Tool

Fees and accounting for O&M of project facilities

Support financial sustainability of the project outputs by putting in place a transparent service fee structure and accounting system

A transparent fee structure details how much beneficiaries have to pay to use WASH and WRM services. Fees should be designed to cover expenses for the management, operation and maintenance of project outputs (e.g. a borehole, sanitation facility, etc.). The fee structure has to go hand in hand with a system to monitor, account for and document (record keeping) payments and use of resources (British Columbia Ministry of Health no year; Spartanburg Regional Health Services District no year).

Purpose and link to IQC

Tariffs are a means to cover costs for management, operation and maintenance of project outputs. Such revenues are a prerequisite to ensure that the investments into a project actually result in sustainable access to WASH and / or WRM services for the target population. In line with human rights principles, such user fees need to balance the need to cover costs with affordability based on the users’ ability to pay. In some cases, you may have to negotiate with the local government for subsidies to keep this balance. Transparent fees, accounting and publishing records enables users to understand what they are paying for and how the money is used. This builds trust between the operator/committee, the users (and possibly local government) and strengthens user’s willingness to pay. Moreover pricing contributes to more conscious use of resources and eventually to the conservation of water resources. (WASREB. Water Act 2002)

How to

1.   Establish monthly costs

Tariffs need to be designed to at least cover operational costs. You should therefore calculate your monthly costs (including O&M, administration, repayment of debts and investments and depreciation) as a base for setting your tariffs.

Example for a borehole:

For an estimated production of 15 m3/day of water (based on the latest available actual figures from previous year).

Item Costs (Ksh/month)
Honorarium for mechanics 3.000
Fuel 9.000
Spare parts 2.000
Small repair/maintenance fund/liquidity buffer 1.000
Replacement cost after 5 years (total investment cost/60 months) 2.000
TOTAL COSTS 9.800

2.   Choose which tariff structure(s) you will be using

The tariff structure describes how different services are charged to the different customers. The following examples include the most common elements for a tariff structure for water services:

  • Fixed charge for a service connection and some given quantity of service. The advantage is that it is easy to implement. Tariff is unfair in that low consumers pay the same as high consumers.
  • Variable charges, per unit volume. Water gathered from a water kiosk or standpipe is commonly sold at a single price for a uniform container (e.g. 20 litre jerry can). For metered connections, the tariff is fixed at a single rate for each cubic metre of water.
  • Charge per unit of livestock. This is frequently used in pastoral areas where livestock keeping is a predominant livelihood and livestock demand for water is significant. Tariff will vary according to the type of livestock.
  • Block structure. Variable charges that change once a customer’s usage exceeds a certain volume. The advantage of the block tariff is that it enables a low tariff to be charged for small consumers and higher rates to be charged to larger consumers (a pro-poor structure). This encourages consumers to reduce consumption and be more efficient.

3.   Establish Tariffs

To ensure that the tariffs will be applied it is essential to involve the target community in this process. Discuss different tariff options with representatives of the project’s target group(s) and explain why it is important to cover costs. Decide the tariff for the different customer classes: household users, schools, water point/kiosk, heard of livestock, etc. Confirm if the total revenues will be sufficient to cover costs.

Note: some customer classes may be disadvantaged and/or poor and may find it very difficult to make contributions, they can be exempted from paying but may be able to contribute in kind.

Note: Tariff setting involves technical knowledge on projects equipment, tools, spare parts, their service and design period. It may be helpful to use the technical expertise from the local government office too.

Example:

Calculate the total consumption for the water source e.g. by estimating the number of jerry cans that will be consumed per month (e.g. 200 households x 6 persons per household x 30 days in a month divided by 10 litres per person per day divide by 20 litres = 18,000 jerry cans per month). Note: per capita consumption will depend on the distance between households and the water kiosk and the price.

Item Quantity Unit Quantity billed per month (Ksh) Monthly revenues (Ksh) Tariff
Households consuming 0–4.99m3 50 household 200 (average, depends on consumption) 10.000 Variable charge
Households consuming 5–19.99m3 30 household 600 (average, depends on consumption) 18.000 Variable charge
Households consuming 20 or more 20 household 1000 (average, depends on consumption) 20.000 Variable charge
School 240 student 50 1.200 Schools are charged depending on number of students
From water point / Kiosk 18.000 jerry can 2 36.000 Variable charges, per unit volume
Cows 10 herd 700 7.000 Charge per unit of livestock
Goats 25 herd 500 12.500 Charge per unit of livestock
Total Revenue per month 104.700  

4.   Get approval from authorities for your tariff structure

To avoid rejection of your proposal it is advisable to consult the authority before you officially submit your proposal for the tariff structure. You should also check the tariffs of other nearby systems, as big differences in tariffs may result in a rejection of your proposal. Once you are sure that your proposal stands a good chance of being approved, submit a signed proposal according to the standard formats (see Tariff guidelines from WASREB in Kenya for an example) to the responsible authority to solicit an official approval of your tariff structure.

5.   Disseminate/explain the tariff structure

The proposed tariff structure has to be explained to the community members.

Develop an overview of required activities to:

  • Disseminate/explain the proposed tariff structure.
  • Generate community buy in for the tariff structure.
  • Collect tariffs (see Step 6 below).
  • Monitor revenues to determine if the tariff structure has resulted in the revenues that are expected/required.

6.   Support the implementation of tariffs and build trust in the system

Proper management and use of the fees is very important to build trust in the financial management system and to ensure that funds are available when they are needed for O&M/follow-up tasks. You can achieve this by considering the following:

  • Having an active community committee with elected members (not selected or appointed).
  • Electing a treasurer who is honest and trusted by the people in your community.
  • Account for all money flows (see step 7 below).
  • A commitment to use funds only for their intended purposes – being maintenance and repair of the water source.
  • Development and approval by the community of a yearly budget.
  • If possible consider opening a bank account or using mobile money. In many countries banks and bank agents are increasingly working within communities.

Important notes:

  • Committee executive members (chairman, secretary and treasurer) should be trained on / be aware of their roles.
  • The committee treasurer and secretary MUST know how to read, write and have sufficient mathematical skills to keep track of revenues and expenditures.
  • Apart from the receipt book, other important financial records that are required include; members’ register, bank statements, asset register, local purchase orders, payment vouchers, delivery notes, cheque books and cash books (see info sheet “planning and managing project finances”).

7.   Set up a transparent accounting system

Your community will be concerned that the money they pay is put to use for the intended purpose. A proper accounting system includes the following elements that allow producing proof for the management of resources vis-à-vis the community:

  • Issue receipts for all payments and file a copy (example below).
  • Record all payments at the water point or sanitation facility (who came, when, what was purchased, for how much money)
  • Consult the members of the committee about purchases (instead of independent purchase decisions by the Treasurer).
  • Hold regular meetings to present plans for tariff collection and use of funds to all community members and collect and incorporate their feedback.
  • Publically present understandable balance sheets on a regular basis, which clearly show income/revenues and expenditures incurred.

During annual general meetings the treasure should present a financial report to the community to account for all financial flows and answer any questions related to the use of resources.

Meeting Feedback
15th September 2015 Repair works were carried out in August and the community got organized to pay 150 Ksh per household extra for it.
15th December 2015 … (to be hold)

Example of a receipt:

Template

References & Further Readings

  • Adapted from: FAO and UNICEF-Kenya. 2012. A Trainer’s Manual for Community Managed Water Supplies in Kenya (session E).
  • Tariff Guidelines.
  • Directorate of Water Development. A community resource book for the water and sanitation sector. Uganda.
Last updated 12 April 2018

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