a review of water pricing in water supply

1. 2013
Method of Water Pricing in water
supply:
A case study of Kathmadnu
Upatyaka Khanepani Limited
(KUKL), Nepal
An assignment submitted for Water
Resources Systems
Water is a social good and it is people’s right to access to quality drinking water.
But it is limited and vulnerable and it is challenge to use this resource wisely.
Effective pricing in the use of water can also help to use it carefully. The pricing in
the water supply is not only the charge for the use of water but also the charge for
the effective management and treatment of wastewater generated from it. So the
pricing of water supply should be done carefully. This assignment reviews the
method of water pricing in KUKL, Nepal.
Suwash Chandra Acharya
Graduate student, Water Engineering and Management, AIT, Thailand
9/20/2013

2. Contents
Introduction ...................................................................................................................................... 1
Water Pricing Concepts in Water Supply ........................................................................................ 1
Background : Kathmandu Upatyaka Khanepani Limited(KUKL) ....................................................... 1
Methods of water pricing .................................................................................................................. 2
Uniform rates ............................................................................................................................ 2
Declining block rates .................................................................................................................. 2
Increasing block rate .................................................................................................................. 3
Seasonal rate ............................................................................................................................. 3
Flat rate ..................................................................................................................................... 3
Comparison of various methods ................................................................................................ 3
Pricing of Water Supply by KUKL ........................................................................................................ 4
Conclusions and Recommendations .................................................................................................. 6
Conclusions ................................................................................................................................... 6
Recommendations......................................................................................................................... 6

3. Introduction
Water Pricing Concepts in Water Supply
A water price is the price assigned to water supplied by public utility generally for both freshwater
supply and wastewater collection and treatment. Water pricing itself is an important management
tool that can be used to assist to improve the delivery of water and sanitation services. The water
supply utilities needs fund to run the water supply system. The cost for conveyance of water to
treatment plant, and cost of treatment and further distribution of water to consumer should be
managed by the utility. The water pricing is done to run the system effectively and sustainably.
Water pricing is done to discourage excessive use of water, and promoting the conservation of
water.
For consumers, the water price should be as cheap as possible. For utilities, it should be enough to
cover all running cost so that the system can be operated effectively. But from the environmental
point of view, it should be as expensive as possible so that the resource is not wasted. So, fixing
water price is not an easy task. To make Water supply system socially, economically and
environmentally sustainable, it is essential to define an appropriate price for water.
Background : Kathmandu UpatyakaKhanepani Limited(KUKL)
Kathmandu UpatyakaKhanepaniLimited (KUKL) is a public company whose objective is to undertake
and manage the water supply and sanitation system of the Kathmandu Valley. It aims to provide
quantitative, qualitative and reliable service to its customers at an affordable price. With its central
office at Tripureshowar, Kathmandu, it provides its service to Kathmandu valley. KUKL is responsible
for the operation and management of water and wastewater services in the Valley.
Figure 1: Water Distribution Areas of KUKL
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4. Along with providing services to its consumers, it also collects tariff on behalf of the water supplied.
But, water is a social good and is essential for human life, social justice and human right should be
considered in fixing the water price. Various methods can be applied in fixing the water price as per
its suitability of the method. And, this report reviews the pricing method adopted by KUKL in
providing water to its consumer.
Methods of water pricing
There are various methods prevailing for the water pricing. The tariff to be paid by the consumer
should be fixed after careful analysis of the source of water, its cost and the targeted consumer
group. It should not be controversial and should be free from public criticism. The various methods
that can be employed for fixing the tariff for water supply are:
Utilities might consider uniform rates when
Price($/cubic metre)
Uniform rates
Uniform water rate is expressed as constant cost per metered volumetric unit of water used in
certain time.This method of pricing requires metered service and can be applied to all type of
consumer (residential, commercial, or industrial).
Uniform rates are relatively simple for water utilities to
implement and for customer to understand. A uniform
1
rate sends customers a usage based price signal.
0.8
Although the unit price is constant, customer bill will
0.6
increase with increased water use.
0.4
0.2
0

Customer groups or service classes exhibit
similarities in usage (demand) characteristics.

Simplicity and customer understanding of the Figure 2: Relation between Quantity of water and unit
price in Uniform rate method
rate structure are valued highly.

Rate uniformity adequately addresses efficiency
and conservation concerns.
Price($/cubic metre)
Declining block rates
Declining block rate is a rate structure in which the unit
price of each succeeding block of usage is charged at a
lower unit rate than previous blocks. In areas with
sufficient supply of water is available, declining block
rate is frequently used. Although, this method seems to
be a quantity discount and favorable to large volume
users of water, this method reflects the manner in which
costs are incurred by the utility.
0
10
20
Quantity(cubic meters)
30
1
0.8
0.6
0.4
0.2
0
0
10
20
30
Quantity(cubic meters)
Utilities may consider using a declining block rate when

System costs decline with increasing water
usage.
Figure 3: Relation between Quantity of water and unit
price in Declining block rate method
2

5. It seems essential to encourage specific largevolume users to remain in the system.
Increasing block rate
Increasing block rate charges increasing volumetric rates
for increasing consumption. This method, if properly
designed, recovers class specific service and gives more
conservation-oriented price signal to the class.
Price($/cubic metre)

1
0.8
0.6
0.4
0.2
0
0
10
20
30
Quantity(cubic meters)
Increasing block rates should be considered by a water Figure 4: Relation between Quantity of water and unit
price in Increasing block rate method
utility when the utility

Is able to distinguish separate customer class for billing.

Would like to send a stronger price signal.
Seasonal rate
A seasonal rate is a form of time differentiated rate or a rate that varies by time period. It
establishes a higher price for water consumed during a utilities peak demand season, usually
reflecting the increased costs of providing service during those periods. The objective of seasonal
rate is to match the price with demand patterns and provide a price incentive for customers to
reduce their consumption during peak season.
Seasonal pricing can be effective in the cases where

There is significant variation in costs between high demand and low demand periods.

There is significant variation in demand between high demand and low demand periods.

A utility is capacity constrained as a result of peak period demands.
Flat rate
In flat rate, the charge to be paid by consumer is same irrespective of the volume consumed. This
system is used when there is abundant water available and metering is not needed to give people an
incentive to reduce water consumption. This is the only method that can be used in case of nonmetered water supply. The fixed charges, without considering volume use, in the long term, do not
generate revenues for future service expansion and also may lead to poor service.
Comparison of various methods
In overall, the Figure 5 shows the comparison between price per unit volume and Total volume in
different pricing systems. In the Figure 6, the price rate and system used in Figure 5 is used to show
the total price for the given volume of water for the different methods. This gives how the price
varies in different systems on water pricing.
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6. Price ($/cubic meters)
1
20
0.8
15
uniform rate
0.6
10
0.2
increasing
block rate
5
0.4
decreasing
block rate
0
0
10
20
30
0
Quantity (cubic meters)
0
10
20
30
Figure 5:Price of water versus quantity of water in Figure 6: Monthly water bill versus quantity of water under
different pricing systems
different pricing methods
Pricing of Water Supply by KUKL
The water is supplied to consumers by Kathmandu UpatyakaKhanepani Limited (KUKL) is of both
type: metered and non-metered. The charges adopted are different for the metered and nonmetered cases. The charge of water supply by KUKLalso variesupon the pipe size (inch) used. The
detail of the tariff(per month) used by KUKL for metered tap is presented in the Table 1.(Conversion
from US$ to NRS is taken as 1US$ = NRs. 98.80, as per 19 September 2013)
Table 1: Monthly water tariff of tap with meter (source: KUKL)
Pipe size
(inch)
Minimum
Use (cum)
Minimum
Tariff (NRs)
0.50
0.75
1
1.5
2
3
4
10
27
56
155
320
881
1810
55
1053
2184
6045
12480
34359
70590
Minimum
Tariff (US$)
0.6
10.7
22.1
61.2
126.3
347.8
714.5
Tariff for every
additional m3 of
water(NRs)
Tariff for every
additional m3 of
water (US$)
17.5
39
39
39
39
39
39
0.2
0.4
0.4
0.4
0.4
0.4
0.4
The waterpricing is done by two part tariff system. The total price is sum of two calculations: (a) a
fixed charge and (b) a charge related to the amount of water used. The fixed charge is relatively low
in value and used for recovering the fixed administrative costs associated with meter reading and
billing. If customer uses within minimum use volume, then he/she will have to pay this fixed
(minimum) charge. The additional charge will incur if customer uses more than minimum value. This
additional charge is based on uniform rate of 0.2 US$ per cubic meter (for 0.50 inch pipe size). This
combination of pricing system encourages the customer to use minimum amount of water to reduce
the overall cost. But in case of larger pipe diameters which are used by industrial sector (or any
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7. productive sector other than household), the additional cost per cubic meter is low and equal for
pipe sizes 0.75 inch to 4.0 inch. This will encourage the large water users to use water freely and the
method implied is uniform rate.
Similarly, for non metered taps, the tariff for monthly water use is presented in the Table 2. This
data reveals that the method of pricing in non-metered taps is Flat rate method. The monthly tariff is
not dependent upon the quantity of water used as it is not possible to measure the actual quantity
in absence of meters. The rate is higher than corresponding pipe size in metered taps.
Table 2: Monthly water tariff for non- metered tap (source: KUKL)
Pipe size (inch)
Monthly Tariff
(NRs)
Monthly Tariff
(US$)
0.50
432
4.4
0.75
2535
25.7
1
5265
53.3
1.5
14508
146.8
2
29952
303.2
3
82485
834.9
4
169416
1714.7
Charge (US$)
Figure 7 shows the comparison of total charge in metered and non-metered taps with increasing in
quantity used. As the method adopted for non-metered tap is flat rate, the amount to be paid is
constant for each quantity. But for metered
35
tap, the minimum price for some volume is
30
fixed. So, after that, increasing in volume
25
used will increase the total price of water. If
lesser volume is used, the price is low for
20
metered tap. But for higher volume, the
15
cost for non-metered taps will be low.
10
5
For example, for 0.5inch pipe, if 29 cubic
0
meters of water is used then the price for
0
20
40
60
80
100
metered tap and non-metered taps are
equal. For the volume greater than this,
Total volume of water used (cubic meter)
non-metered taps seems to be cheaper. This
Pipe dia 0.5"- metered
Pipe dia 0.5"- unmetered
will increase water use by non-metered
users and will not use water efficiently. And,
Pipe dia 0.75"- metered
Pipe dia 0.75"- unmetered
in the same area, if there are metered and
non-metered taps, the people using non- Figure 7: Comparison of charge for total volume of water used in metered and
non-metered taps
metered tap will sell water to the metered
one in cheaper price. This will further
encourage not to preserve the water.
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8. Conclusions and Recommendations
Conclusions
The water pricing methods adopted in distribution of drinking water in Kathmandu Valley by KUKL
are two types: Flat rate method and combination of two pricing system. The former is used for nonmetered tap as it is the only method that can be applied for non metered taps. The later is
combination of fixed minimum value and uniform rate. Although this is better one but fails to
control water to large water users due to low and uniform rate.
Recommendations
There is huge difference in supply and demand of drinking water in Kathmandu Valley. So, it is
essential to adopt some methods that can reduce unwanted use of water and reduce the deficit
between demand and supply. The combination of pricing system should be done for the efficient use
of water. At the time of deficit, the method adopted should be conservation oriented. The seasonal
rate can be used in addition to increasing block rate so as to conserve water. The increasing block
rate method is difficult in the sense that if it is poorly designed, will be inequitable. Also, the
increasing block rate method is difficult in implementation regarding communication with customers
and make them understand about the pricing system. Despite these difficulties, the deficit in water
supply is the major issue to be solved by KUKL in present situation. So, the seasonal rate method
coupled with increasing block rate is suitable method for the water pricing in Kathmandu Valley.
References
1. Principles of water rates, fees and charges, By American Water Works Association
2. http://www.sswm.info/category/implementation-tools/water-use/software/economic-tools
3. http://www.kathmanduwater.org/home/index.php
4. Water tariffs and subsidies in South Asia, Series Editor: Clarissa Brocklehurst, December
2002
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