Rational method of determining water rates: MGP

The recent steep hike in water rates by the Mysore City Corporation (MCC) and the subsequent partial rollback in view of heavy public opposition raises many questions on the capacity of the MCC to come to rational conclusions about important matters concerning the city.

MCC’s first decision to effect a steep hike seems a shot in the dark and the decision to soften the blow a knee-jerk reaction to public outcry. Neither decision appears to be based on a sound analysis of the actual economics of water supply in Mysore, said Maj Gen (Rtd) S G Vombatkere of Mysore Grahakara Parishat (MGP) in a press release.

Everyone agrees that the rates were fixed in an irrational way on both occasions, but many may not know how rates are fixed in a rational manner. Here we indicate the ingredients of a rational determination of water rates. They are:

1. Conduct a detailed survey and find out how many illegal connections are there. Disconnect them or regularise them for a fee. This will give the total number of water connections. This will also give the number of domestic, commercial and industrial connections.

2. Based on the consumption pattern of domestic, commercial and industrial connections, estimate the total consumption by each of these categories.

3. Determine the total annual expenditure on water supply. This will include:

i. Salary to personnel connected with water supply
ii. Electricity charges
iii. Maintenance expenditure
iv. Expenditure on servicing loans (such as ADB loan) taken to improve water supply
v. Depreciation of assets.

4. Analyse and incorporate ways to minimise each of these expenditures. Some ways are as follows. If there are too many staff, reassign them to other departments. Replace old pumps with new energy-efficient pumps so that electric charges are reduced. Monitor the inventory so that needless equipment is not purchased. Use chemicals at the right strength, too little may not do the job and too much is wasteful. Restructure loans to get the benefit  of advantageous interest rates.

5. The expenditure figure, after the previous step is completed, is the minimum possible expenditure. If water supply is to be run as a self-sustaining venture, one has to generate this much revenue from the consumers. Normally, a reasonable profit needs to be earned for upgrading the system and making it better and this profit should be added to obtain the revenue which needs to be generated. There will always be defaulters and the revenue to be generated should also be increased to compensate for the defaulters.

6. Estimate the fixed charge which has to be levied on a consumer, even when he does not use any water. Ideally, this should be just the cost of the meter reader making a trip to take the reading and administrative costs of maintaining and updating the consumer account and should not be more than Rs 10 to 20. Its present value of Rs 125 is too much.

7. Divide the revenue to be raised among domestic, commercial and industrial users, using the data obtained in step 2. Fix slabs and the corresponding water rates so that according to existing consumption patterns, the requisite revenues will be generated.

It has been past practice that domestic consumers are levied the lowest tariff and industrial users levied the highest tariff. So industrial and commercial users are subsidising domestic consumers.

Such cross-subsidisation also exists in electricity supply, but a law has been passed to reduce and eliminate it. It has also been past practice that rates in each class are higher, the higher the slab, to discourage excessive consumption of water. Whether the rates should be increased even more steeply for higher slabs needs to be debated.

This is an outline of the scientific and rational method to determine water tariffs.

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