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Who pays for water? Comparing life cycle costs of water services among several low, medium and high-income utilities

Anna Libey, Marieke Adank and Evan Thomas

World Development, 2020, vol. 136, issue C

Abstract: Universal access to safe drinking water will require an investment of over $140 billion in capital expenditures to meet the targets set by the United Nations Sustainable Development Goals. The World Bank estimates that recurring operations and maintenance costs for basic water and sanitation (WASH) services will rise from about $4 billion to over $30 billion per year by 2030, significantly outweighing capital costs for basic WASH services. Yet, available funding from regional, national and international sources regularly prioritizes capital investment in new water infrastructure, leading to significant unfunded operation and maintenance mandates for service providers operating in low-income settings where consumer payments cannot practically cover operating costs. Capital maintenance is deferred, leading to poor utility financial performance and decreased service for water customers. In this paper, we present indicative funding models, valuation of existing assets, and expenditures of four medium-sized urban water utilities in low, middle, and high-income communities representing a broad range of operating contexts. Yet we find common operating challenges. None of the four utilities are spending enough on capital maintenance to sustain service levels, and we find that the gap between the life cycle costs of water service delivery and associated revenues of water services ranges from $1 to $17 per customer each year. Discounting life cycle costs by service and coverage levels further widens the funding gap. All utilities would need additional funding to reach universal access with full coverage of life cycle costs, ranging from 6% of budgets to nearly 8 times current funding levels. This would not be economically or politically feasible through tariffs alone, which are already currently subsidized in all contexts. The contribution of progressive tax monies to subsidize services is taken for granted in high-income contexts and unavailable in poorer ones that must rely on insufficient and irregular foreign aid or national budget allocations in strained economies. These findings contrast with a commonly shared view in the global development sector that local or at minimum regional financial sustainability of water supplies is achievable. Consequently, our findings suggest that national governments and international donors should acknowledge that long term support of local water service delivery is both necessary, appropriate, and likely more cost-effective than current funding models.

Keywords: Life cycle cost; Service delivery; Foreign aid; Cost recovery; Utility business models; Global (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:136:y:2020:i:c:s0305750x20302825

DOI: 10.1016/j.worlddev.2020.105155

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