EXECUTIVE SUMMARY
to finance water provision.29 In the Russia, private water, sanitation and heat suppliers are entitled to central government compensation when tariffs regulations reduce their revenues. In India, 90% of water and sanitation has been publicly financed in recent years.30 In the Middle East, almost all basic services receive substantial public financing. In Africa, taxes and tariffs make up two thirds of water service financing, with the remainder coming from external sources.31 Only 30% of utilities internationally generate sufficient revenue to cover operation, maintenance and partial capital costs.32
See Latin American chapter, CAF (2012) and ADERASA http://www. aderasa.org/index.php/es/ grupos-de-trabajo/benchmarking. The analysis is based on a representative sample of 10 countries, 30.7% of existing businesses in water sector and 19.5% of the population in these countries. 29
30
Hall and Lobina (2009).
Foster and Briceño-Garmendia (2010) p. 299, table 16.6. 31
32
Komives et al (2005).
Hoornweg and Bhada-Tata (2012). See Latin American chapter. 33
CAF (2011), quoted in the chapter on Latin America. 34
35
OECD (2009) p. 17.
See chapter on Europe, 3.5 Financing basic public services. 36
37
CAF (2012) p. 25.
See Latin American chapter, particularly Martinez et al (2011). 38
Foster and Briceño-Garmendia (2010) p. 10. See regional reports for different modalities of billing. 39
Taxes and subsidies are even more critical for sanitation and solid waste management, as users are less willing to pay for these than for water, electricity, and transport. In high-income countries, waste collection and management represent around 10% of local budgets (with a larger part financed from tariffs), in middle-income countries, around 40%, and in low-income countries, 80-90%. In Latin America in 2010, the average cost recovery from tariffs was around 52%, though some cities do manage to recover costs successfully.33 In Eurasia, tariffs mostly cover operational costs of waste collection (except in Tajikistan and Kyrgyzstan). Urban transport is heavily subsidised in almost all regions. In the USA, the main source of funding for transportation, after fares, is a tax on gasoline. However, the gas tax has not been increased since the early 1980s and more fuel efficient vehicles and inflation mean that its contribution has fallen, resulting in a growing backlog in necessary infrastructure investment. In Eurasia, almost 30% of transport financing comes from non-core activities and subsidies. In Africa, urban transport systems receive regular subsidies from central governments. This is less common in Latin America.34 Funding for transport in Indonesia comes from direct grants from central
ministries and the budgets of provinces, cities and regencies (kabupaten).
Tariff-setting, affordability and collection As well as contributing to the financial sustainability of services, the payment of tariffs by users also provides an incentive for their efficient use. In recent years, there have been considerable increases in revenues from tariffs.35 Pricing models and the capacity of service operators and municipalities to collect tariffs and taxes, strongly influence the sustainability and affordability of services. In Europe, pricing is generally defined locally in contracts between organizing authorities and operators, although European regulations increasingly influence financing and price-setting.36 In the water sector in Latin America, prices are set by regulatory agencies or national public utilities. In federal countries like Mexico, tariffs must be approved each year by each state. Service providers usually need approval from government to change tariffs.37 In the waste sector, pricing is even more diverse, with most municipalities undertaking collection in-house.38 In Africa and the Middle East, national (or regional) authorities set tariffs. In Eurasia, “socially acceptable” tariffs are generally fixed at national or state levels; with resulting gaps between costs and revenues covered by public subsidies. Collecting tariffs and taxes is a huge challenge in low- and middle-income countries. Household surveys in Africa show about 40% of users not paying for utilities in the water sector – up to 65% in some countries.39 In many cities, there is no system to identify the address that should be billed. For example, only 15% of the properties in Maputo, Mozambique, are billed. A system to identify streets is often the first step in