4 Affordability and costs

4Affordability and costs

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This chapter discusses the factors contributing to WSS affordability, and the financial and non-financial costs borne by unconnected households, particularly in rural areas.

Access to safe and reliable WSS is only one side of the coin. For access to be meaningful, the service (when provided by a third party) or resource (when provided by the household itself) must be affordable. Affordability is one of the central goals of SDG 6 and it needs to be taken into account as EECCA countries reconsider their approaches to expanding WSS services. In the EECCA region unit costs (per m3 or per person served) tend to be high compared to the level of service received by end-users. Affordability is an issue in several EECCA countries, especially topical in rural areas where household income is typically lower. Ability-to-pay (ATP) and willingness-to pay (WTP) assessment following well-established methodologies developed by the EBRD and OECD help prevent from over-estimating this issue it by populist politicians. A threshold of between 3% and 5% (a mean of 4%) of disposable household income is typically used to define affordability,1 but this varies by country and community context.2 For example, water rich countries like Kyrgyzstan and Tajikistan may have a threshold of 2.5-3%. Countries that experience permanent or seasonal water stress and who therefore assign a higher value to scarce water, like Moldova, might have a threshold of 5%. For this reason, data on household WTP is given significant weight. Low-income customers can be protected, but capacity of existing, not always well-targeted, social support systems in many EECCA countries is very limited.

3

Not having access to water imposes a cost on individuals and communities. There are financial and nonfinancial costs associated with the delivery of WSS services. Financial costs. Rural communities who do not have access to improved WSS services face different cost structures from their urban counterparts. Tariffs account for most urban water

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expenses. In rural areas, costs break down differently and households may rely on multiple sources for different purposes - tariffs are paid to the provider, bills are paid for water procurement from other sources (e.g. bottled water, water tanker trucks), and finally, costs for maintenance of own wells, often used because of low reliability of water supply. These sources are divided by use, because of the high level of unreliability and high cost of quality (drinking water may be purchased separately from piped or well water). Non-financial costs. The cost of not having access to clean, safe water can manifest themselves in poor health and reduced educational achievement, which in turn depress current and future earnings. Inhabitants of settlements without drinking water supply suffer disproportionately from diseases caused by the consumption of contaminated water, generating serious medical costs and major economic losses.4 Addressing these problems then imposes further costs, for example, through boiling and decontaminating water. There may also be issues of safety, for example, women needing to leave the house to collect water. In Uzbekistan, a survey found that one fifth of women without household sanitation facilities felt unsafe using the sanitation facilities available to them.5

Typically, households who rely on self-supply also spend money to maintain individual water supply sources (borehole or shallow well) and bear the costs of repairs, water treatment, and water transportation. These households may sometimes buy potable water, but this expenditure is relatively low compared to other water use. Overall, households that pay for, or bear the costs of, non-piped water services tend to incur higher per unit costs than households with piped connections, including higher financial costs and non-financial costs in terms of time or health.6

In the EECCA region, tariffs and cost of service vary across countries, their provinces and municipalities. Cross-subsidies from businesses and institutions to household are commonly used to suppress household tariffs. State support measures targeted at vulnerable households also help soften the affordability constraints. However, affordability issues still exist - primarily in very poor or high cost of service areas, e.g., some communities can rely on gravity fed water while others must cover the cost of pumping water. Unique topographical challenges, such as villages located in highlands (found in eastern Kazakhstan, Kyrgyzstan or Tajikistan) or hilly areas along water courses (as is common in Moldova) with large distances between private homes, increase the costs and complexity of system design and operations. Infrastructure needs, including pumping, and therefore financing arrangements, depend on resource endowments, fresh water sources, energy options to provide the service, geographic factors, community size, etc. Financial sustainability is also part of the story (see Financing chapter): an affordable mechanism that relies too heavily on external support may not be around by 2030. Additionally, there must be a recognition that the “best” water system is not always possible and cannot always meet costly construction norms. Therefore, there has to be a willingness to find, implement, and promote lower cost solutions for reliable supply of safe water. Also, there must be willingness to pay, willingness to charge, and tariffs that cover costs. This is one of the most difficult conundrums to address in the water sector.

When aiming for universal access (‘’no one left behind”), countries need to think about the affordability of WSS systems or self-supply that they incorporate into their policies and legislation. Otherwise, implementation will be too costly to cover all those who need safe water and proper sanitation.

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References

Mitlin, D., et al. (2019), “Unaffordable and Undrinkable: Rethinking Urban Water Access in the Global South”, https://www.wri.org/wri-citiesforall/publication/unaffordable-and-undrinkable-rethinking-urban-water-access-global-south. OECD (2020), The Social Consequences of Pricing Water, OECD Publishing, Paris, https://www.oecdilibrary.org/sites/e1b8a4b6-en/index.html?itemId=/content/component/e1b8a4b6-en#endnotea2z4

OECD (2008), National Policy Dialogue on Financing Strategy for Rural Water Supply and Sanitation in Armenia, OECD

Publishing, Paris.

OECD (2003), Environmental Financing Strategy for the Municipal Water and Wastewater Sectors in the Ukraine Background Analysis, OECD Publishing, Paris, http://www.oecd.org/environment/outreach/34055317.pdf.

Swiss Agency for Development and Cooperation (2014), “Water Conveyance Networks in Central Asia: An SDC Project

Strengthens Inhabitants’ Self-Sufficiency”. https://www.eda.admin.ch/dam/deza/en/documents/aktivitaetenprojekte/projekte/factsheet-central-asia-rural-water-supply-and-sanitation_EN.pdf.

World Bank (2015), “The Case of Uzbekistan Social Impact Analysis of Water Supply and Sanitation Services in Central Asia”, https://socialvalueuk.org/wp-content/uploads/2017/03/97832-REVISED-Box394849B-ENGLISH-report-en-ebook.pdf.

Notes

1 While 3% is used as a proxy for affordability limit, such a threshold is highly debatable. The level does not build on any robust assessment. The very concept of a threshold is being challenged. See work by Hutton, Wittington. See also OECD Working Paper (forthcoming 2020) The Social Consequences of Pricing Water, for a discussion. https://www.oecd-ilibrary.org/sites/e1b8a4b6en/index.html?itemId=/content/component/e1b8a4b6-en#endnotea2z4

2 See OECD (2003).

3 See OECD (2008).

4 See Swiss Agency for Development and Cooperation (2014).

5 See World Bank (2015).

6 See Mitlin, D., et al. (2019).