9 10872.3 18630.2 7224.1 -990.2


Pune 10

5.1 Cost recovery: current performance In Maharashtra, it is a legal requirement to keep a separate, ring-fenced budget and accounts for water supply and sewerage services, and to set charges to attain full recovery of O&M costs.

Water supply

Water supply operations have been achieving full cost recovery, creating a surplus that can contribute to new capital expenditure (Table 7.4). PMC has adopted a number of good practices not commonly found among service providers in India, such as accounting for self-consumption of water, depreciation, water purchase and treatment. Inclusion of these heads, often ignored as hidden costs, enables a rational assessment of cost recovery status. Revenue expenditure on water supply has grown at a cumulative rate of 17 percent and at the rate of 15 percent for revenue income. Electricity is the single biggest factor in this expenditure at 47 percent, while salaries constitute 26 percent. PMC also spends a considerable amount on buying water. The availability of internal funds for capital investments has, however, resulted in negligible loan liabilities, though this is likely to change in the future. While the water account has been showing a surplus over the last five years, the actual growth rate is negative, as is evident from Table 7.4.

Figure 4: Trends in Water Charge and Water

Tax Revenue

0

20

40

60

80

100

120

140

160

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08 (b

udge

ted)

Financial Year

Wa

ter

Ch

arg

e/

Wa

ter

Ta

x

Water

Charge

Water

Benefit Tax

(@2%of

ARV)

Figure 5: Distribution of Water Supply

Expenditures (based on 2006-07 f igures)

26%

47%

7%

0%

1%

15%

4%

Salary

Electricity

Misc Expenditures

Depreciation

Interest/Loan

Repayment

Purchase of Water

Water Treatment


Pune 11

Table 7.4: Operative Account for Water Supply Services of PMC (in Rs. million)

Financial Year

Water Supply Revenue Income Water Supply Revenue Expenditure Operative Surplus /Deficit

Wate

r C

harg

e

Wate

r B

enefit T

ax

(@2%

of A

RV

)

Oth

er

Wate

r S

upply

Rela

ted C

harg

es

To

tal W

ate

r S

upply

Opera

tive Incom

e

Sala

ry

Ele

ctr

icity

Mis

c E

xpenditure

s

Depre

cia

tio

n

Inte

rest/

Loan

Repaym

ent

Purc

hase o

f W

ate

r

Wate

r T

reatm

ent

To

tal W

ate

r S

upply

Expenditure

Wate

r S

upply

O

pera

tive

Surp

lus/D

eficit

1 2 3 4 5(2+3+4)

6 7 8 9 10 11 12 13 (6 to 12)

(5-13)

2003-04 756.8 43.5 34.5 834.8 231.1 258.8 76.3 0.4 26.5 117.2 17.9 728.2 106.6

2004-05 725.1 50.3 30.5 805.9 220.0 306.6 73.1 0.4 14.1 137.3 20.6 772.1 33.81

2005-06 886.1 86.1 32.9 1005.1 230.9 307.6 93.2 0.4 12.9 129.8 25.7 800.5 204.6

2006-07 896.1 88.9 29.7 1014.7 265.4 467.0 73.3 0.4 11.7 150.0 39.3 1007.1 7.6

2007-08 (budget)

1370.0 73.5 0 1443.5 307.6 565.8 150.8 0.4 137.9 172.5 52.5 1387.5 56.0

Sewerage

Income over the last five years has not kept pace with expenditure, leading to annual operating loss with salaries and electricity constituting 87 percent of expenditure (Figure 7.6).

Figure 6: Distribut ion of Sewerage

Expenditures (based on 2006-07 f igures)

51%

36%

0%

2%

1%

10%

Salary

Electricity

Misc Expenditures

Interest/ Loan

Repayment

Petrol/ Diesel

Others


Pune 12

Table 7.5: Operative Account for Sewerage Services in Pune Municipal Corporation (in Rs. million)

Financial Year

Sewerage Revenue Income

Sewerage Revenue Income Operative Surplus/ Deficit

Se

we

rag

e

Be

ne

fit T

ax

(@4

%o

f A

RV

)

To

tal S

ew

era

ge

Incom

e

Sa

lary

Ele

ctr

icity

Mis

c

Exp

end

itu

res

Inte

rest/

Lo

an

Re

pa

ym

en

t

Pe

tro

l/ D

iese

l

Oth

ers

To

tal S

ew

era

ge

Exp

end

itu

re

Se

we

rag

e

Op

era

tive

Su

rplu

s/D

eficit

1 2 3 4 5 6 7 8 9 10(4+5+6+7+8+9)

11(3-10)

2003-04 88.7 88.7 76.2 33.6 0.4 4.8 1 11 127.0 -38.3

2004-05 90.9 90.9 77.6 63.6 0.4 4.7 1 13.4 160.7 -69.8

2005-06 113.8 113.8 85.0 56.7 0.5 5.3 1 23 171.5 -57.7

2006-07 120.3 120.3 99.1 71.2 0.1 4.8 2.9 20.6 198.7 -78.4

2007-08 Budget

142.5 142.5 124.9 102.5 0.6 5.6 3 53.3 289.9 -147.4

Metered connections account for roughly 65 percent of the total demand but collection efficiency from this set of consumers is only 20 percent. For property-related charges, the efficiency rate is nearer 60 percent. There are several reasons for low recovery performance:

A change in tariff structure from size of connection to a fixed rate based on the

assessed value of a property; Resentment among owners of properties in the higher slab, who pay more for the

same quality of service and quantity of water as that provided to lower slab customers;

Negligible penalties for nonpayment (50 paisa per Rs. 100, as a one-off charge); and Inefficient administration.

Table 7.6: Total Demand Collection and Balance Statement for Water Supply and Sewerage Charges

2 (in Rs. million)

Year Arrears at the Beginning of the Year

Current Year Demand

Total Demand

Recovery of Arrears

Recovery of Current Demand

Total Collection

Total Arrears at the End of the Year

Collection Efficiency

1 2 3 4=2+3 5 6 7=5+6 8 (4-7) 9 (7/4)

2004-05 473.92 1232.09 1706.01 0 336.54 336.54 1369.47 20%

2005-06 911.99 1375.56 2287.55 68.95 418.86 487.81 1799.74 21%

2006-07 1123.23 1447.28 2570.51 125.11 438.35 563.46 2007.05 22%

2007-08 Dec 2007

1368.84 1237.55 2606.39 136.83 390.32 527.15 2079.24 20%

PMC undertakes rapid action annually for recovery of arrears from metered connections, which typically results in 100 disconnections and achieves roughly 25 percent recovery of arrears.

2 Table includes DCB from metered connection and property based water charges, water benefit tax and

sewerage tax.


Pune 13

Billing for unmetered connections is linked to the property tax collection system, which is far more efficient, not least because of the use of modern technology. Property tax bills are payable online and through conveniently sited kiosks. Furthermore, the billing and collection system has strict penalties for noncompliance and incentives for timely payment.

5.2 Tariff structure PMC has the right to set tariffs for water supply and sewerage services. Presently, a two-part tariff structure is in place for water, comprising volumetric charges for metered connections and fixed charges set at 2 percent of annual rental value for non-metered connections, plus a fixed water benefit tax applicable to all property tax payers. For sewerage, a fixed tax is applicable, again to property tax payers, based on a percentage of ARV, but there is no other charge. PMC recently introduced a General Service Charge of Rs. 300 per annum and a consolidated Water and Sewerage Service Charge of Rs. 360 per annum for slum dwellers to ensure a minimum level of cost recovery even from poorer consumers. Table 7.7 provides the existing schedule of rates. Table 7.7: Existing Tariff Structure for Water Supply and Sewerage Services at Pune Municipal Corporation

Type of Charge Consumer Category Basis of Charge Rates

Water Charge

Domestic (non-metered); Property (ARV) assessment

1 to 1000 Rs. 900

1001 to 3000 Rs. 1000

3001 to 5000 Rs. 1100

Above 5001 25% of property tax or Rs. 2500 whichever is less

Domestic (metered) Volumetric 3/kl

Nondomestic (metered)

Commercial/industrial Volumetric Rs 21/kl

Educational institutions Volumetric 3/kl

Hotels Volumetric 5/kl

Extra water for construction purposes

Volumetric 65/cubic meter

Nondomestic property not having water connection

Property assessment

1 to 10000 Rs. 500

10001and above

Rs. 1000

Religious places Property assessment

1 to 500 No Tax

501 to 1000 Rs. 900

1001 to 3000 Rs. 1000

3001 to 5000 Rs. 1100

5001 to 25% of property tax or Rs. 2500 whichever is less

Slum rehabilitation properties

Flat rate Rs. 360 annual

Domestic use (independent connection)


Domestic use (joint connection)


Nondomestic Flat rate Rs. 1500 annual

Hotels not having meters Flat rate Rs. 300 per month

Water Benefit Tax Domestic and nondomestic

ARV based 2% of ARV

Sewerage Tax Domestic and nondomestic

ARV based 4% of ARV


Pune 14

General Service Charges

Slums Flat Rate Rs. 300 per year

Meter Charges

Domestic (if meter in working condition)

Fixed rates Residential (in Pune City)

30/month

Residential (in Pune Cantt)

50/month

Nondomestic

Fixed rates Nondomestic - first connection

650/month

Nondomestic - additional connections

275/month

Domestic (if Mmeter not in working condition)

Fixed rates Residential (in Pune City)

90/month

Residential (in Pune Cantt)

150/month

Nondomestic Connection Size, per day consumption (kld)

1/2" 3 kld

3/4" 6 kld

1" 12 kld

1-1/2" 25 kld

2" 50 kld

3" 110 kld

4" 200 kld

6" 450 kld

New Connection Fee Application form Fixed fee Rs. 10

Domestic/Nondomestic Size of connection

Domestic Nondomestic

1/2" Rs. 750 Rs. 1000

3/4" Rs. 1500 Rs. 2000

1" Rs. 4000 Rs. 5000

2" Rs. 10000 Rs. 20000

3" Rs. 15000 Rs. 30000

Above 3” Rs. 20000 Rs. 40000

Reconnection Charges

Domestic/Nondomestic Fixed charges Domestic Non Domestic

Closed at end point

Rs. 100 Rs. 300

Closed from main line

Rs. 500 Rs. 2500

On account of leakage

Rs. 100 each on closing and opening

Rs. 100 each on closing and opening

5.3 Consumer profile As at December 2007, there were 606,450 registered property tax payers of which 23,448 had metered connections. In addition, there were 150,000 million slum dwellings of which 18,491 were registered for the new consolidated water and sewerage service charge (Table 7.8). The majority of households fall into the higher property slabs of 2,000 and above.


Pune 15

Table 7.8: Pune Municipal Corporation’s Consumer Profile for Water Supply and Sewerage Charges/Tax based on Property Slabs

RV Slabs

Re

sid

en

tia

l

No

n-

Re

sid

en

tia

l

Op

en

Plo

ts

Exe

mp

ted

fro

mP

rop

ert

y T

ax

Me

ter

ed

Pro

pe

rtie

s

No

nm

ete

re

d P

rop

ert

ies

To

tal

Pro

pe

rtie

s

pa

yin

g

WS

S

Ch

arg

e/T

ax

1 to 100 9777 118 4335 286 14 14243 14257

101 to 200 6025 234 2257 58 22 8594 8616

201 to 300 4156 305 1720 40 32 6337 6369

301 to 400 4684 281 640 28 33 5775 5808

401 to 500 4852 224 852 29 73 6071 6144

501 to 600 6511 254 403 23 95 7281 7376

601 to 700 8397 235 259 27 74 9052 9126

701 to 800 5906 353 325 14 77 6730 6807

801 to 900 6403 258 237 18 132 7009 7141

901 to 1000 6815 298 320 22 90 7588 7678

1001 to 1100 7163 306 284 11 108 7837 7945

1101 to 1200 5675 355 276 13 128 6365 6493

1201 to 1300 6867 349 251 9 87 7587 7674

1301 to 1400 7362 353 158 5 119 7953 8072

1401 to 1500 6710 416 292 9 102 7482 7584

1501 to 1600 7103 500 259 9 133 7942 8075

1601 to 1700 8310 567 142 9 133 9078 9211

1701 to 1800 8055 1197 184 15 767 8827 9594

1801 to 1900 8981 714 127 9 156 9805 9961

1901 to 2000 10130 659 175 14 158 10995 11153

Sub Total 139882 7976 13496 648 2533 162551 165084

2001 to 3000 105787 8993 1249 65 2135 115275 117410

3001 to 4000 82438 10214 537 58 2667 91708 94375

4001 to 5000 53081 8333 569 41 2062 60947 63009

5001 to 20000 106891 26605 3860 292 11722 131545 143267

above 20000 7399 9091 1457 623 2329 20976 23305

Sub Total 355596 63236 7672 1079 20915 420451 441366

Total 495478 71212 21168 1727 23448 583002 606450


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6 Analysis

6.1 Cost recovery PMC’s water and sewerage tariff structure meets the objective of cost recovery. However, there is a very high level of NRW arising from free supply to slums, water consumed by unassessed properties and losses from leaks and wastage.

Unaccounted for water

Revenue from slums

The estimated slum dwellings/households in Pune are 0.15 million including notified and nonnotified slums. Of this, approximately 18,491 households are paying water charges, implying that more than 130,000 are outside the water charge net -- a loss of revenue of nearly Rs. 65 million, based on the charge of Rs. 360 per year (Re. 1 per day) for slum households.

Unassessed properties

An estimated 10 percent of properties have not been assessed for property tax and hence enjoy free water. This results in a revenue loss of some Rs. 54 million.

Technical losses

Of the daily production of 1,000 mld, PMC estimates that the slum population (which constitutes one-third of the city total) consumes 60 percent as slums are in low-lying areas. This consumption pattern suggests that there are, in fact, huge technical losses in the system. In the absence of meters and a sound technical database, the precise level of losses is not known, but appears to be in the region of 25 percent of production. If these were reduced to 10 percent, the additional potential income would be more than Rs. 270 million.

Low collection efficiency

The current level of cost recovery is just under 60 percent. If this could be improved to 90 percent, an additional revenue of Rs. 400 million would accrue.

Tariffs

Slum tariffs

The existing charge of Rs. 360 per year (Re. 1 per day) for slum households is very low by international standards. Based on the WHO benchmark for tariffs of a maximum 5 percent of the family budget, and a national poverty line of Rs. 559 per person per month for urban areas, a tariff of Rs. 140 per month would be acceptable. In other words, PMC could - in theory at least - increase the tariff fourfold.

Other domestic tariffs

Regular domestic tariffs, both property slab-based and volumetric charges, have immense potential for expansion. The existing tariff rates amount to an average monthly bill of just Rs. 115 for water and sewerage, while per capita GDP in Pune is Rs. 46,000 -- the highest in India. The city also has the least income disparity between rich and poor, confirming that consumers could pay significantly more.


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Nondomestic tariffs

Compared to an operational cost of Rs 2.5 per kl, the charge of Rs. 21 per kl for nondomestic users is extremely high and is a disincentive for taking metered connections. The charges could also be a potential deterrent to industrial and commercial growth.

6.2 Economic efficiency Current tariffs and charges for water and sewerage follow the principle of economic efficiency since the chargeable amount increases with ARV. However, property data is prone to distortion and is not a reliable indicator of a household’s ability to pay. Greater use of metered connections and volumetric charges would improve economic efficiency and enable tariffs to reflect the incremental cost of developing new water sources.

6.3 Equity and protection of vulnerable sections While the current tariff structure is pro-poor, the relative charges for different consumer categories are inequitable and unfair. The great majority of slum dwellers pay nothing at all, since only 12 percent are registered for the annual charge, while nonpoor customers pay from Rs. 75 to 208 per month for a worse level of service. Nondomestic charges are seven times higher than domestic ones, which is also unreasonable.

6.4 Affordability Current tariffs in Pune are easily affordable even to people living on the poverty line, as discussed above. Were PMC to install free metered connections for poor consumers (in line with JNNURM) and apply the current charge of Rs. 3 per kl for a monthly consumption of 20 kl, then the average bill for a poor family would amount to Rs. 60/month – just over 2 percent of the typical family budget.

6.5 Resource conservation Water is a finite resource and tariffs should encourage prudent consumption. This could be achieved by raising tariff rates for consumption above the subsistence level for which universal metering would be required. The general absence of taps in slums, and the fact that most slum dwellers pay little or nothing for water, leads to huge wastage bearing in mind that slums also receive water for longer periods and at higher pressure than other areas of the city. There is no incentive for slum dwellers to moderate their consumption. The lack of meters at production or end use and a lack of leak detection equipment are further obstacles to resource conservation.

6.6 Acceptability and practicality The Pune tariff structure is simple and acceptable to domestic users given the convenience of online calculation and payment and the use of local banks and payment kiosks. The use of a flat rate in slums also makes charges nominal and easy to understand for residents.


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7 Summary The existing tariff structure enables cost recovery for water supply though not for sewerage. Other concerns relate to equity, fairness and resource conservation; high levels of NRW and technical losses; low collection efficiency; and inadequate metering of production, transmission and consumption. Although an operating surplus is being achieved, capital expenditure still has to be met through the General Fund, despite the fact that Pune benefit from a gravity-based bulk supply, a good taxpayer base and high infrastructure coverage. There is, however, potential for full cost recovery through tariff reform (including a switch from property-based to volumetric charges), improved billing and collection and a reduction in unaccounted for water.

7.1 Recommendations 1. Reduce unaccounted for water PMC should prioritize leak detection, network repairs and maintenance, increasing the number of metered connections and improving collection efficiency. Comprehensive technical information on the network (including maps) and the installation of flow meters are essential if this is to be achieved. It should also harmonize the property tax and water supply /sewerage databases to identify consumers currently outside of the water charge net, and bring the unassessed 10 percent of properties onto the register. These measures would enable PMC to generate a huge additional income (potentially more than Rs. 750 million per annum) without any increase in tariffs. PMC is aware of these issues and is planning to improve every aspect of its water supply services including coverage, metering, unaccounted for water, billing and collection efficiency, complaints redressal and the introduction of a 24x7 supply. It aims to achieve this in phases with the help of the private sector. Ultimately, a five-year contract will be awarded to a private operator. The planning process for this initiative has been lengthy, however, and it is unclear when action will begin. 2. Amend the tariff structure It is strongly recommended that PMC adopts a volumetric based tariff structure and universal metering. This could be achieved as follows:

Step 1

All slum households should be given free metered connections and made subject to a volumetric charge, to increase revenue and discourage wasteful consumption. The tariff for the first 20 kl could be set at the break-even point whereby revenue is equal to operational costs, currently Rs 3.03 per kl. This would amount to a monthly charge of Rs. 60 per connection -- well within affordability limits.

3 The present operative cost per kl is Rs. 2.5 but it is on a lower side due to an inadequate O&M cost. In

addition, system cost will go up with implementation of various system improvement projects/works.


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Step 2

The functioning of existing meters should be checked and repairs or replacements undertaken as necessary. Efforts should then be made to achieve 100 percent metering of nondomestic consumers, with enforcement if necessary. However, incentives should also be offered by lowering the tariff rate and introducing volumetric slabs for different types of nondomestic premises. For domestic metered connections, the charge based on property tax assessments should be dropped to end the dual charging arrangement. This will provide an incentive for households to take up metered connections.

Step 3

Full coverage with domestic meters should be pursued and an increasing block tariff introduced that responds to the needs of different income groups and addresses economic and environmental concerns.

Step 4

At present there is no usage charge for sewerage. A charge should be introduced, based on metered water consumption, to overcome the deficit in the sewerage service account. This measure should be introduced only when universal metering has been established. It may then be possible to reduce the tax to the water benefit tax level. The average tariff should range from Rs. 5 to 6 per kl based on consumption slabs starting at Rs. 3 per kl (operational) and ranging up to Rs. 20 per kl, while keeping in mind the low cost of production. Were the service to achieve 10 percent NRW and 90 percent collection efficiency, an estimated revenue of Rs. 1,773.9 million would accrue (based on Rs. 6 per kl) compared with Rs. 89.61 million at present. This would be supplemented by water sewerage benefit taxes.


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Annex 7.1: Demand Collection and Balance Statements (in Rs. million) METERED CONNECTIONS BASED ON WATER CHARGE

Year Arrears at the Beginning of the Year

Current Year Demand

Total Demand

Recovery of arrears

Recovery of Current Demand

Total Recovery

Total Arrears at the End of the Year

Collection Efficiency

1 2 3 4=2+3 5 6 7 8 (4-7) 9 (7/4)

2004-05 473.92 621.68 1095.6 0 0 310.9 784.7 28%

2005-06 784.7 628.3 1413 0 0 457.78 955.22 32%

2006-07 955.22 738.22 1693.44 0 0 415.19 1278.25 25%

2007-08 1278.25 472.79 1751.04 0 0 275.63 1475.41 16%

ANNUAL RENTAL VALUE BASED WATER CHARGE FOR ASSESSED PROPERTIES

2004-05 0 457.82 457.82 0 256.81 256.81 201.01 56%

2005-06 96.27 504.38 600.65 52.91 286.67 339.58 261.07 57%

2006-07 119.9 537.66 657.56 90.13 331.87 422 235.56 64%

2007-08 66.85 559.01 625.86 95.14 290.18 385.32 240.54 62%

ANNUAL RENTAL VALUE BASED WATER BENEFIT TAX FOR ASSESSED PROPERTIES

2004-05 0 50.89 50.89 0 26.59 26.59 24.3 52%

2005-06 10.32 107.89 118.21 5.34 58.74 64.08 54.13 54%

2006-07 19.64 57.13 76.77 14.46 35.51 49.97 26.8 65%

2007-08 8.66 68.58 77.24 15.13 33.38 48.51 28.73 63%

ANNUAL RENTAL VALUE BASED SEWERAGE TAX FOR ASSESSED PROPERTIES

2004-05 0 101.7 101.7 0 53.14 53.14 48.56 52%

2005-06 20.7 134.99 155.69 10.7 73.45 84.15 71.54 54%

2006-07 28.47 114.27 142.74 20.52 70.97 91.49 51.25 64%

2007-08 15.08 137.17 152.25 26.56 66.76 93.32 58.93 61%

interim report on cost recovery and tariff practices for urban … · 2016. 7. 19. · interim...

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