Interim Report. Cost Recovery and Tariff Practices for Urban Water Supply and Sanitation in India. Kochi Case Study

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Cost Recovery and Tariff Practices for UWSS Sector in India Interim Report on Cost Recovery and Tariff Practices for Urban Water Supply and Sanitation in India Kochi Case Study Prepared for Water and Sanitation Program South Asia June 2008 Kochi 1

2 KOCHI Table of Contents 1 Context and Background City Profile Physical Environment and Topography Demography Socio-Economic Profile Institutional Framework for Water Supply and Sewerage Services Kochi Municipal Corporation Kerala Water Authority Existing Infrastructure and Services Water Supply Sewerage Key issues in service provision Proposed improvements Water Supply and Sewerage Finances Cost Recovery: Current Performance Tariff Structure Consumer Profile Analysis Cost Recovery Economic Efficiency Equity and Protection of Vulnerable Sections Affordability Resource Conservation Acceptability and Practicality Summary Recommendations Kochi 2

3 KOCHI 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: Kochi. 2 City Profile Kochi is the commercial capital of Kerala and the headquarters of Ernakulam district. The city comprises the mainland town of Ernakulam and a series of islands and peninsulas clustered around it. 2.1 Physical environment and topography Kochi is the largest urban agglomeration in Kerala. Much of the land is under water and interspersed with countless backwaters, rivers, canals, tanks and ponds which account for roughly 20 percent of the gross land area, though this is reducing due to large scale reclamation. The city is generally flat, with a very gentle slope from East to West. Most low-lying wetlands in the city are uncultivated and are gradually being developed for a variety of residential and other purposes. Unlike other parts of the country, residential development in Kerala is widely spread out and mixed with other land uses. There are numerous small-scale industries and large-scale industries are being developed on nearby islands. 2.2 Demography The population density of the city is around 166 persons per hectare, and most of the housing is single- or double-storied, with a growing number of apartment buildings. Kochi Municipal Corporation (KMC) has an estimated population of 0.65 million as of 2006 in an area of 95 sq km. Population growth was 5.6 percent from , somewhat lower than in the state as a whole. Most of the growth is taking place beyond the KMC boundary, in the Greater Cochin Urban Agglomeration which includes not only the city but five Municipalities, 15 full Panchayat areas and part of three other Panchayats. The CDP under JNNURM would include the city plus two municipalities (Kalamassery and Thripunithura) and 13 Panchayats. Kochi 3

4 2.3 Socio-economic profile Kochi is the economic capital of Kerala by volume of trade, though it has been slow to industrialize. It has recently recovered from economic stagnation and witnessed heavy investment, making it one of the fastest-growing second-tier metro cities in India. Today, it essentially has a business economy focused on the service sector, with businesses including gold and textile retailing, seafood and spices exports, IT, tourism, health services, banking, shipbuilding and the fishing industry. As in most of Kerala, remittances from nonresident Indians are also a major source of income. The city also houses Kerala's only bourse, the Cochin Stock Exchange. Kochi is ranked by the National Association of Software and Services Companies (NASSCOM) as the second-most attractive city in India for IT-based services, the availability of cheap bandwidth through undersea cables and low operational costs being major advantages. A number of technology and industrial campuses have been developed in recent years. 3 Institutional Framework for Water Supply and Sewerage Services The Kerala Water Authority (KWA) has been responsible for all water and sewerage services in the state for the past 20 years. However, the government of Kerala is now decentralizing accountability for service provision to municipalities, in line with the 74 th CAA. Prior to the introduction of JNNURM, the state government and five city corporations had already entered into an agreement with ADB for the Kerala Urban Sustainable Development Project (KSUDP) which includes substantial upgradation of water supply and sewerage services. The city is, therefore, seeing significant investment in the sector. Box 5.1: Principles underlying the Memorandum of Understanding between government of Kerala and five city corporations Increasing Accountability. Delineating policy, regulatory and service provision functions and transferring control and decision-making to the municipality, who will define and monitor performance and service standards. Promoting Efficiency in Service Delivery. The delineation of functions also provides for improved efficiency through the separation of regulatory and technical support roles between the municipality and KWA. The state government is policy maker and arbitrator. Strengthening Decentralized Service Delivery. This will be achieved through the creation of a city-level unit by KWA. Strengthening Managerial Capacities of the Municipality/ Municipal Corporation. This shall be achieved by supporting the municipality with a strong internal project implementation unit. Achieving administrative and fiscal discipline is an important objective. Ensuring Sustainability. The Memorandum of Understanding (MoU) aims to secure effective linkages between asset creation and asset management so that new services are effectively maintained and become self-sustaining. The state government is committed to transferring accountability of the parastatal municipalities by 2010 under a MoU between itself, the municipality and JNNURM. To this Kochi 4

5 end, a tripartite MoU has also been signed between KMC, KWA and the Department of Local Self Government. This establishes a progressive accountability framework through performance agreements for water supply and sewerage services. These agreements govern all new investments in water supply and sewerage services, whatever the funding source. 3.1 Kochi Municipal Corporation The organizational structure of KMC is provided in Figure 5.1. Figure 5.1: Organizational Structure of Kochi Municipal Corporation QuickTime and a decompressor are needed to see this picture. Under the tripartite agreement, KMC will be the principal contracting authority with responsibilities for the prioritization, planning and approval of works, the assignment of tasks to KWA and performance monitoring. 3.2 Kerala Water Authority KWA is divided into three regions, each headed by a Chief Engineer. It has 465 offices and employs some 9,000 people (Figures 5.2 and 5.3). The service for Kochi city comprises the Kochi municipal area and five panchayats. Figure 5.2: Organizational Structure of Kerala Water Authority Kochi 5

6 Kochi 6

7 In the initial years of its establishment, KWA had a monopoly over water supply and sewerage services in the state, but later responsibility for supplying drinking water was decentralized to local bodies, a change that was more marked in the case of rural water supply. KWA s role is now changing from monopoly provider to facilitator and supervising agency, with direct responsibility only for urban and major rural water supply and sewerage schemes. Within the tripartite agreement for Kochi, KWA will function as service provider. This role will include technical services to KMC, including design and preparation of tender documents; implementation of works; and O&M of new water supply and sewerage schemes. It will be accountable to KMC for achieving performance targets and specified service levels in accordance with a Performance Improvement Plan. Figure 5.3: Organizational structure of Kerala Water Authority s Central Region Office Central Region Headed by Chief Engineer PH Circle Kochi Superintending Engineer PH Circle JNNURM Project Superintending Engineer PH Circle Trichur Superintending Engineer Muvattupuzha Superintending Engineer Kochi Water Supply Project Div JNNURM Irinjalakakuda Piravam Water Works Sub Div Karuvelipady Asst Exec Engg Water Works Sub Div Kaloor Asst Exec Engg Sewerage Sub Div Asst Exec Engg IPD Division Investigation Sewerage Project Div JNNURM Trichur Nattika, Firka Muvattupuzha Kattappana Thodupuzha Water Works Sub Div Kochi Asst Exec Engg Section Office Asst Engineer Meter Inspector Meter Reader Perumbavoor Aluva Kochi 7

8 4 Existing Infrastructure and Services 4.1 Water supply The current water supply network in the city forms part of a comprehensive scheme serving KMC, four municipalities and 27 panchayats, with a total population of 1,638,071 as per the 2001 Census. Separate schemes are now proposed for two municipalities and 11 panchayats, reducing the intended service area of the main scheme. Table 5.1: Water Supply and Sewerage System in Kochi A. BASIC PROFILE OF CITY/TOWN Total area of the city/town sq km Total population of the city/town 0.59 million (2001) ; 0.65 million (2006) Total slum population NA Number of slum settlements NA Density of population NA Number of wards 71 B. WATER SYSTEM DETAILS Sources of Water Supply Source Production (in kl) /day 1. Own Source Periyar Total water supply /water produced (in kl/day) Flow meters at the production source None Total water demand or water shortage (in kl/day) Total shortage (in kl/day), that is, demand-supply gap Total area served by water supply sq km Total population served by water supply (population coverage) 80% through metered connections and 20% through standposts Total water supply coverage (network coverage %) 100% Population coverage 100% Total sewerage coverage (in %) 5% Daily hours of supply 8 hours Per capita availability of water lpcd; Western Kochi: lpcd Total Transmission Infrastructure for Water Supply and Sewerage WATER SUPPLY Number of schemes currently running: 1 New schemes introduced/proposed in the financial year: 1 Total pipeline length: 600 km Diameter range: 20 mm-1050 mm Rising main (in km): NA Number of standposts: 6259 Number of tankers: 7 Number of handpumps: Nil SEWERAGE Total length of sewer line: km Number of manholes: 840 Number of pumping stations: 2 Number of STPs/sewerage farms: 1 Total water storage capacity Current Capacity Number Capacity OHT (Within Kochi) kl Underground storage: 1(in Kochi) 8000 kl TOTAL kl Source: Data provided in questionnaire The principal water source for Kochi is the Periyar River, located 20 km from the city. The head works has a capacity of 225 mld with roughly 150,000 kld supplied to KMC against a current demand of 184,000 kld. Water from the river is pumped to conventional water treatment plants (WTPs) and from there distributed via two trunk mains to the city and the surrounding areas. Kochi 8

9 Kochi has 100 percent geographical coverage with piped water. Most areas are served for more than eight hours per day though the western part of the city and parts of Vypin Island experience acute shortages, with water supplied on alternate days for two to three hours, providing an average of just 25 lpcd while the rest of the city receives approximately 90 lpcd. 4.2 Sewerage The existing sewerage network serves just a small central area of the city, covering roughly 5 percent of the total area. Sewage is pumped to a treatment plant. An expanded sewerage network is planned under JNNURM, with the aim of 100 percent coverage. 4.3 Key issues in service provision Discussion with city officials and a review of available literature revealed the following constraints on service provision: There are no flow meters in the transmission system or tapping points, hence it is difficult to monitor production and consumption and deal systematically with unaccounted for water; Old and corroded transmission pipes result in distribution losses and heavy leakages; Low pressure in western Kochi has led to communities obtaining water through 'pit taps' with a supply duration of 30 minutes to one hour on alternate days; Groundwater sources within and around the city cannot be tapped due to salinity; and Deteriorating water quality in Vambanadu Lake due to the discharge of untreated domestic and industrial effluents. 4.4 Proposed improvements Initiatives planned under JNNURM include the following: 1. A new intake from the Muvattupuzha River at Pazhoor, about 20 km from the city, and a new treatment plant. The quantity drawn from Periyar River will also be increased; 2. Development of a SCADA system and re-zoning of the network, to reduce unaccounted for water and improve operational management; 3. Energy conservation measures through the repair and rehabilitation of electrical and mechanical equipment; 4. Removal of unnecessary standposts; and 5. Development of a city-wide sewerage network and decentralized sewage treatment based on zonal treatment plants. New building rules will make sewer connections mandatory. Kochi 9

10 Box 5.2: Urban development initiatives in Kochi 1. JNNURM Kochi is one of two cities in Kerala being assisted by JNNURM. The complete package of support addresses not only water supply and sewerage but also solid waste management, storm water drainage, traffic and transportation, poverty alleviation, social amenities, environmental improvements and tourism, amongst other things. 2. KSUDP This covers five Municipal Corporations in Kerala: Kochi, Kollam, Kozhikode, Thrissur and Thiruvananthapuram. The objectives are to improve the urban environment, economy and living conditions. Project support will cover urban infrastructure and services including water supply and sanitation, drainage, solid waste management, roads and transport as well as livelihoods initiatives and improvements in urban management, planning and financing. The Project is expected to be completed by the end of A common Project Implementation Unit is managing the implementation of both projects. 5 Water Supply and Sewerage Finances 5.1 Cost recovery: current performance KWA receives the bulk of its funds from user charges, grants and loans from the government of Kerala, grants from the Government of India (GoI) and loans from financial institutions including the Housing and Urban Development Corporation (HUDCO) and the Life Insurance Corporation of India (LIC). Revenue While KWA has shown an operating surplus since 2005, overall operations are making a loss (Table 5.2). Operating income has grown at a cumulative rate of 10 percent though income from water supply has grown at a rate of just 7 percent. The grant component of the operating income has increased at a rate of 14 percent, though the share of grants in the total revenue income has decreased to 39 percent. Capital income is entirely based on grants and loans. Amongst this, the planned loan component from the state government has increased by 167 percent while state grants have decreased. Expenditure Revenue expenditure has increased by 4 percent. Establishment expenditures have grown only slightly, O&M costs by 7 percent and power charges, which fluctuate, have decreased. The percentage of O&M expenditure to revenue expenditure has remained more or less stable at percent, while establishment costs have reduced from 64 to 56 percent from 2003 to Overall capital expenditure has grown by a massive 58 percent, including a growth of 248 percent in centrally-sponsored schemes. Loan repayments have grown by just 8 percent. Kochi 10

11 Table 5.2: Overall Accounts of Kerala Water Authority (in Rs million) Financial Year Revised Estimates Estimates REVENUE ACCOUNT Grant from government of Kerala % Grant from GoI for O&M of ARWSS % Total Government Grants % Income from water supply % Income from sewerage charges % Interest receipts % Other income % Income due to proposed tariff/nonplan grant 1050 Revenue from own source of KWA % Total Revenue Receipts % CAGR Salaries, establishment and other expenses % O&M charges % Power charges % Investments for provident fund/pension % Interest on loans from LIC/HUDCO/banks Interest % Total Revenue Expenditure % Surplus/Deficit against Own Source Income % Overall Operative Surplus/Deficit % CAPITAL ACCOUNT Grant from government of Kerala-Plan-KWA % Loan from government of Kerala- Plan % Centrally-sponsored ARWSS % 50% centrally-sponsored AUWSS % Centrally-sponsored-TM-RWSS Centrally-sponsored other schemes % Loan from LIC Loan from HUDCO Loan from bank/nabard % Debts, deposits and recoveries % Total Capital Receipts % State plan schemes % Centrally-sponsored schemes % Schemes outside state plan Share debit from salaries, establishment and other expenses 43% Debts deposits and recoveries % Repayment of loans from LIC/HUDCO/bank % Total Capital Expenditure % Total Income % Total Expenditure % Surplus/Deficit % Kochi 11

12 Financial status of Kochi Division operations The following analysis is based on data for Public Health Division Kochi in totality (Table 5.3). While accounts are maintained at the Divisional level, no financial planning or analysis is undertaken there since overall financial control rests with the Head Office. Operations in the Division have fluctuated between surplus and deficit over the review period. This is largely due to irregular disbursements from the Head Office. Income from water supply constitutes 93 percent of total revenue receipts, with the nondomestic category accounting for 46 percent, domestic 35 percent, and local body 11 percent. Total revenue receipts have grown at a cumulative rate of 3 percent, though the revenue under all consumer categories is miniscule in absolute terms since there is virtually no service charge. For sewerage, the nondomestic and industrial categories generated zero revenue and the domestic category generated just Rs. 30,000 in Table 5.3: Operating Account of Public Health Division Kochi (in Rs. million) Water Supply (Estimates) Share in Total Revenue Receipts Domestic % 1% Nondomestic % 13% Industrial % 23% Sewerage Services Domestic % 22% CAGR Nondomestic % -100% Industrial % From Local Body Water supply % -17% Sewerage system % Maintenance % Other income % -47% Deposits % -30% Interest income % 216% Total Revenue Receipts % Share in Total Revenue Expenditure O&M charges % -15% Power charges % -42% Establishment expenses % 4% Office expenses % 30% Travel/administration expenses % 4% Total Revenue Expenditure % Operative Surplus/Deficit % Revenue expenditure in the Division constitutes 3 percent of KWA s total revenue expenditure, since most costs (including O&M, salaries, power, etc.) are paid centrally by the KWA Head Office. Due to a financial crisis in KWA, power bills have not been paid for over a year. Kochi 12

13 Salaries and establishment costs constitute 85 percent of revenue expenditure in the Division, while O&M expenditure accounts for 11 percent. Overall the Divisional operations show an operating surplus of Rs million in but with nearly stagnant income and expenditure. Billing and collection Computerized bills are generated bimonthly for domestic consumers and monthly for nondomestic ones based on meter readings, though KWA officials estimate that one-third of the meters are not working. Bills are payable at four subdivisional offices. Table 5.4:: Demand Collection and Balance Statement for Public Health Division Kochi (in Rs. million) Year Arrears at the Current year Total Demand Recovery Any Rebate/discount Total Recovery Total Arrears Collection Efficiency beginning of the year Demand given at the end of year (2+3) 5.6 7(5-6) 8(4-7) 9 (7/4) % % % % (Apr to Oct) % Collection efficiency of the division has been decreasing in recent years and in stood at just 13 percent (Table 5.4). KWA has a penalty clause for nonpayment of water charges of Rs. 5 per month for domestic users and 2 percent of arrears monthly for nondomestic consumers. However, the current billing and collection software does not have the capacity for applying these penalties. Efforts are underway to resolve this. Sewerage charges No sewerage charge is applied in the small part of the city that has a network. A connection fee is theoretically applied for new connections, but very few premises pay it since it is easy to discharge wastewater into the many water bodies in and around the city. 5.2 Tariff Structure State policy stipulates that KWA should recover maintenance and debt service costs with a view to securing an economic return on its fixed assets. At present, a common tariff structure is applied throughout the state, based on volumetric slabs and metered connections. Tariffs are set by KWA with approval from the state government for any revisions. Tariffs and charges from 1991 onwards are provided in Table 5.5. The last revision of tariffs happened in 1999 and included a clause for an annual 15 percent increase in water charges with the concurrence of the state government. This permission has not been granted despite petitioning from KWA. Kochi 13

14 Table 5.5: Tariff Structure for Water Supply Category Domestic Nondomesti c Industrial Street Taps/Stand posts Monthly Consumption 0-10 kl " " Above 50 " 0-50 " Above 50 " For the monthly consumption Rate from Jan 1, 1991 to April 31, 1993 Rs.1/kl subject to mini. of Rs. 10/ month Rs.10 Rs.1.5/ kl for above 10 kl Rs. 40 Rs. 2/ kl for above 30 kl Rs. 80 Rs. 3 kl above 50 kl Rs.3/ kl mini. Rs. 25/ month + Rs. 1 as SC Rs Rs. 4/ kl for above 50 kl Rs.5/ kl subject to mini. of Rs. 100/ month Existing Water Supply-related Fees and Penalties Rate from June 1, 1993 to April 31,1994 Rs.1.5/ kl subject to mini. of Rs. 15/ month Rs.15 Rs.2/ kl for above 10 kl Rs. 55 Rs. 3/ kl for above 30 kl Rs.115 Rs. 4 kl for above 50 kl Rs.4/ kl mini. Rs. 50/ month + Rs. 2 as SC Rs Rs. 6/ kl for above 50 kl Rs.6/ kl subject to mini. of Rs. 100/ month Rate from June 1, 1994 to March 31, 1999 Rs.1.7/ kl subject to mini. of Rs. 17/ month +Rs.2 as MIC Rs.19 Rs.2.3/ kl for above 10 kl Rs. 65 Rs.3.45/ kl for above 30 kl Rs Rs kl above 50 kl Rs.4.60/ kl mini. of Rs. 60/ month +Rs. 2 as MIC Rs Rs kl above 50 kl Rs.6.90/ kl subject to mini. of Rs. 100/ month Rate from April 1,1999 Till Date Rs.2/ kl subject to mini. of Rs. 20 per month+rs.2 as MIC Rs.22 Rs.3 / kl for above 10 kl Rs.82 Rs. 5/ kl for above 30 kl Rs Rs / kl above 50 kl Rs.7.35/ kl mini.of Rs. 100 month +Rs. 2 as MIC Rs Rs / kl or above 50 kl Rs.10.60/ kl mini. Rs month +Rs. 2 as MIC Rs per tap per year in KMC area Cost of application form for new water connection 15 Domestic connection 500 Fee for Nondomestic connection 1000 Industrial connection 1000 Special casual connection 1000 Street main extension 500 Deposit for special casual connection Rs /m 2 Renewal charges for special casual connection Rs. 250/annum Inside installation 50 Inside extension 50 Alteration to house connection Cost of application 15 Alteration fee 100 Temp/permit disconnection Cost of application 15 Fee 50 Reconnection Cost of application 15 Fee 50 Disconnection and reconnection Cost of application 15 Fee 100 Reconnection for meter stolen cases Cost of application 15 Fee 50 Kochi 14

15 Table 5.5: Continued Change of ownership Fee 15 Category conversion Fee 5 Meter replacement 10 Duplicate meter reading card 10 Duplicate provisional invoice card 10 Meter hire (department meters) 10/ month Meter inspection charges 2 /month Meter testing fee 15 mm & 20 mm mm mm mm mm 50 Domestic 5 /month Fine for nonremittance of water charges Fine for non-replacement/ repair of nonworking water meter Nondomestic-2% of outstanding arrears on a monthly basis minimum Rs.10 Industrial - 2% of " " Rs.10 Casual - 2% of " " Rs.10 After one month of notice 25% of PIC After two months of notice 50% of PIC After four months of notice (till disconnection) 100% of PIC Fine for malpractice of the connection 50 to 500 Application fee for complaints 5 Fine for malpractice of the water supply connection by plumber 100 to 500 Sewerage rates are given in Table 5.6. Table 5.6: Fee for Sewer Connection and Related Services Application Fee Category Fee Residential houses, nondomestic and industrial (new) sewer connections Rs. 50 Residential flats, residential complexes like colonies (new) Rs. 200 For repairs, alterations, etc. Rs. 50 For category conversion Rs. 50 For disconnection/reconnection Rs. 50 Connection Fee and Security Deposit Category Connection Fee Security Deposit Domestic connection 10% of the estimate cost - minimum Rs. 500 Rs. 500 Nondomestic " 10% of the estimate cost - minimum Rs.1000 Rs Casual " 10% of the estimate cost - minimum Rs.1000 Rs Industrial " 10% of the estimate cost - minimum Rs.2500 Rs Fee for Repairs/Alterations/Disconnection/Reconnection Repairs/Alteration 10% of estimated cost - minimum of Rs.100/- Disconnection Rs. 200 in all cases Reconnection Rs.100 in all cases Change of Ownership Ownership change Rs. 100 " in case of legal heirs - domestic Rs. 50 " for residential complex / flat type Rs. 150 Kochi 15

16 5.3 Consumer Profile Kochi Division has 123,636 registered water connections against a population base of 650,000 (Table 5.7). Eighty-seven percent of consumers are domestic and there has been a moderate growth in new connections, while 5% 1% 0% nodomestic and industrial categories have 7% been stagnant (Figure 5.4). The majority of connections are household connections (87 percent), followed by nondomestic connections (7 percent), panchayats (5 percent), corporations (1 percent) and industrial (0 percent). The reason for industrial connections being so low is largely that many being counted under nondomestic connections also. Figure 4: Distribution of Water Connections over Consumer Categories (as of ) 8 7 % Domestic Non Domestic Industrial Panchayats Corporations Table 5.7: Number of Water Connections in Public Health Division Kochi Individual Connections (Dec) Domestic Nondomestic Industrial Sub Total Street Taps/Standposts Panchayats Corporations Sub Total Total Analysis 6.1 Cost recovery Water supply and sewerage services in Kochi appear to have an operating surplus, with almost stagnant revenue income and expenditure. However, proper analysis and management of cost recovery is very difficult when most operating costs are borne centrally. Finances need to be managed on a divisional basis if JNNURM objectives are to be met. One of the principal challenges for the Division is to reduce the high level of unaccounted for water arising from technical losses and free standpost supplies. This problem is coupled with low collection efficiency or capacity to increase service coverage. There is also substantial scope for revising the tariff structure. Nonrevenue water Roughly one-fifth of the total supply is lost in transmission and distribution due to old and corroding pipelines. This amounts to an annual revenue loss of Rs million based on the minimum tariff of Rs. 2 per kl kld x 0.20 = kld loss of water x 365 days = Annual water loss of kl x Rs. 2 = million. Kochi 16

17 There are more than 6,000 standposts in the city, operating for eight hours per day. KMC pays for this water, but at just Rs. 2,628 per tap per annum. Furthermore, the standposts are widely used by commercial operations, hence the loss in potential revenue is enormous. Collection efficiency The collection efficiency of Kochi Division was just 13 percent in If this was improved to 50 percent, it would generate an additional Rs. 169 million. Improvement to the international benchmark level of 90 percent total collection would generate Rs. 418 million compared to the current figure of Rs. 61 million. Coverage Based on a population of 650,000, the Division should have at least 130,000 2 household connections, when it currently has just under 108,000. Achieving the higher figure would yield an additional Rs. 13 million 3 per year based on current tariffs, or Rs. 23 million at the rate proposed below. Tariff structure The tariff has not been revised since 1999 and is too low to enable recovery of operational costs, which currently stand at Rs. 4.5 per kl excluding interest and depreciation. Furthermore, the tariff structure provides up to 30 kl per household (which is considerably more than subsistence consumption) at just Rs. 2-3 per kl. Taking interest and depreciation into account, the real production and maintenance cost is estimated at Rs. 8.5 per kl. Using a hypothetical flat rate of Rs. 4.5 per kl for domestic connections, and a consumption of 20 kl per month, the revenue potential from existing domestic connections would be Rs. 116 million per year against the current Rs. 64 million. In short, Kochi Division has the potential to improve revenue generation dramatically from current levels (Table 5.8). Table 5.8: Revenue Generation Potential from Multiple Reform Areas Reform Area Potential Revenue (Rs. million) Controlling distribution losses and leakages of 20% 21 Collection efficiency at 90% 357 ( at 13% collection efficiency) Increasing coverage by connections 23 Revising tariff structure for domestic connections to Rs 4.5/kl 52 (116-64) Total Economic efficiency Current tariff rates do not provide any incentive for users to moderate their consumption. Monthly domestic bills are just Rs. 52 for 20 kl consumption or Rs. 82 for 30 kl and easily affordable even for poor households. With one-third of domestic meters being faulty, economic management of the service is even more challenging. 6.3 Equity and protection of vulnerable sections Standposts were installed at KMC s request to serve slum dwellers, but coverage with metered connections is now so high that very few slum dwellers use them. Instead, the poor 2 Assuming a household size of five members, on a population base of 0.65 million. 3 This figure is calculated based on 20 kl consumption per household connection per month at existing tariff rates. Kochi 17

18 are expected to pay the same rate as other domestic consumers. This might be regarded as unfair were it not for the fact that tariff rates are extremely low. 6.4 Affordability The current rate of Rs. 2 per kl up to 10 kl and Rs. 3 per kl for kl consumption, plus a Rs. 2 per month service charge, amounts to a monthly domestic bill of Rs 52. for 20 kl consumption. This translates into 1.86 percent of the monthly budget for people on the poverty line (currently set at Rs. 559 per person per month), well below the WHO benchmark of 5 percent. 6.5 Resource conservation While a volumetric tariff is in place, tariff rates are so low that they do not provide an incentive to moderate consumption. Moreover, leakages and technical losses are extremely high. KWA has no legislative tools or incentive schemes for promoting water harvesting, bearing in mind the ecological sensitivity of the area. 6.6 Acceptability and practicality The volumetric tariff is practical and fair, enabling clarity and ease in the calculation of water charges. 7 Summary While operations in Kochi are nominally in surplus, service provision needs improvement as the per capita availability varies from 20 to 90 lpcd across the city. If KWA is able to implement the various improvements outlined here, the problems associated with NRW could be largely resolved, and safe management of excreta achieved for the first time. 7.1 Recommendations KWA should prioritize the following actions: Install flow meters at source to enable the management and monitoring of production and a reduction in unaccounted for water; Incentivize the maintenance of metered connections; Adopt collection targets and incentivize staff to meet them. Private sector participation in billing and collection could also be useful; Introduce stricter penalties for nonpayment of charges; Develop user-friendly systems, including adequate and conveniently sited payment points and online payment options; Promote water harvesting through legislative reforms, incentive schemes and awareness generation; and Adopt interim measures to control the discharge of untreated wastewater, pending the development of city-wide sewerage which will take years to complete. A sewage treatment plant could be constructed on the main canal to protect Vambanadu Lake. In addition, tariff reform is essential, though this is a politically sensitive issue and any price rise may meet with stiff resistance from the public and civil society organizations. In revising the tariff, the first priority should be to ensure that the poor can afford at least a minimum level of service, using carefully targeted subsidies if absolutely necessary. Kochi 18

19 This could be done by providing free house connections in line with the JNNURM mandate, and introducing an increasing block tariff while retaining the first, lifeline block at the current rate of Rs. 2 per kl, up to a maximum of 10 kl consumption per month. Amongst the existing consumer base, 20 percent are in the 0-10 kl water consumption category and 40 percent per cent in the 0-30 kl category, while the rest are bulk nondomestic consumers (Table 5.9). It should therefore be possible to introduce an additional kl to promote Table 5.9: Percentage of Consumers in each Volumetric Slab Up to 10 kl 20% Up to 30 kl 40% More than 30 kl 20% (commercial) More than 50 kl 20% (industrial) economic efficiency. This slab could be priced at the operational cost of Rs. 4.5 per kl. For consumption beyond 20 kl, prices should be set at a level where they act as a deterrent for wastage and over-consumption. A price of Rs. 8.5 per kl would recover interest and depreciation costs. For commercial and industrial users consuming beyond 30 kl per month, a reduction in the current rate to Rs. 10 per kl is proposed, for reasons of fairness and to help promote capital investment and economic growth. Kochi 19