COST RECOVERY MEASURES
In this practice, a water utility develops a comprehensive cost recovery plan based on an assessment of the actual costs of all O&M activities including depreciation of equipment. The plan includes procedures for improving bill collections as well as awareness campaigns for customers, local authorities and decision makers. The plan refers to possible adjustment of the water tariff taken into account the economic situation of specific target groups including commercial customers. Increases in tariff require approval by local authorities and therefore it needs very good justification and an awareness-raising approach to convince decision-makers that an increase is needed. The process to get approval is complex but it is necessary to explore this venue as tariff adjustments are needed in many utilities to help them to recover the O&M costs, increase revenues and sustain the service.
Description of the problem
High fuel prices and O&M costs on the one hand, and the sharp decline in revenues and the collected bills on the other hand, have led to financial losses for many water utilities during the intensification of the armed conflict. Utilities did not manage to obtain sufficient revenues to pay for the high energy cost of their water and waste water systems and to cover O&M expenditures. Receiving less revenue among others was caused by the interruption of salary payments of staff worming in the public sector due to the war. The accumulated debts of customers reached unprecedented levels and became difficult to address. In some areas, for example, customers attacked the team of the utility when collecting the bills or disconnecting the service for customers with important accumulated debts. Hence the utility needed to review the service costs and consider alternatives to obtain income to pay for operating and maintaining the systems, for example, by charging more to commercial customers.
Description of the good practice
Preparing a well-studied proposal for a new cost-recovery tariff that enables service continuity, employee salary payment, and covering O&M costs and to get this approved by relevant authorities. Steps include:
• Preparing a proposal for (i) a new tariff – focused on commercial customers and large consumers, (ii) discounts for debt holders (e.g. 20-30%), and (iii) facilitating payment in instalments
• Presenting the proposal to the utility management for approval, involving all departments of the water utility
• Presenting the proposed tariff to the Board of Directors for approval. Then submitting the plan to the governor for his support and approval
• Updating the billing system with the new tariff which was done by the commercial department together with the information management department
• Informing the administrative areas to implement a list of pre-application instructions, including the awareness measures
• Starting implementing the new tariff
• Carrying out campaigns for awareness and revenue collections, according to the proposed plan.
Impact and sustainability of the good practice
The comprehensive plan for the new tariff, collection improvement, awareness-raising measures, and obtaining support of local authority all help the utility to improve its resilience and revenue collection in the current and future crises. It clearly contributed to improving the collection of water bills and enhanced the cost recovery of the utility which may be relevant for many utilities in Yemen. The advantage of this approach is that it is sustainable particularly when the approach also includes automatic adaption of the tariff with annual increases in the general cost level in the country.
Required resources
• Qualified and experienced staff for cost calculation and tariff preparation.
• Awareness-raising and communication measures for decision-makers and customers to acquire their support for the new tariff.
