CHAPTER ONE

INTRODUCTION

1.1 Background

Water is a natural resource of fundamental importance. It supports all forms of life and

creates jobs and wealth in the water sector, tourism, recreation and fisheries (Ntengwe, 2005).

Without water life as it exists on our planet is impossible (Asthana and Asthana, 2001). 97.5% of

water on the earth is salt water, leaving only 2.5% as fresh water of which over two thirds is

frozen in glaciers and polar ice caps. The remaining unfrozen fresh water is mainly found as

groundwater, with only a small fraction present above the ground or in the air. Freshwater is a

renewable resource, yet the world's supply of clean, fresh water is steadily decreasing. Water

demand already exceeds supply in many parts of the world, and as world population continues to

rise at an unprecedented rate, many more areas are expected to experience this imbalance in the

near future (Wikipedia, 2008).

Water forms the largest part of most living matter. Human beings can survive longer

without food than without water (Ayoade, 1975, 1988; NEST, 1991). An average man is two-

thirds water and would weigh only 13kg when completely without water (i.e., dry weight). Plants

need water for photosynthesis and they take their nutrient from the soil in solution. Water is an

important geomorphic agent playing a significant role in weathering the most important energy

regulator in the heat budget of the earth (Ayoade, 1988). The total domestic water needs in

homes with piped water and inside sanitation is at least 115 liters per head per day. The actual

amount used may be greater depending on the ease and convenience of supply (Ayoade and

Oyebande, 1983). According to World Health Organization, 75 liters of water a day is necessary

to protect against household diseases and 50 liters a day necessary for basic family sanitation.

1

The international consumption figures released by the 4th World Water Forum (March, 2006),

indicate that a person living in an urban area, uses an average of 250 liters/day; but individual

consumption varies widely around the globe (THD, 2007). WHO and UNICEF Joint Monitoring

Program currently estimates that 1.1 billion people (17% of the global population) lack access to

water resources, where access is defined as the availability of at least 20 liters of water per

person per day from an improved water source within a distance of 1 km (Bates et al., 2008).

The number of people who rely on the earth’s limited freshwater reserves is increasing everyday.

In fact, a scarcity of clean, fresh water is one of the world’s most pressing environmental

problems (Arms, 2008). At the 2002 World Summit on Sustainable Development in

Johannesburg, South Africa, great concern was expressed about the 1.1 billion people in the

world who do not have access to safe drinking water and the 2.4 billion who live without proper

sanitation (Cech, 2005). The resulting human toll is roughly 3.3 billion cases of illness and 2

million deaths per year. Moreover, even as the world’s population grows, the limited easily

accessible freshwater resources in rivers, lakes and shallow groundwater aquifers are dwindling

as a result of over-exploitation and water quality degradation (IAEA, 2004). The UN predicts

that by 2025, two-thirds of the world population will experience water scarcities, with severe

lack of water blighting the lives and livelihoods of 1.8 billion. According to the UN World Water

Assessment Program, by 2050, 7 billion people in 60 countries may have to cope with water

scarcity (Chenoweth, 2008).Water is an essential substance upon which all life depends. Where

there is water there is life, and where water is scarce, life has to struggle. About 75% of the

earth’s surface is covered by water, as the saying goes “water, water, everywhere”. The

distribution of water on the Earth, based on human economic needs for freshwater, is represented

in Figure 1. The left-side bar shows where the water on Earth exists; about 97% of all water is in

the oceans. The middle bar shows the distribution of freshwater that is only 3% of all Earth’s

2

water. However, the physical state of water, including the freshwater, is not always liquid.

Nearly 69% is locked up in glaciers, icecaps and permanent snow cover of both poles,

mountainous regions and in Greenland. Land based glaciers affect stream flow quantity and

provide water resources to the lowland regions. While 30% of freshwater comes from

groundwater.2 Only 0.3% of the freshwater on Earth is contained in river systems, lakes and

reservoirs, which are the water we are most familiar with and the most accessible water source to

satisfy human needs in our daily lives.

Even though three quarters of the earth’s surface is covered by water, not all of that water is

available for human uses. Figure 2 shows that more than 99% of all water (oceans, ice, most

saline water and atmospheric water) is not available for our uses. Even of the remaining fraction

of 1%, much of that is stored in the ground. Surface water sources (such as rivers and lakes) only

constitute 0.0067% of the total water

3

Water is not in a static condition but there is a dynamic “exchange” of water among the ocean,

land and atmosphere. The turnover of water involves water evaporation and precipitation

processes. The turnover of the Earth’s water estimates as 577,000 cubic km per year

(Shiklomanov, 1996) and about 40% of precipitation that falls on land comes from ocean derived

evaporation and 60% from land surface. These large volumes of water illustrate the key role that

precipitation plays in renewing water resources, especially recharging the ground water which is

the main source of freshwater. The dynamics and value of full renewal of water, full

replenishment, depend on water volume and its dynamics. It is estimated that the full renewal

time of the ocean may take 2,500 years, ground water 1,400 years, ground ice of the permafrost

zone 10,000 years, polar ice 9,700 years, mountain glaciers 1,600 years, lakes 17 years and 8

days for atmospheric moisture (Shiklomanov, 1996). The times vary with climatic conditions,

which are rapidly changing now.

Historically, the first commitment of the federal government of Nigeria to water supply

was made in 1976 when it created the Federal Ministry of Water Resources and the eleven (11)

River Basin Development Authorities (RBDAs) to manage the water resources of the country

and to provide bulk water for irrigation and water supply. In addition the Federal Government

through its ministry of water resources undertakes basic hydrological data collection and storage

for national planning purpose. Beyond this, other agencies – United Nation Children’s Fund

4

(UNICEF), United Nations Development Programme (UNDP), and a number of other bilateral,

multilateral are involved in public water supply by providing aid and loans to federal and state

governments. The National Water and Sanitation Policy Program divide the responsibility of

water supply in Nigeria between the Federal, State and Local Governments (CSEA PBA, 2011),

and water supply policy operators in the urban, semi-urban and rural areas are made up of

Federal ministry of Water Resources, River basin Development Authorities, the State Water

Agencies and the Local Government Authorities.

Presently in the Federal Capital Territory, population surge, industrialization

and rising standards of living, have put water demand on the rise; though without

corresponding increase in the quantity of the resource. Water supply to the residents of

FCT is managed by the FCT water board which is a public corporation. The FCT Water

Board indicates that there are four operating dams that are servicing the FCT. These are Lower

Usman Dam with the capacity of 100,000,000 m3 and Gurara Dam with capacity of 850,000,000

m3. Others are Pandam Dam with the capacity of 30,000,000 m3 and Jabi Dam which are

maintained by Parks and Recreation for recreational, agricultural and fishing purposes. There are

744 boreholes and 10 hand pumps in the FCT provided by the FCT Water Board, the Area

Councils and donor partners like UNICEF and the MDG’s PSU.

1.2 Problem Statement

Water and revenue losses are a major problem for water utilities worldwide. The amount of

water lost from Water Distribution Systems is astounding. According to the World Bank study,

Non Revenue Water from Water Distribution Systems worldwide is estimated at a staggering 48

billion m3 per year costing water utilities about US $14 billion every year (Kingdom et al. 2006).

The same report indicates that about 55% of the global NRW by volume occurs in the

developing countries. The provision of adequate water supply to the rapidly growing population

5

amidst such high water losses will continue to be a major challenge facing many countries

worldwide. According to WHO/UNICEF (2010), 884 million people in the world do not have

access to improved water supply, almost all of them in the developing regions. This challenge is

likely to be exacerbated by the rapidly increasing urban population in that region.

Like any business, utilities must recover their costs if they are to sustain their operations. Tariffs

are the most common way of doing so. But tariffs serve other goals beyond raising revenues to

cover all or part of costs. They also are used to ensure access across socioeconomic groups, to

send price signals to users about the relationship between water use and water scarcity, and to

ensure fairness in water service delivery (Cardone and Fonseca, 2003).

user fees for cost recovery provide the basis for financial sustainability: failure to provide for

adequate funding leads to the degradation of systems, deteriorating performance and services,

and unwillingness to pay – a commonly observed vicious circle.

1.3 Aim and Objectives:

This research aims to examine the efficiency or otherwise of the handling, by government, of

water supply to the Federal capital territory, Abuja. The specific objectives of the research are:

1. Analysis of the performance of the water supply situation of the federal capital territory.

2. Assessing the guidelines in providing services based on some empirical findings for

suggesting alternative methods of providing water to the public through the government

working in partnership with the private sector.

3. Analyzing the pricing of water services (water tariff), with an emphasis on full cost

recovery and economic efficiency

4. Identifying the various source of water supply and examining the water supply

deficiencies

6

5. Analyzing the various water tariff plans operated by the FCT water board

6. Knowing the existing water scheme of the Federal Capital Territory

7. Analyzing a financial studies of the territory from 1998 – 2011

8. long-term management and capital financing of water utility assets

9. The factors affecting the demand for municipal water services, including price and

income elasticities of demand, peaking characteristics, and the willingness to pay for

these water services;

10. Economic theory regarding water utility organization and management, including

innovative financing mechanisms, public/private partnerships and other forms of utility

organization

11. A framework for stakeholders to work towards best practice in cost recovery so as to

deliver the best possible sustainable service delivery to customers and consumers

1.4 Scope and Limitaions

The study will focus on the water supply, water tariff and management techniques in enhancing

water supply and distribution in the Federal Capital Territory which is managed by the the

Federal Capital Territory Water Board (FCTWB). The basic assumption in the thesis will be for

a period on of 1988 – 2011 and the population of the Federal Capital Territory was based on

1991 and 2006 census, then a population projection was made for subsequent years through any

mathematical simulation afterwards.

1.5 Justification of the Study

7

Since Abuja became Nigeria’s Federal Capital Territory in 1976; it has been experiencing rapid

expansion, urbanization and significant changes in its physical landscape.In response to the rapid

urban sprawling due to the fast rate of urbanization, there is an increasing need

for focused research with a view to develop remediation strategies and methodologies for the

effective and sustainable environmental planning in Federal Capital City (FCC), Abuja The

study revealed that while built-up area increased, vegetation cover decreased at an alarming rate

Due to the lack of planning, poor management and poor business approach, the water supply to

the Federal Capital territory (FCT) Abuiaconserves a scarce natural resource but also improves

utility financial viability (increased revenue and reduced repair and energy costs), deferment of

capital expenditure for new sources and system expansion to keep pace with increasing demand,

In order to reduce water losses and improve efficiency of delivering water to customers, the

condition of the WDS needs to be very well understood and decision-makers (DMs) need to

solve the problem of how much water is being lost, where and why?

8

CHAPTER TWO

LITERATURE REVIEW

2.1 Water supply in Nigeria

Public water supply started in Nigeria early in the twentieth century in a few towns

managed at the lowest administrative level. Amongst the early beneficiaries were Lagos,

Calabar, Kano, Ibadan, Abeokuta, Ijebu Ode (Ogun State) and Enugu. The schemes were

maintained with revenue from water sales with virtually no operational subvention from

government. With the creation of regional governments in the early 1950s the financial and

technical responsibilities for developing new water schemes were taken over by the regional

governments who also assigned supervisory high level manpower to oversee operations and

maintenance. The regions were slow to set up independent bodies to develop, operate and

manage the water supply.

The first water corporation was formed in the western region in 1966 which took over all

the assets and liabilities, including the existing staff. The staffs of the Water Division of the

Ministry of Works were also transferred to the new corporation. The next corporations were

formed in the 1970s. Today, all 36 states and the Federal Capital Territory have water

boards/corporations or public utilities boards managing their public water supply. Their efforts

are supplemented, in many cases, by local governments who supply water to small villages in

their areas of jurisdiction. The Federal Government got involved in the management of water

resources in 1976 when the Federal Ministry of Water Resources and the 11 River Basin

Development Authorities (RBDAs) were created. The purpose of the RBDAs was to provide

bulk water, primarily for irrigation. Today, all the thirty six states and the Federal Capital

Territory have Water Boards/Corporations or Public Utilities Boards managing their public water

9

supply. According to the Demographic and Health Survey (DHS) 2008, only 5 percent of the population

have access to a private tap and only 8 percent to a public standpost (table 6). By contrast, about 12

percent of the population have access to each of these modalities in Africa’s resource-rich countries, and

in Africa’s middle-income countries more than 60 percent have access to piped water. By far the most

important sources of water are wells and boreholes, which serve 63 percent of Nigeria’s population. But

as many as one in four Nigerians continue to rely on surface water, without access to any better

alternative. Particularly worrying is a decrease in access to utility water. By comparing results from

successive DHS surveys between 2003 and 2008, it is possible to estimate the rate at which different

types of services are expanding (figure 6a). During this period, the percentage of the population with

access to utility water—whether through private taps or standposts—was actually declining, by around

0.4 percentage points each year. By contrast, more than 3 percent of the population each year has been

gaining access to wells and boreholes, making this by far the fastest-growing source of water supply in

Nigeria. A particularly positive finding is that the percentage of the population relying on surface water

has been on the decline, with 0.4 percent of the population moving away from this unsafe practice every

year.

10

Access to improved water is much higher in urban than in rural areas. Access to improved water in

urban areas is 75 percent, versus 45 percent in rural areas (figure 8a). The main reasons behind this are

the higher prevalence of surface water dependence in rural areas, and the fact that 21 percent of the wells

and springs in rural areas are unprotected versus only 6 percent in urban areas.

Source: AICD water supply and sanitation utilities database (http://www.infrastructureafrica.org/aicd/tools/data); access figures calculated

11

The Federal Ministry of Water Resources Roadmap for Nigeria Water Sector (2011) estimates

the water resources potential of the country as 267 and 92 billion m3 of surface and ground water

respectively. It also estimates the water supply and sanitation service coverage as 58%

(87million) and 32% (54million) respectively.

The United Nations International Children Educational Fund (UNICEF) estimates are slightly

lower at 47% water supply service coverage. Public perception is a lot lower though.

At the disputable 58% coverage, 51 years after independence, with an endowment of over 30,000

qualified indigenous engineers among other professionals in the sector, and a Federal

Government capital expenditure profile of well over N800b in the last twelve years alone, access

level is pretty low, but even more worrisome is the triviality of the problem by other tiers of

government.

Sources and Allocation of Funds

The Federal Capital Water Resources Agency is funded by the Federal Government through the

Ministry of Federal Capital Territory, while the State Governments fund water supply schemes

12

through budgetary allocation to State Water Agencies. The funds are for capital projects,

operations and maintenance, though the boards generate revenues through its services but the

revenue realized in most cases is not enough for its operations and maintenance. Other sources of

funding of water supply include; commercial loans either from local sources or through

international lending Agencies like the World Bank and the African Development Bank. Rural

water supply is financed by the Local Governments and partly by the Federal Government,

international donor agencies. Table 1, presents analysis of Government spending on water sector;

it indicates that federal government expenditure to the sector has been declining since 2006.

Water privatization: an overview

A key argument for privatizing water is anchored on the theoretical benefits of competition.

However, there is very little for real competition in the water sector. It is therefore no wonder

that some of the privatization exercises have been effected without any competitive tendering.

For example, all the private concessions in Czech Republic, Hungary and Poland up to 1997

were awarded without any competitive tendering process ², as was the SODECI concession in

Cote d’Ivoire. Such problems have been found in Tucuman (Argentina), Szeged (Hungary) and

Cochabamba (Bolivia). In these cases, the multinational companies concerned have pursued

legal claims for compensation which could have made the circulation of these contracts very

costly to the nation. Total reliance of private sector provision of water may therefore not yield

the anticipated advantages of competition. Hall (2001) argues that public sector ownership is not

in itself a cause of inefficiency or an inferior basis for providing water and sanitation. The great

majority of population in developed countries has water supplied by public sector undertakings.

Except for the UK and France, water supply is predominantly public sector managed within the

European Union (EU). In the USA, Canada, Japan, Australia and New Zealand the picture is the

13

same as privatization or public –private partnerships (PPPs) are the exception rather than the

norm.

The Nature Of Water

As noted earlier, the plan for water privatization in Nigeria is still being articulated, and it is

currently being spearheaded by two of the thirty-six state governments in Nigeria. Also, the

discussion so far indicates that water appears to be a unique utility the privatization of which

needs to be rendered with extreme care. Hence, the focus of our discussion here is to understand

the unique features of water to help inform and provide an input towards the evolution of an

appropriate water sector privatization in Nigeria. The need for this orientation was informed by

the following, among others. First of all, we need to understand the characteristics of water. In

doing so, we recall the recurring question as to whether water is a good (commodity) or a right.

Before providing an answer, we need to understand the different types of goods identified by

economic theory. These are (i) normal goods; (ii) luxury goods; (iii) given goods; (iv) inferior

goods; and (v) necessities. The first four categories comprise goods that have suitable substitutes

and whose consumption is discretional. Hence, there is an enhanced opportunity for access and

affordability of these categories of goods. However, the last refers to those groups of goods, the

consumption of which are necessary for human existence. Water belongs to this category and

incidentally also has no substitute. This makes water a commodity that must be made available to

people as a matter of right. Hence, accessibility and affordability of water must be guaranteed by

the government. Hence, water is both a commodity and a right. This basic principle puts water in

a special category and this unique characteristic must inform the design and implementation of

any national water privatization program. The desirability of this concern has been borne out by

14

the above review of experiences with water privatization in various parts of the world. Nigeria

has an important lesson to learn from these, hence this orientation.

Country Company Year Method (% sold)

Main strategic

investor(s) Comments

Burkina Faso

ONEA (OfficeNational de l'Eau)

2001 Management contract

Vivendi Vivendi was awarded a 5-year support and service con-tract (funded by World Bank). The contract covers the management of the customer service and finance activities.

Central African Republic

SNE (Société Nation-ale d'Eaux)

1991 Lease (75)

SAUR In 1995, a 15-year lease/concession contract was signed with SAUR. However, the former state-owned company was split into 2 entities: - SNE, a 100% company held by government for asset-owning; and - SODECA, the private operating company (with SAUR as main shareholder)

Cote d'Ivoire

SODECI (Société de Distribution d'Eau de Cote d'Ivoire)

1988 Lease (51)

SAUR The French company SAUR, won an international tender to supply municipal water services in Abidjan. A new company, SODECI, was formed with SAUR as main shareholder. In 1987, a re-organization necessitated a design of a new contract that appears to be a mix be-tween concession and lease.

Guinea DEG (Entreprise Nationale de Distribution de l'Eau Gui-néenne)

1989 Lease (51)

SAUR In 1989, DEG was thus split up into 2 entities: - SONEG, a 100% state-owned company responsible for owning sector assets and for planning and financing investment - SEEG, a joint venture between SAUR and Vivendi in charge of operations and maintenance. At the end of 1999, when the contract had run its 10-year course, the government signed an interim 1-year lease contract. However, efforts to negotiate a new 15-year lease con-tract broke down, and SEEG was renationalized

Mozam-bique

Water services in 5 cities: Maputo, Beira, Quelimane, Nampula, and pemba

1999 Concession (70)

Consortium led by Aguas de Portugal

Aguas de Mozambique is a joint venture resulting from the merging of the water services of 5 cities. A 15-year water concession for Maputo and Motola, as well as a 5-year one for the other 3 cities were awarded to the consortium in 1999. Initially, In 2002, SAUR withdrew from the con-tract, selling its shares to Aguas de Portugal which be-came the company's major shareholder.

Republic of Congo

SNDE (Société Nation-ale de Distribution)

2002 Lease Biwater In February 2002, UK firm Biwater was awarded a leasing contract to operate SNDE distribution activity, beating competition from SAUR and Vivendi

Senegal SONEES (Société Nation-ale des Eaux du Sénégal)

1996 Lease (51)

SAUR This is an affermage contract which led to the creation of 2 distinct entities: - SONES, a 100 per cent state-owned company which, was to absorb the difference before total consumer tariffs and SDE's being responsible, for owning sector assets, planning and financing investments

South Africa

Dolphin Coast 1999 Concession (58)

Siza Water (SAUR)

Dolphin Coast, with a 30-year concession to run water and waste-water services was awarded to Siza Water (a subsidiary of SAUR).

South Africa

Neslpruit 1999 Concession (40)

Biwater 30-year concession contract

South Africa

Johannesburg Water

2001 Management contract

On-deo /Northumbria n

5-year water management contract in Johannesburg, which covers the 6 municipal water and wastewater structures of the city, and its 3 million inhabitants.

Uganda Ugandan Na-tional Water and Sewerage Corporation

2002 Manage-ment con-tract

Ondeo (Suez's subsidi-ary)

In January 2002, Suez subsidiary, Ondeo, was to be awarded a 2-year contract to manage and operate the water supply and sewerage services of the Kampala area, taking over from a German technical assistance team.

15

Sources: Hall, Bayliss and Lobina (2002) and Berthélemy, J., C. Kauffmann, M. Valfortand L. Wegner (2004).

COUNTRY COMPANY PARENT REASON FOR WITHDRAWAL

Gambia MSG Sogea Bad relations between investor and government from beginning, exacer-bated by aggressive disconnection campaign. Contract unilaterally termi-nated in 1995, following coup.

Ghana Azurix Enron World Bank withdrew funding because of lack of transparency in contract award

Guinea SEEG Saur/Vivendi Breakdown in contract renewal nego-tiations

Kenya Seureca Space Vivendi Contract suspended after outcry over contract terms; World Bank commis-sioned study of alternative privatization options

Mozambique Aquas De Mozam-bique

Saur Reasons for withdrawal not made public

South Africa Fort Beaufort Suez Contract nullified

Zimbabwe - Biwater Company withdrew from negotiations for commercial reasons

Gweru Saur Negotiations suspended in 1999.

SOURCES OF COST RECOVERY

The recovery of the expenses involved in water supply is fundamental to water utilities, to

provide revenue that will enable them to continue to provide good quality services to consumers,

and expand their coverage (Brikke and Rojas, 2001). Some of the traditional sources of revenue

generation for potable water supply in low income countries include: Overseas Development

Assistance (ODA), subsidies and water tariffs.

Overseas development assistance (ODA)

ODA is an external aid package provided by developed and industrialized countries to

developing and low income countries, to foster development in specific sectors, such as water

16

supply (Hecht, 2004). It is a significant source of capital investment in potable water supply in

developing and low income countries, and traditionally includes: money, materials, capacity

building and provision of services. In addition, this may include the cancellation of all or portion

of previous debts as well as freezing interest on previous debt. In the recent past decade, some

industrialized countries, such as members of the G8, have committed to increase their ODA

contributions to 0.7% of their GNP with increased attention to the financing of capital

investment in the potable water sector (Hecht, 2004).

Subsidies

Subsidies are local assistance in the form of money, materials, or free services provided to water

utilities to foster their activities (Whittington, 2003). These can be government grants, tax rebates

or donations from private sectors and civil society. Government subsidies are usually provided

within a framework of a poverty reduction strategy to promote access and affordability of

improved water supply (Cardone and Fonseca, 2003). They have traditionally been provided to

promote network extension to poor areas, support a social tariff structure, subsidize connections

of new consumers, as well as to provide incentives for source water protection. Subsidies can be

broadly classified into three types: 1) direct, 2) cross-sectoral and 3) out-put based. Direct

subsidies are donations provided to a water utility by governments or external donor while cross-

sectoral subsidies are local subventions from other sectors, such as the telecommunication sector,

to the water sector. This is different from cross-customer subsidies where the rich, commercial

and industrial clients are charged higher tariffs to subsidize the cost of supply to the poor. In

simple terms, output-based subsidies are concessions given to a water utility as recognition for

achieving a specific target such as reducing the amount of unaccounted-for-water within a

17

timeframe or for achieving a high rate of collection. In summary, subsidies should provide or

free up revenue and therefore reduce the costs that have to be recovered from consumers.

Water pricing

Water pricing is generally subjected to two ideological views (Whittington, 2003). On the one

hand, water is viewed as a social good that should be provided for free and on the other hand, it

is considered as an economic good that should be priced. However, in the past few decades, there

seems to be a consensus that water should be priced despite increasing diversity on what is a

‘fair’ price for water (Raghavendra, 2006). Water pricing is based on user pays principle

whereby users are charged for the services provided (Nyoni, 1999). The World Bank (1993) and

other international donors have argued that public (government) funds can no longer provide for

all the expenses associated with the provision of potable water services. According to critics of

free water supply, this practice promotes unsustainable use of water and is partly responsible for

the poor financial stability of water utilities in many low income countries. They argue that with

increasing competition and debt burden on state budgets, governments can no longer afford to

provide water for free.

Furthermore, they point to the fact that the weak financial stability of water utilities constrains

the expansion of the services to the poor and also improvement of the quality of services

provided. As such, they have argued that for water utilities to improve their performance,

continue to provide quality service to consumers and protect the environment, they must be able

to generate revenue through water pricing in the form of water tariffs. This is an important

objective of water pricing.

OBJECTIVES AND STRUCTURE OF WATER PRICING

Water pricing can be implemented for different reasons under different structures.

18

Objectives of water pricing

Four principal objectives of water pricing are:

1) To provide revenue (cost recovery) to utilities for the efficient delivery of potable water

services. The recovery of at least the operation and maintenance cost is essential for the financial

sustainability of water utilities, adequate system maintenance, and hence the provision of quality

services (Brikke and Rojas, 2001);

2) To promote efficient and sustainable use of water. This is essentially a water demand

management and resource conservation tool, aimed at fostering wise water use and demand-

driven service delivery (Magnusson, 2004);

3) To promote fairness and equity in access to water and water use (Whittington, 2003). Based

on the principles of user-pays, it is argued that there is the need for equity and thus transparency

in pricing. A consumer who consumes twice as much water as another consumer should pay a

bill that is at least twice as large as that of the latter. Fairness is more about pricing consumption

on the basis of affordability and socio-economic characteristics of the household given that water

is essential for human survival (Brown and Holcombe, 2004; Ruijs et al., 2008). Fairness in

water pricing is essential to prevent negative externalities associated with the lack of access to

safe and sufficient water supply;

4) To promote poverty alleviation. This seems to be a controversial objective at first sight

considering that paying for water will reduce disposal income and could prevent access to other

fundamental services. However, the argument is that water pricing will generate revenue for the

extension of improved water supply services to the poor with relatively high social and economic

returns (World Bank, 1993).

The poor usually spend their limited finances on medical bills due to the consumption of water of

poor quality, pay more for less to vendors, waste productive time in the process of water

19

collection (walk long distance to, and spend long waiting times, at collection points), lost

productive time due to ailments caused by the consumption of unsafe water. Aiga and Umenai

(2002), and Thompson et al. (2000) have documented that the presence of improved water

sources within households in Manila and East Africa, respectively freed up time for water

collectors to engage in productive activities which generate revenue for their households, as well

as reduced their medical bills due to improvement in health. Thus, the importance of the

structure of water pricing

Water Supply in the FCTIntroductionWater is a basic need, which is at once a consumable for households, industries and commercial

ventures as well as nature. Access to potable drinking water is a health and sanitation challenge.

At present, the FCT has only a single water source, the Lower Usuma Dam, which was meant to

serve a population size of 250,000. However with the spiraling population size of the FCT, this

clearly proved inadequate in realizing the current water requirement of 96,000 cubic metres per

day2'.

The City’s plan is to supplement Usuma dam with water from the Gurara dam in Niger State and

to construct additional treatment plants. The policy objective of the FCT Administration under is

to ensure that the entire FCT has access to potable drinking water and water for agricultural and

industrial usage. Prior to the installation of pay-as-you-use meters in the city, the level of water

consumption and waste was at an astronomical height. This situation was particularly alarming

given the falling water level from 574 cubic metres in 1987 to a consistent yearly drop leading

to below 569 cubic metres of water in 2005. At the end of the rainy season 2004 by which time

the Usuma dam ought to have been filled to capacity, we only had 75% water level, out of

20

which only 45% was available for consumption. Metering was thus a useful and welcome way to

curb waste because when people use water frugally, more water is freed up for the use of other

persons and househddr. Another reality that compelled the administration to value and put a

cost to water is the realization of the falling level of water in the FCT for consumption in year

2005 dry season.

21

WATER TARIFFS: STRUCTURE AND TYPES

In simple terms, a tariff is the fee charged for service provided or received. According to

Whittington (2003), a tariff structure is a set of procedural rules used to determine the conditions

of service and the monthly bills for water users in various categories or classes. Generally, tariffs

are set in accordance with national policy by the responsible line ministry, departments thereof,

or a delegated institution (Cardone and Fonseca, 2003).

Water tariff structures

Water tariffs have traditionally been structured as single-part or two-part tariffs (Whittington,

2003). As the names suggest, single-part tariffs consist of one part only while in a two-part tariff

the consumer’s bill is the sum of two type of calculations.

Types of single-part tariffs

Single-part tariffs can generally be classified as fixed (flat) rate or volumetric rate tariffs.

22

Fixed or flat rate tariffs

Flat rate tariff is a simple rate schedule with a defined amount to be paid in each billing period.

The amount paid is unrelated to the units of water consumed. It may assume an expected

consumer in setting the rate structure among different classes. The expected level of

consumption is usually based on the rated property value, the number of taps in the household,

the pipe diameter connected to the main as well as the size of the meter (Mycoo, 1996). Flat rate

tariff is based on the assumption that there is a positive correlation between the parameter used,

volumetric consumption and the ability to pay, thus consumers with higher parameters are

charged higher flat rates. These tariffs are commonly used in situations where water consumption

is not metered, such as in community water supply systems in developing countries. It is also

prevalent in some developed countries such as United Kingdom, Norway, and Canada where

respectively 90, 87, and 56% of water utilities use flat rates (Whittington, 2003). Flat rate tariffs

may be attractive on the basis of their simplicity, ease of understanding and administrative

feasibility.

However, the costs of monitoring changes in the parameters used in setting the tariff may be

high. Depending on how regularly these pricing criteria are updated, sufficient revenue may be

generated in the short run, however based on the experience that these parameters are not

adequately updated, flat rates do not generate sufficient revenues needed to operate the utility

over its life span (Mycoo, 1996). Another down side of flat rate tariffs is the inability to signal to

consumers their water trends and thus promote efficient water use practices. Flat rates are also

highly inequitable. For instance, rich small households with high property value and low water

consumption may pay more than similar households with high water consumption. Also, flat

rates may be regressive in the sense that a poor household with a large pipe size and many taps

23

may spend a proportionately high percentage of their income on water than a rich household with

similar parameters.

Furthermore, the presumption that the presence of many taps, or large pipe diameter would

translate to higher level of water consumption is very weak. It is common knowledge that poor

households in developing countries usually have large family sizes with low property values.

Thus, even when these households are connected with a single tap, they may consume more

water than rich households. In summary, flat rates adversely affect equity, water use

conservation, economic efficiency and resource allocation. It may be socially acceptable based

on the ease of understanding the tariff structure and the administrative feasibility due to

simplicity in application.

Volumetric charges

Volumetric tariff is based on the principle of ‘pay-as-you-consume’. The consumer’s water bill is

a function of the level of consumption. Volumetric tariffs can be classified in three broad types:

1) uniform volumetric tariffs, 2) block tariffs and 3) increasing linear tariffs.

Uniform volumetric tariffs: In volumetric tariffs, users pay the same price per volume of water

consumed, and the price per volume of consumption is the same irrespective of the level of

consumption. It is commonly used in Sweden (100%), France (98%), Netherlands (90%), and

Australia (68%), (Whittington, 2003). Its computation is simple as shown below:

Bill = PQ,

Where P = Price per unit volume of water, and Q = quantity (m3) of water consumed.

Volumetric tariffs can be easily understood by consumers; most properly because this is how

many things are priced, thus it can be more socially acceptable depending on the price per unit

volume. Given that the consumer’s bill is a function of the level of consumption, it can be used

24

to send clear signals to consumers on water scarcity, to promote water use efficiency and water

conservation. Volumetric tariffs do not consider the diversity of consumers and the needs of

specific consumers. This suggests that there is less complexity (effort and costs) in its

application. On the other hand, since consumers pay the same rate per unit volume, uniform

volumetric tariffs may be inequitable because poor households with large family sizes may pay

proportionately more on improved water services. This may adversely affect affordability and

the achievement of some government policies such as universal coverage, poverty alleviation

and the protection of public health (Thompson et al., 2000; Jones and Duncanson, 2004).

Volumetric block tariffs: In volumetric block tariff, the volumetric charge per unit of

consumption is a function of the consumption bracket and is the same for all units within the

same bracket. Depending on the type, the volumetric charge may increase or decrease for

consumption in higher brackets respectively for “Increasing loc Tariff –IBT or Decreasing Block

Tariff – DBT.

a) Increasing block tariffs (IBT)

According to Cardone and Fonseca (2003), IBT are widely used in many low income countries

especially in sub Saharan Africa countries such as Benin, Burkina, Botswana, Cameroon,

Guinea, Ghana, Ivory Coast, Kenya and Senegal. IBTs have also been typically used in water

scarce countries, for example, 100, 90 and 57% of water utilities in Spain, Turkey and Japan

respectively, apply IBT (Whittington, 2003). Apart from ensuring the economic efficiency of

water utilities, IBT have been used to fulfill a mix of efficiency, environmental and social/equity

objectives. IBT sends stronger water conservation signals to customers by way of higher tariffs

for consumption in higher bracket, and also foster affordability for non-discretional (basic) water

use through low tariffs for the first block. This suggests that IBT can fulfill economic efficiency,

promote resource allocation and water conservation. How well an objective is met depends on

25

the factors considered in setting the number of units per block (especially for the first block), the

charge per unit volume and the affordability of the tariff.

Theoretically, IBT can provide the poor with basic water services, ensure cross-subsidies from

the rich to the poor, and generate sufficient revenue for water utilities. This suggests that IBT

may be economically efficient, politically and socially acceptable. IBT may not be equitable

depending on the size of the blocks, especially the first block (Raghavendra, 2006). For example,

depending on the size of the first block, poor households with low per capita water consumption

and large family size could end up in higher brackets and therefore pay higher volumetric charge

than small, rich households with high per capita consumption. This is especially true in cases

where many households share the same meter. On the other hand, a large first block with low

social tariff will subsidize the rich and provide no incentives for water use efficiency. In

addition, consumers in higher blocks may face volumetric charges that do not reflect the

marginal cost of water supply. This may also affect the social and political acceptability of the

tariff, especially in the case where the price elasticity of demand is low due to the value of water

to the consumers. The potential to satisfy multiple objectives, its effectiveness and efficiency

depend in part on: the size of the blocks especially the first block, and the volumetric charge per

unit in each block.

b) Decreasing block tariffs (DBT)

The underlying pricing principle in DBT is the reverse in IBT in the sense that consumers pay

higher volumetric rate for the first block and lower volumetric tariffs for subsequent blocks of

water consumed. It discourages low levels of water consumption and provides economic

incentives for large consumers with no incentives for water conservation. Except in the United

States and Canada, where the use of DBT is 34 and 13% respectively for water utilities

26

(Whittington, 2003), this is not a popular tariff structure, perhaps because of adverse effect on

water use efficiency, resource allocation and economic efficiency. Given that it penalizes low

consumers and benefits high water consumers, such industries may not be equitable, and socially

acceptable. DBT may be politically acceptable for areas with recurrent public health issues due

to low per capita water use despite an excess in supply, especially when awareness campaigns

may be insignificant. This may also be the case in typical industrial regions to promote the

economic scale.

c) Increasing linear tariffs

Although it is not commonly used, this tariff scheme shows a direct relationship with the

quantity consumed. The volumetric price increases continuously with each additional unit of

water consumed. This can be considered as a special case of IBT where each volume consumed

is a block in itself. Theoretically, this tariff structure can send a strong signal to consumers about

the cost and environmental implications of their water consumption. Although it may generate

sufficient revenue (economic efficiency) for water utilities and promote water use efficiency and

resource allocation (political acceptability), increasing linear tariffs may be socially unacceptable

on the basis that it may be difficult for consumers to understand why each additional unit must

be priced higher. Furthermore, it is likely that consumers with high levels of consumption may

face very high volumetric charges which do not reflect the marginal costs of production It may

be administratively easy to administer the tariff once the increasing linear function is determined.

Two-part tariffs

As the name implies, in two-part tariffs, the consumers’ water bill is the sum of two tariffs

usually (a) a fixed charge (flat rate), and (b) a volumetric tariff structure. The fixed charge which

is usually low and kept uniform for all consumers irrespective of volumetric consumption may

be used as a means of recovering administrative (support) costs related to service provision, such

27

as metering, billing and collection. The second part of the consumers’ bill may employ any of the

volumetric tariff schemes described earlier.

Two-part tariffs have the advantage that they can allow the generation of revenue to cover some

or all of the administrative costs of water utilities and at the same time achieve other objectives

depending on the volumetric tariff that is used.

Seasonal and zonal tariffs

These tariffs have been used to signal the variation in cost of potable water supply imposed by

season and location. In seasonal pricing, the tariff is higher in the dry season and lower in the

rainy season. Zonal pricing on the other hand, signals the costs imposed on service delivery due

to geographical location such as higher elevations that requires pumping. A key concern in the

application of water tariffs is the rate of collection, thus the design and implementation of a tariff

is of little significance if the collection rate is low. Thus, the importance of tools and mechanisms

for improved tariff collection.

MECHANISMS FOR IMPROVING TARIFF COLLECTION

Alence (2002) and Jones et al. (2004) have documented that in some municipalities in South

Africa, where tariffs were very low, there were equally low collection rates, while some

municipalities with higher tariffs witnessed higher rates of collection. Some fundamental

approaches to improve tariff collection are thus discussed.

Affordability

The ability to pay is obviously an important factor that needs to be taken into consideration in the

design of any tariff. Although willingness to pay (contingent valuation) studies, for example

Mycoo (1996), have concluded that there is a high willingness to pay even among the poor,

28

Venkatachalam (2006), documented that this does not translate into a high rate of cost recovery.

This suggests that willingness to pay should not be considered as the sole basis for setting tariffs,

rather it should be interpreted as an expression of need and the value of potable water. Some

indicators of ability to pay could be the rate of unemployment, the GDP, rate of inflation and the

cost of other essential services.

Demand-driven projects and awareness campaigns

Projects that are a result of expressed need by the community have been shown to be sustainable,

especially in cases where the public is involved in the planning and execution. The case of

alternative water supply arrangements in Orangi Township, Karachi, Pakistan is outstanding

(Ahmed and Sohail, 2003). Stakeholder participation in a demand-driven project gives a strong

feeling of ownership of the project including awareness and understanding of the rationale of

payments and the importance of meeting any financial obligations (Harvey and Reed, 2007).

These suggest a change in the paradigm of water supply from a supply-oriented approach where

consumers are considered as beneficiaries to a demand-oriented approach where consumers are

viewed as stakeholders.

The advantages of such an approach are many folds: the potential to provide a platform for social

learning, access to information and strategic planning for improved customer relations, education

and outreach campaigns, all of which can lead to a high rate of payment (Ven atachalam, 2006).

An increase in consumers’ satisfaction, such as timely response to repairs and maintenance, and

improved billing and customer care may also increase the rate of collection. Improving public

awareness on the relevance of water tariff and the need for timely payment through water

29

education and outreach campaigns can be an effective approach to increase on the rate of tariff

collection (Ntengwe, 2004).

Efficient payment options and improved customer relations

The introduction of efficient payment options has the potential of building a culture of payment.

In a national survey of more than 300 municipalities in South Africa, Alence (2002) documented

an increase in payment rates and decrease in debt ratio in municipalities where consumers were

provided flexible payment options, such as small payments over time. This was also the case for

municipalities which had multiple payment outlets such as in supermarkets.

In cases where payments can only be made at the office of the water utility, this causes

substantial delays and loss of productive time on the side of the customers,

while for the water utility, it puts significant pressure on cashiers and stresses customers’

relations. Improving customer relations through, for example, timely response to inquiries, and

short waiting time for payments have been proven to increase the rate of bill payments (Cardone

and Fonseca, 2003).

Sanction for non-payment

A culture of payment can also be encouraged by the strict implementation of sanctions for non-

payment. Late payment charges and service disruption are typically used to penalize defaulters.

Although service disruption may be an unpopular action, Alence (2002), noted that it was the

single factor that resulted in the highest improvement in payment rates in South Africa. Service

disruption may be best in cases where consumers are metered and field workers carry out the

30

disconnection exercise with a high level of professional ethics. For any sanction for non-payment

to be productive, it must also be cost-effective.

An overview of WSS tariffs in Africa

Water service costs include (1) an initial infrastructure and connection cost and (2) operations

and maintenance (O&M) and rehabilitation costs. The first is considered fixed, and the second

variable. Rehabilitation can be considered as the “enhanced maintenance” of assets that need to

be replaced on a periodic basis in a well-functioning system (Kingdom and others, 2004).

Production and O&M costs are typically recovered from water tariffs that, theoretically, can have

either one part or two parts. One-part tariffs have either a fixed charge or a water-use charge,

which may be uniformly volumetric, a block tariff (increasing or decreasing), or an increasing

linear tariff. The two-part tariff generally comprises both a fixed charge and a water-use charge

(Whittington and others, 2002). The consumer has no control over the fixed charges, which can

be exogenously determined by pipe size, location, number of rooms, and so on. The volumetric

tariff, which is based on water use, usually takes the form of an increasing block tariff (IBT).

Linear tariffs and flat charges are rarely used.

The structure of metered water tariffs

The IBT has long been a common structure in developing countries. Under it, unit prices in the

lower brackets of consumption (expressed in cubic meters per month) tend to be lower than the

prices in higher brackets. In theory, the IBT allows utilities to meet the goals of efficiency and

equity. Lower consumption bands are priced at a low level (sometime even at 0), or subsidized

heavily to allow low volume consumers to take advantage of infrastructure services. It is

31

believed that the poor who are connected to the network have lower levels of consumption, and

that by reducing prices for the lower brackets of consumption, the service is made more

affordable to the poor. At the other end, high-volume consumers pay a higher price, which is

expected to be closer to the long-term marginal cost (Olivier, 2006). Many countries in Africa

have adopted a two-part tariff structure, which incorporates both a fixed and a water-use charge.

Two-part tariffs aim to recover both production and administrative costs (such as billing and

meter reading) from the fixed part of the tariff, while the water-use part covers partial O&M

costs. The fixed-cost element of the two-part tariff allows the recovery of investment costs

without distorting price signals. Two-part tariffs are designed to simultaneously meet economic

efficiency and cost-recovery goals (Whittington, Boland, and Foster, 2002). About 14 utilities

have designed a two-part tariff, including 13 that enforce a “fixed charge + IBT”; only NWSC in

Uganda imposes a “fixed charge + linear tariff” structure. (The names of the surveyed utilities

are spelled out in the list of acronyms and abbreviations on page v.) In addition to these utilities,

seven utilities have a “minimum consumption + IBT” structure. Among the remaining 24

utilities, there is an interesting variety. Nineteen impose an IBT structure. Three enforce a linear

structure, which means that households pay the same price per unit of consumption. These are

FCT WB in Nigeria, and the NWC in South Darfur and the Upper Nile in Sudan. Two other

utilities have a different tariff structure. The CRWB in Malawi charges a flat fee or fixed charge

for the first 32 units of consumption, and the KIWASCO in Kenya has a U-shaped structure in

which tariffs decline after the first block and rise again after the third (figure 1B and annex B).

Structure of tariffs implemented by water utilities, 2007

Utility Type of tariff Metering ratio (%)

SONEB IBT 89.1ONEA IBT 98.2

32

ELECTRA IBT 91.2STEE IBT — REGIDESO IBT 28.2SODESI IBT 100AWSA IBT — ADAMA IBT 90.1Dire Dawa IBT — GWCL IBT — NWASCO IBT — WASA IBT 98.2Beira IBT 99.9Maputo IBT 98.2Nampula IBT 100Pemba IBT 99.1Quelimane IBT 100JIRAMA IBT 97.1LWB IBT 98.1CRWB Flat — Walvis Bay IBT 100Windhoek IBT — Oshakati IBT 96.5SEEN IBT 96.8FCT WB Linear 23.6

Kaduna WB IBT 16.1Katsina WB IBT 6.5Electrogaz IBT 98.7NWC Khartoum IBT — NWC Upper Nile Linear 0SDE IBT 117.3DAWASCO IBT 70.5DUWASA IBT 27.9MWSA IBT 100NWSC Linear 94.5Drakenstein IBT 60.7Tygerberg IBT 60.3eThekwini IBT 66.4Johannesburg IBT 52.4LWSC IBT 33.3NWSC IBT —

33

WATER DEMAND MANAGEMENT

Water demand management refers to “any socially beneficial measure that reduces or reschedules average or

peak water withdrawals from surface or ground water sources while maintaining or mitigating the extend to

which return flows are degraded.” (Tate, 1990) This definition contains four basic concepts that merit a brief

discussion here because they run implicitly through most of the following chapters. These four concepts are as

follows;

socially beneficial refers to the requirement that measures undertaken to manage water demands should

show an excess of (social) benefits over (social) costs. Using this concept, demand management applies to

any type of project to improve the efficiency of water use, regardless of whether or not actual shortages of

water exist in any particular area, providing that the benefits outweigh the costs.

reducing or rescheduling average or peak water demands refers to the different conditions under which

demand management actions might occur. Average and peak demands are the two most common

determinants of water system size, and accordingly the need for investment. Actions that reduce either or both

of these flow characteristics will have long-run impacts on system investment.

surface or ground water emphasizes that both water sources are important in the management of water

demands. This may appear somewhat self-evident, but, in applied practical terms, surface and ground water

are often considered in isolation from each other. This part of the definition stresses that both sources are

equally important, and further, need to be approached in an integrated manner during the water management

process.

maintaining or mitigating the quality of return flows stresses that demand measurements should not lead

to water quality deterioration. In other words, demand management measures should be at least benign with

respect water quality, or lead to quality improvements.

The Importance of Water Demand Management

Water demand management is important for several reasons, among which are the following:

34

The approach highlights the finding that water use is alterable through pricing and other nonstructural

means. This is a valuable insight in the long run because it implies that improved efficiency in water use and

patterns can influence capital investment levels, which will lead, in turn, to lower requirements for water

infrastructure spending.

The basis for achieving economic efficiency in municipal infrastructure is the measurement and comparison

of benefits and costs of decisions made with respect to water servicing provision. Demand management, by

definition, include a focus of “socially beneficial” actions and decisions, thereby requiring implicitly both the

measurement of demands and the conduct of benefit cost analyses.

In planning water servicing expansions or major modifications, system planners should be required to take

all alternatives into account to determine whether or not major works can be sized differently, altered with

respect to timing, or otherwise changed to lower cost. Demand side management approaches encourage such

a consideration of alternatives.

Demand management identifies new alternatives that may help in planning future system

modifications.

.Factors influencing water demand

Water demand is based on the behavior of consumers and for this study we

concentrate on households. Water is part of the bundle of goods that adds

to human well-being. Hence we can use the mainstream approach of

demand studies to understand the factors influencing water demand.

4.1 Climate

35

It is reasonable to assume that weather patterns will influence the

consumption of water: more water will be consumed in hot weather and less

during rainy periods.

4.2 Household demographics and other characteristics

Individual differences between households influence their water demand.

Household size is important, (Nieswiadomy and Molina, 1989), as is the age

structure of the household. Other variables, like the house size and access

to appliances (showers, bathrooms, washing machines, etc.) are also

relevant (Barkatullah (2002), Renzetti (2002)).

4.3 Income

Income is a main determinant of consumption. Renwick and Green (1999)

use median household income for each of the water agencies included in

their study based on aggregated water data. Barkatullah (2002) uses

income and property values as indicators of the budget available for

households. Höglund (1999) includes the average gross household income

in her study.

4.4 Pricing

Usually economic theory suggests that the consumers react to the marginal

price of the product. The marginal price of water, income, climate and

household specific variables were used to explain water consumption

WATER DEMAND FORECASTING

36

Estimating and forecasting water demand becomes necessary as the urban

population dependent on public water supplies increases rapidly and new

demands for water are not easily met. Considerable efforts have been put

into the development of urban water supply projection in thelast four dec

ades resulted in a wealth of understanding and sophisticated forecasting

techniquesin this field. Different kinds of data sets have been used ranging

from household data to aggregate data. The quantity and type of data

available determine which forecasting method should be considered for

application. There is no absolute level of accuracy that is appropriate in

all demand forecasting situations. A large number of studies of the demand

for urban water have appeared in the literature since the classic Howe and

Linaweaver study of 1967 (Martin and Thomas, 1986). The approach most

widely used for water forecasting is the per capita method, which assumes

population as the single explanatory variable. It provides adequate

explanation on water use and assumes other variables to be unimportant or

perfectly correlated with population.

Water per person per Capital

37

CHAPTER THREE

3.0 METHODOLOGY

This chapter reveals the various methods, techniques and steps taken to

review and analyze all reports, publications and data collected. Data on

water supply budget for the year 1988 to 2011 were assembled from the

Federal capital Authority’s annual reports. The data were analysed as

follows:-

(a)Establishing the ration of Federal Capital Territory (Total) Annual

Budget as against the FCT Capital water budget.

(b)Undertaking economic analysis on FCT water supply budget and FCT

Water Supply revenue.

38

(c) Carrying out an economic analysis on FCT Water Supply Revenue

Versus FCT water Supply Volume.

DATA COLLECTION AND REVIEW

Information on the project and project area were acquired from following

agencies

FCT Water Board, Abuja

For the enhancement of this research, the following data were collected and

review

FCT Annual Budget

FCT Water Budget

FCT Water Revenue

FCT existing water Schemes

1995 Directory of Nigerian Statistics

The Federal capital territory Economic Empowerment and Development Strategy (FEEDS)

Publication of 2006 population 2006 Census Annual result

Water tariff structure of some developing countries

Critical review of journals, publications and workshops on the Federal Capital Territory water

system.

Desk Study

39

Data collection on water supply budget for the year 1988 to 2011 will be used in determining the

following:

Establishing the ratio of Federal Capital Territory (FCT) total annual budget as against the FCT

capital budget

Undertaking economic analysis on FCT water supply budget and FCT water supply revenue

Carrying out an economic analysis on FCT water supply revenue and budget versus FCT water

supply volume to determine the cost benefit ratio of the water supply scheme.

DESCRIPTION OF THE STUDY AREA

The Federal Capital Territory is located in the centre of Nigeria. It covers an area of 8000 square kilometres, with the Federal CapitalCity Abuja having 250 square kilometres. It is bounded in the North by KadunaState, on the West by Niger State, on the East and South by Nassarawa and Keistates respective

More than 70% of the land is rural. The FCT is divided into 6 Area Councils.Abagi, Abuja Municipal, Bwari. Gwagwalada, Kuje and Kwali. The urban areasare the federal Capital City (FCC] namely, Garki, Maitama, Wuse, AsokoroGwarinpa and Gudu district urban areas are the local government orArea Council headquarters. Notable satelite town include Kubuha, Nyanya,Karu, Karshi, Karmo, Lugbe and idu. 0thers are Gwagwa, Jiwa and Jikwoyi in

the Municipal Area Council. Some remote villages near the city are beginning togrow, like Kuchigoro and Aleyita in Abuuja Municipal Area Council.

Population Density

Population density is obtained by dividing the total number of persons in the area by the area or

size of the land occupied by them. The area of FCT Abuja is 7315 km sq.

Population Density = No of Persons

40

Area of Land (km.sq)

Rate of Population Growth

Growth is the change in the size of a population. The change can be an increase or a decrease in

the population hence we can have a negative of positive growth rate. Three different annual

growth rate methods will be used and the most appropriate will be considered. The three methods

are:

(a)Fixed Annual rate of growth (Linear model)

r = (Pn –Po) 1/n Po

(b) A constant rate of growth over a unit time (Geometric model)

r = (Pn) 1/n - 1 Po

(c) Continuous rate of growth (Exponential model)

r = 1/n (Loge Pn – Loge Po)

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1 Data Presentation

The data to be analyzed include:

The water budget acquired from 1988 to 2011 by the water authorities and finance department of

the FCDA

Water tariff system of some countries

Average quantity of water per capital per day used in some countries

41

The census population and population density of Abuja (1991 and 2006)

ABUJA WATER SUPPLY SYSTEM

The Usuma dam is located on longitude 9º 01’ 12” N and latitude 7º 25’ 16” E. Sited 26

kilometers from Abuja city center (along the Dutse-Bwari road), and 10 kilometers away from

Bwari, the dam is built across the River Usuma (Figure 1). The River Usuma, the second largest

in the FCT after River Gurara, is a perennial stream with a relatively large network of

tributaries. The Usuma drainage basin is the largest of the six drainage basins in the FCT,

draining more than two-thirds of the FCT. It flows majestically through the Aso-Bwari hill

ranges running across the northeastern part of the FCT. The soils of are rich Alluvials and

Luvisols. The vegetation is however, Park Savanna due to extensive human activities such as

farming, hunting, tree felling, etc. [7]. The original population of the four study communities is

purely Gbagyi, a negative tribe that engages in farming, fishing and according to [8], collection

of fuelwood as a store of cultural value. At present, the population has become heterogeneous

due to population expansion within the FCT. The Usuma dam has a reservoir capacity of 120

million m³ of raw, untreated water. The dam consists of two sides: the main dam and the saddle

dam. The main dam embankment is 1.3 km long, 47m high and has a crest size of 10m. The

saddle dam is 470m long, 15m high and has a crest size of 10m (see Plate 1). The total area used

up by the dam is 2,500,000 m² (Table 1). The Usuma dam and the four communities (Payi, Jigo,

Kwabwarra and Ushafa) constitute the area under the coverage of this study

An earth-f ill dam across River Usuma, w ith open channel spillw ay‒ Reservoir capacity - 100 million m3‒ Commissioned – 1987‒ Initial treatment plant capacity - 5,000m3/hr‒ Present Capacity – 10,000m3/hr

42

‒ On-going expansion – 20,000m3/hrLocated at an elevation higher than any of the settlement areas inthe FCTS/N Description Dimensions1 Dam Crest Elevation 579masl2 Stream Bed Elevation 533masl3 Maximum Height of Main Dam 46m4 Maximum Height of Saddle Dam 18m5 Full Supply Level 575masl6 Maximum Water Level 576masl7 Minimum water Level (for gravity flow) 568masl8 Storage Capacity 105M m3

9 Live Storage 88M m3

10 Free Board 4m11 Total Crest Length 1,320m12 Crest width 10m13 Upstream Slope 1:3&1:3.2514 Downstream slope 1:2&1:2.515 Earthwork Volume 5M m3

16 Reservoir Surface Area 8km2

17 Catchment Area 200km2

Land Allocation at Usuma DamS/No. Purpose of Use Area (m²)1 Reservoir 840,0002 Burrow Pits 14,0003 Treatment Plant 16,0004 Offices and Staff Quarters 630,0005 Reserved Area 1,000,000Total 2,500,000

Jabi Dam and the water treatment plantconstructed in 1981, as the first source ofwater supply to the Capital City

An earthfill hydraulic structure‒ Length - 850m‒ Spillway - 30m‒ Reservoir Capacity - 6 million m3‒ Plant Capacity - 360m3/hr‒ Transmission main - 15km - 450mmdiameter, Ductile Iron (DI)

Provided comfort to the ShagariAdministration’s cabinet (FEC) meetingsand important national events in the City

No longer economical to operate

FCC Water Supply Plan

43

BASIC WATER REQUIREMENT

There are many who will point out that water use habits vary between populations. In fact, many

populations exist for extended periods with much less than 15 l/p/d [6,7]. Moreover, the water uses

incorporated in the WHO minimum need estimate are not of equal importance. Drinking water and water

for cooking are certainly more essential than water to wash clothes, at least over a period of a few days.

Yet others have suggested that the minimum provision endorsed by international aid organizations should

be 50 l/p/d [8].

Basic minimum drinking water requirement

44

An absolute “minimum water requirement” for humans, independent of lifestyle and culture, can

be defined only for maintaining human survival. To maintain the water balance in a living

human, the amount of water lost through normal activities must be regularly restored. Minimum

water requirements for fluid replacement have been estimated at about three liters per day under

average temperate climate conditions. When climate and levels of activity are changed, these

daily minimum water requirement can increase. Ina hot climate, a 70-kilogram human sweat

between four and six liters per day without a comparable change in food intake or activity (7).

The National Research Council of the National Academic of Sciences in the U.S.A. separately

estimated minimum human water requirements by correlating them with energy intake in food.

They recommend a minimum water intake of between one and one-and-a-half milliliters of water

per calorie of food (1-1.5ml/kcal). With recommended daily diets ranging from 2,000 to 3,000

kcals, minimum water requirement are between 2,000 and 4,500 milliliters, or 2 to 4.5 liters per

day. Using these data, a minimum water requirement for human survival can be set at three liters

per day. Given that the population live in hot climate at times, it is necessary to increase this

minimum to 5l/p/day.

Basic Requirement for sanitation

Effective disposal of human wastes controls the spread of infectious agents and interrupts the

transmission of water-related diseases. Unfortunately, much of the world’s population,

45

particularly in developing countries remains without access to clean drinking water or adequate

methods to dispose of human wastes. The choice of sanitation technology will ultimately depend

on the developmental goals of a region. Health benefits are identifiable when up to 20 liters per

capital per day of clean water are provided (23). Accordingly, while effective disposal of human

wastes can be accomplished with little or no water when necessary, a minimum of 20 liters per

day is recommended here to account for the maximum benefits of combining waste disposal and

related hygiene, and to permit for cultural and social preferences.

Basic water requirement for Bathing

Some studies suggest that minimum water needed for adequate bathing is on the order of 5 to

15l/p/day and that required for showering is 15 to 25l/p/day (25). A basic level of service of

15l/p/d for bathing is recommended in this thesis.

Basic Requirement for food preparation

The final component of a domestic basic water requirement is the water required for the

preparation of food. Brooks and Peters (29) estimate that water used for food preparation in

wealthy regions ranges from 10 to 50 liters per person per day, with a mean of 30 litres per

person per day. In a study done of the water provided for 1.2 million people in northern

California, an average of 11.5 liters per person per day was used for cooking, with an additional

15 liters used for dishwashing (31). Other studies in both developed and developing countries

(4,14,32,33) suggest that an average of 10 to 20 litres per person per day appears to satisfy most

regional standards and that 10 l/p/d will meet basic needs.

In summary:

46

WATER IN ABUJA: A GENERAL OVERVIEW

Water refers to the portable source of drinkable supply for human consumption which can easily

be sourced from tap water, boreholes, open well etc. All across the country, the mass of people

have been left to continue drinking water containing non sulphide and all sorts of bacteria germs

and suspended matter capable of causing diseases.

Available information from the FCT Water Board indicates that there are four operating dams

that are servicing the FCT. These are Lower Usman Dam with the capacity of 100,000,000 m3

and Gurara Dam with capacity of 850,000,000 m3. Others are Pandam Dam with the capacity of

30,000,000 m3 and Jabi Dam which are maintained by Parks and Recreation for recreational,

agricultural and fishing purposes. There are 744 boreholes and 10 hand pumps in the FCT

provided by the FCT Water Board, the Area Councils and donor partners like UNICEF and the

MDG’s PSU.

The data on volume of water provided in the FCT are as follows:

Daily Production 8,000 x 24 = 192, 000 m3

47

Monthly Production 192,000 x 30 = 5,760,000 m3

Annual Production 5,760,000 x 2 = 69,120,000 m3

(Source: FCT Baseline Data from FCTMDG)

4.1 WATER LOSS ANALYSIS

The water loss is calculated from the total annual volume of consumption and production

available. It was difficult to get the actual volume of water in each dostrict since the organization

dont have bulk meters. The total annual water produced and distributed to the distribution

system and the water billed that was aggregated from the individual customer meter readings

were used to quantity the total water loss from the network. The 12 months water production and

consumption that the water loss calculation was based on the table below while the

corresponding curve of the total water loss is shown in Fig 4.2. the cummulative average water

loss of the city is shown in the table above (figure 4.3).

The cummlative average water loss of the network is shown in the table above.

NO OF WATER CONNECTIONS MAINTAINED BY THE BOARD

Description Metered Flat rate

Domestic/Residential 16,575 7,513

Commercial 1,953 3,468

WATER TARIFFS

We have two types of water tariffs, the flat rate and the volumetric (Linear, IBT and DBT) water

tariff. The waterboard is operating a linear water tariff .

48

Description Metered (Naira) Flat rate (Naira) Connection fee (Naira)

Domestic/Residential 80 4000 31,000

Commercial 150 20,000 31,000

Most African households live on very modest budgets. The average African household survives

on not more than $180 per month; urban household budgets are about $100 per month higher

than those of rural households. Household budgets range from $60 per month in the lowest

quintile to no more than $400 per month in the highest income quintile except in middle-income

countries, where the richest quintile has a monthly budget of $200 to $1,300 (table 6.1) On

average, Africans spend more than half their household budget on food. Monthly spending on

water averages $4, or 2 percent of household budgets, and rarely exceeds 3 percent. Only in

Cameroon, Mauritania, and Rwanda are water expenses more than 5 percent of the household

budget. Spending on water services increases with rising income levels: The top 20 percent of

African households pay $6 per month (2 percent of income), primarily because they are

disproportionately connected to formal water networks.

49

Months(2011)

No of Bills Distributed

Bills Values(30% Allowed for Water Loss)

No of Response

Amount Collected

No of Collection

% of Response

Average

Jan 34,313 387,669,068.00 12,722 187,947,257.63 48.48 37.08 42.78

Feb 34,158 463,738,357.00 12,984 171,766,097.44 37.04 38.01 37.53

Mar 34,006 387,452,252.00 16,954 222,769,779.00 57.50 49.86 53.68

April 34,063 414,393,361.97 13,755 148,914,711.09 35.94 40.44 38.19

May 33,405 376,863,539.33 14,958 193,638,585.89 51.38 44.78 48.08

June 33,526 360,657,640.53 16,303 185,037,978.00 51.31 48.63 49.97

July 35,526 332,881,385.75 15,119 187,023,435.58 56.18 42.35 49.27

Aug 35,697 441,728,783.82 16,920 169,822,940.06 38.45 47.18 42.81

Sept 35,862 441,728,783.82 18,423 197,372,866.09 44.68 51.37 48.03

Oct 35,862 381,924,906.60 18,928 178,211,568.00 46.66 52.30 49.48

Nov 36,194 413,232,023.29 18,101 175,653,048.90 42.51 50.20 46.35

Dec 36,420 404,625,579.19 18,825 177,254,663.70 43.81 51.69 47.75

TOTAL 419,562 4,808,895,681.30 194,012 2,195,412,931.38 45.67 46.24 46.16

Willingness to pay (WTP) is an expression of demand for a service. It is a strong prerequisite for

cost recovery being a measure of user satisfaction of a service and of the desire of users to

contribute to ongoing access to that service. Willingness and ability to pay are regularly

confused. It is often stated that people are not able to pay the required contributions because they

are too poor. This may perhaps be true in a few individual cases, but in many cases people are

able to pay but not willing to put a priority on spending their resources on improved water

supplies or sanitation facilities.

53. Whenever people indicate they are not willing to pay, it is important to find out why and to

ensure that action is taken to solve the underlying problem. Factors negatively influencing

50

willingness to pay include a service that does not reflect people‘s demand, lack of transparency

from the community committee, lack of financial capacities, political interference, beliefs,

competing water sources, etc. Divergent cost recovery policies used by different agencies also

influence the willingness to pay. For instance, if one agency is providing water in rural areas

―free of charge‖ in one community while another agency is requesting for 10% of upfront user

contributions for covering part of the investment costs, then those asked to contribute may

decline, citing poverty. If these factors are dealt with sensibly, willingness to pay is positively

influenced.

54. There are several methodologies available for measuring willingness to pay (for instance:

actual behavior studies, hypothetical behavior studies, contingent valuation, etc.). While many of

these studies will send a clear message that there is willingness to pay for improved services, it is

only in very rare occasions that policy changes as a result. For rural areas we suggest to limit

willingness to pay studies to survey and focus group discussions at community level, ensuring

that the views of women as main water users are investigated and recorded separately. This

approach will also capture the possibility of community members providing voluntary labour for

trench digging, transport, pipe-laying, or to provide local materials, such as gravel and sand.

Table 3.3 provides a checklist with key topics for such surveys which is expanded in the Annex –

Factors influencing willingness to pay. The information collected can be used to find ways to

improve the service and increase revenue.

Table 3.3: Factors that influence willingness to pay

Community factors Demand and participation of communities (men, women, rich, poor) Perceived advantages from improved services (health, distance, type of service, economic activities, livestock, social cohesion, increase in living status, little migration, etc.…)

51

Confidence in the water committee Prevailing local customs and legislation Income levels Presence or absence of alternative sources Level of satisfaction with existing services Expectations on subsidies (for sanitation)

Factors related to services Costs of water or/and sanitation system Water tariffs Continuity of service Water quality Management efficiency of the service, including the billing/collection method

Political factors Legitimacy National strategy Donor policies

The most important thing under the water supply schemes is the selection of sourcesof water,

which should be reliable and have minimum number of impurities. After the complete treatment

of water, it becomes necessary to distribute it to a number of houses, estates, industries and

public places by means of a network of distribution system. The distribution system consist of

pipes of various sizes, valves, meters, pumps, distribution reservoirs etc. The pipe line carry the

water to each and every street, road. Valves control the flow of water through the pipes. Meters

are provided to measure the quantity of water consumed by individual as well as by the town.

Service connections are done to connect the individual building with the water line passing

through the streets. Pumps are provided to pump the water to the elevated service reservoirs or

directly in the water mains to obtain the required pressure in the pipe lines.

52

Countries with domestic water use below 50l/p/d

53

54

55

A scorecard of tariff performance

A scorecard compiled on the basis of cost recovery, efficiency, and equity criteria suggests

that many utilities are able to balance these goals, a majority of the utilities meet one of the

conditions, and a few score low on all the conditions (table 9 and annex J). ELECTRA in

Cape Verde has the most effective tariff structure and scores high on equity, efficiency, and

cost recovery. The other outstanding performers are Oshakati, Windhoek, STEE, SONEB,

and Katsina WB. These utilities impose the most efficient pricing mechanism, complemented

by cost recovery and equity. STEE in Chad and AWSA in Ethiopia are implementing the

most equitable tariff structure. ELECTRA, Oshakati, Windhoek, STEE, SONEB, and Katsina

WB score the highest in efficiency. The cost-recovery conditions are met by four utilities—

ELECTRA, Oshakati, Windhoek, and eThekwani—located in the MICs of Cape Verde,

Namibia, and South Africa.

Final scorecard for meeting tariff objectives: cost recovery, efficiency, equity

Criterion Maximum score Average (%) Utilities scoring above average

Equity 4 51 ELECTRA, AWSA, NWASCO, SEEN, Katsina WB, FCT, Kaduna WB, Electrogaz, NWC South Darfur, SDE, STEE, DAEASCO, NWSC, Drakenstein, NWSC

Efficiency 3 45 SONEB, ONEA, ELECTRA, Dire Dawa, GWCL, KIWASCO, WASA, CRWB,

Oshakati, Windhoek, Walvis Bay, Katsina WB, FCT, Electrogaz, Upper Nile, STEE, Johannesburg, Tygerberg

Cost recovery

2 22 SONEB, ONEA, SODESI, NWASCO, WASA, JIRAMA, BWB, Oshakati, Windhoek, SEEN, NWC Upper Nile, NWC Khartoum, SDE, DAEASCO, NWSCO, eThekwani, SWSC

One point is awarded for each of the following criteria: [1] Cost recovery: O&M cost recovery [2] Cost recovery: Capital cost recovery [3] Efficiency: No fixed charge or minimum consumption charge [4] Efficiency: Metering ratio is higher than sample average (77%) [5] Efficiency: The price of the last block meets the capital cost [6] Equity: Small piped consumers (at 4 m3) pay less than average piped consumers (at 10 m3) [7] Equity: Standpost consumers pay less than small piped consumers (at 4 m3) [8] Equity: Connection cost as share of GNI per capita is lower than sample average (27%) [9] Equity: Residential consumers pay less than nonresidential consumers at 100 m3 of consumption

Source: AICD WSS Survey Database, 2007.

It is shown in the above table that the waterboard have an average score in terms of equity and

slightly below average in efficiency but they have more work to do in the aspect of cost recovery

which is far boelow average.

Year FCT Population

FCT Population Density(Area of 7,315km2)

FCT Annual Budget

FCT Water Budget

FCT Water Revenue

Ratio (Water Budget: Annual Budget)

Benefit Cost ratio (Water revenue/Water Budget

1988 266,584 36.44 0.319 0.041 0.008 0.129 0.1951989 290,819 39.76 0.374 0.038 0.009 0.102 0.2371990 317,705 43.43 1.139 0.050 0.010 0.044 0.2001991 378,671 51.77 0.280 0.095 0.010 0.339 0.1051992 413,509 56.53 1.259 0.075 0.013 0.060 0.1731993 451,378 61.71 2.353 0.076 0.025 0.032 0.3291994 493,030 67.40 3.533 0.108 0.032 0.031 0.2961995 536,091 73.56 4.373 0.033 0.041 0.008 1.2421996 587,697 80.34 8.649 0.103 0.044 0.012 0.4271997 641,847 87.74 3.879 0.115 0.085 0.030 0.7391998 700,541 95.77 3.989 0.361 0.103 0.090 0.2851999 765,294 104.62 14.189 0.362 0.201 0.026 0.5552000 835,348 114.20 18.442 2.560 0.268 0.139 0.1052001 912,218 124.71 26.131 2.340 0.301 0.090 0.1292002 995,905 136.15 26.278 6.303 0.329 0.223 0.0522003 1,087,543 148.67 43.402 3.300 0.481 0.076 0.1462004 1,187,512 162.34 32.970 7.049 0.541 0.214 0.0772005 1,296,570 177.252006 1,408,576 193.5520072008200920102011

56

Benchmarking water and sanitation indicators

Unit Resource-rich

countries

Nigeria Middle-income

countries

Mid-

2000s 1999 2003 2008 Mid-2000s Access to piped water % pop 12.5 12 8 5 61.1Access to standposts % pop 12.4 16 11 8 22.1Access to wells/boreholes % pop 47 45 53 63 4.8Access to surface water % pop 26.6 27 28 22 10.9Access to septic tanks % pop 12.9 15 16 23 47.7Access to improved latrines % pop 37 42 46 35 33.7Access to traditional latrines % pop 21.5 17 16 13 6.9Open defecation % pop 28.3 24 22 29 11 2005 Domestic water consumption liter/capita/day 115 109 194.8Revenue collection % sales 60.1 44 99.3Distribution losses % production 39.7 59 26.2Cost recovery % total costs 67.1 62 86.3

Operating cost recovery % operating

costs 94 180 120.8

Labor costs connections

per employee 96.4 57 203.4Total hidden costs as % of revenue % 193 291 67

Nigeria Scarce water resources

Other developing

regions

U.S. cents per m3 2005 Average effective tariff 0.38 60–120 3.0–60.0 Source: AICD water and sanitation utilities database (http://www.infrastructureafrica.org/aicd/tools/data); access figures from DHS (1999, 2003, and 2008).

57

References

58

8. P.H. Gleick, "Basic water requirements for human activities: Meeting basic needs", Water International 21:83-92.

Ayoade, J.O. and B.L. Oyebande, 1983. Water Resources. In: AGeography of Nigerian Development, Eds., Oguntoyinbo,J.S., O.O. Areola and M. Filani, Heinemann EducationalBooks (Nigeria) Limited, Ibadan. ISBN: 978 129 525 2(limp), 978 129 526 0 (cased).

Tongaat Hulett Developments, THD, 2007. Sustainable Water.R e t r i e v e d F e b ru a r y 5, 2 0 0 9 f r omhttp/www.thdev.co.za/content/view/56/2

59