Case Study on How a Public Drinking Water Utility Has Applied and Adapted the Progressive Tariff for Over 45 Years to Satisfy Its Financial Needs While Ensuring Affordability for Domestic Users and Providing Incentives to Rationalise Water Consumption

Countries: Tunisia
Level: National
Region: MENA Region
Tags: Economic instrument | Urban water supply
Target audience: Industry/business | Local government/municipalities | National government | NGOs and CSOs | Regional government | Water authorities | Water companies


As a public water utility with an autonomous budget, SONEDE, established in 1968, had the duty to provide drinking water to the population at an acceptable price through new financing investments, while taking into account the country’s limited water resources. SONEDE, through the adoption and adaptation of a progressive tariff and shifting from a supply management policy to a demand management policy, managed to achieve these targets. Since the introduction of the measure, eight tariff reforms were implemented.

Case analysis  

SONEDE, the Tunisian drinking water utility, was created in July 1968 under the terms of Law No. 68-22 of July 2, 1968 (as amended by Law No. 76-21 of January 21, 1976). SONEDE is a public establishment of an industrial and commercial nature, placed under the supervision of the Ministry of Agriculture, Hydraulic Resources and Fishing. As a public enterprise, SONEDE has financial autonomy: it does not receive government subsidies, and its budget is independent from the state budget. To cover its operating and investment charges, SONEDE relies mainly on revenue from water sales and fixed fees (accounting for 70 percent of total operating revenue in 2015).

Before the creation of SONEDE, a single tariff was applied for drinking water; immediately after its establishment, SONEDE implement three types of tariffs:

 

  • one for connected domestic, touristic and industrial users,
  • one for non-connected domestic users; and
  • one for certain categories of industry, such as metallurgy, textile production and sugar refining.

Through this tariff scheme, non-connected domestic users were paying the lowest tariff (less than half of what connected domestic, touristic and industrial users paid), followed by the industrial tariff and then by the connected users tariff. As a public enterprise, the government saw the tariff scheme as a way to implement the state’s policies, and the priorities at that time were to develop and encourage some basic industries and to support the most vulnerable sectors of the population in gaining safe access to water.

According to Decree No. 73-515 of October 30, 1973 on Approving the Regulation of Subscriptions to Water (especially Article 24), water pricing and ancillary fees are fixed by a ministerial decision. This means that SONEDE, as a drinking water utility, has only the authority to propose, while final decisions are taken jointly by the Minister of Agriculture, Water Resources and Fisheries and the Minister of Finance.

In 1974, SONEDE shifted to a progressive tariff and it has applied this tariff scheme since then. The progressive tariff has undergone seven reforms over time, each with several tariffs levels per band, as detailed in the following table (See table)

Up to 1978, SONEDE’s pricing choices could be considered in line with a “supply management” policy approach. In other terms, the company was attempting mainly to increase the number of its subscribers, so only two tariff levels per band were applied. But since 1979, pricing policy shifted to a focus on water demand management—gradually increasing the number of consumption bands and tariff levels per band.

In 1982, the first band representing what is considered a “social band”) was reduced to 20 m3 quarterly, instead of just 40 vm3, in order to rationalise more water consumption: 20vm3 represents approximately 50 litres per day per person for a family of five, which complies with the World Health Organisation (WHO) guidelines in terms drinking water accessibility.

In 1988, the “social tariff” was blocked, which means that it was only applied for consumers whose consumption did not exceed 20 m3 quarterly: if consumption was higher, users had to pay the upper-band tariff for all their consumption. This is an important feature that also applies to all other bands of consumption: once water use reaches a given consumption band, all previous consumption also becomes subject to the higher tariff level of the band in question.

In 1992, the number of tariffs per band was reduced to “2” for all consumption bands. The aim of this additional measure was to rationalise more drinking water consumption, given the high cost of realising new investments in water supply networks.

During the first decade of the 2000s, due to a decision of the ministry to freeze drinking water tariffs for nearly four years, SONEDE abandon multiple levels within a band and implement instead a single tariff level for all bands. The goal was to recover its financial balance, which had been impacted by the tariff freeze.

In terms of the evolution of the number of subscribers, this tariff policy (supporting domestic low-volume users), in addition to the financial facilities given to new domestic subscribers (they can pay their connection charges in multiple instalments up to eight years), helped to encourage drinking water connections and to improve the living standards of the majority of Tunisian population (See table).

In terms of affordability, according to the current tariff of the first band representing 20 m3 per quarter (0.2 DT), the final price of drinking water billed for this category of consumers will be around 2 percent of the minimum legal wage (350 DT/month) including fixed fees and taxes. This means that water charges for the most vulnerable connected users comply with the United Nations Development Programme (UNDP) recommendation not to exceed 3 percent of household income.

Another important outcome of the highly progressive tariff scheme applied by SONEDE is that consumption per connection has stabilised for the last five years, which offers a clear example of the strength of demand management.

Results obtained  

  • SONEDE succeeded in increasing substantially the number of its subscribers (and the rate of drinking water supply in general).
  • The shift of focus from supply to demand helped to guarantee water affordability for the majority of domestic users and to preserve financial balance over the long term.

Success factors  

  • Strategic view
  • Financial and statistical data availability
  • Responsiveness
  • Support of regulatory authorities

Indicators used  

  • Different tariffs schemes from 1968 to 2016
  • Evolution of the number of subscribers
  • Affordability
  • Consumption per connection

This experience could be duplicated depending on the drinking water utilities, the willingness of authorities to adopt a progressive tariff, and the capacity to provide proper financial projections.

References

  • SONEDE, “Statistics Report for 2015”
  • SONEDE,  “Annual Activity Report for 2015”
  • Law No. 68-22 of July 2, 1968, on Creating SONEDE, as amended by Law No. 76-21 of January 21, 1976
  • Decree No. 73-515 of October 30, 1973, on Approving the Regulation of Subscriptions to Water