Reducing Leakage: Subsidies and Tariff Reform in Water and Sanitation Services in Metropolitan Lima, Peru

Andrés Gómez-Lobo, Tomas Serebrisky, Ben Solís Sosa, Helena Cárdenas, Mauro Orlando Gutiérrez Martínez and Sandro Alejandro Huamaní Antonio
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Andrés Gómez-Lobo: Department of Economics, Faculty of Economics and Business, University of Chile, Santiago, Chile
Ben Solís Sosa: ��Inter-American Development Bank, Washington D.C., USA
Helena Cárdenas: ��Global Science Team, The Nature Conservancy, USA
Mauro Orlando Gutiérrez Martínez: �National Superintendence of Sanitation Services and Peruvian University of Applied Sciences, Lima, Peru
Sandro Alejandro Huamaní Antonio: �National Superintendence of Sanitation Services and National University of San Marcos, Lima, Peru

Water Economics and Policy (WEP), 2023, vol. 09, issue 02, 1-37

Abstract: Water utility companies around the globe are seeking to improve their financial sustainability and expand services in growing urban areas, while guaranteeing low-income families access to water. In Lima and Callao, the biggest metropolitan area in Peru, an important tariff reform for their water and sanitation services was implemented in 2017. The new policy differentiated tariffs between customers residing in poor and non-poor blocks, and revised the subsistence level (lifeline block) used in its tariff structure from 25 to 20m3. This study uses utility historical billing records of the population to evaluate three outcomes: (i) the effect on the subsidy amount received by poor and non-poor households at different consumption levels, (ii) the subsidy distributive incidence, and (iii) the effects on the utility’s financial situation. Results show that after the reform, the subsidy for the poor was 45% higher than that of non-poor households at 14m3, the mean consumption of subsidy-eligible households. Subsidy targeting changed from being regressive to progressive, with the poor receiving 22% more than they would have under a random subsidy scheme. In turn, by reducing subsidies to non-poor households, the utility’s monthly income from customer payments has increased by 7%.

Keywords: Residential water demand; subsidy distributive incidence; tariff reform (search for similar items in EconPapers)
JEL-codes: H22 L95 N56 O18 Q25 Q56 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1142/S2382624X23500042

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