Author(s)

A. R. Perks & T. Kealey

Abstract

Full cost recovery is a desirable goal for Water Service Delivery, but achieving that goal may require institutional reforms and subsidies to ensure services can be extended to the poor at affordable rates. This study reviewed available data on international water costs and prices, and developed analytical models for O&M renewal and replacement costs for typical water systems. The results may be used to assess the implications for water service costs, subsides and rates, and the affordability of extending water services to the urban poor. Keywords: water supply, capital cost, O&M cost, cost models, tariff, sustainability, affordability, level of service. 1 Background and introduction The purpose of this project was to assess the capital and operational costs of urban water supply systems in developing countries, examine the impacts of full cost recovery on tariffs and rates, and contribute to the development of a rationale for where and when subsidies may be required for urban water services. The Millennium Development Goals include targets to reduce the global population without access to safe drinking water by 50% by the year 2015. To achieve this target, these utilities, agencies and local urban bodies responsible for the provision of drinking water will have to markedly improve operational efficiency and financial sustainability. Obstacles to be overcome are primarily weak operational capacity and inadequate revenues to support ongoing O&M and long-term asset replacement. Institutional strengthening without corresponding financial reforms will likely prove insufficient. The lack of clarity in financial operations, confusing patterns of subsidies, and reluctance to raise water rates to sustainable levels all play a role in the current situation.

Keywords

water supply, capital cost, O&M cost, cost models, tariff, sustainability, affordability, level of service.