interim report on cost recovery and tariff practices for...

Cost Recovery and Tariff Practices for UWSS Sector in India

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Interim Report

on

Cost Recovery and Tariff Practices for Urban Water Supply and Sanitation

in India

Indore Case Study

Prepared for

Water and Sanitation Program – South Asia

June 2008

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INDORE Table of Contents

1 Context and Background ................................................................................................ 3

2 City Profile ..................................................................................................................... 3

2.1 Physical Environment and Topography ................................................................... 3

2.2 Demography ........................................................................................................... 3

2.3 Socio-economic Profile ........................................................................................... 3

3 Institutional Framework for Water Supply and Sewerage Services ................................ 4

3.1 Indore Municipal Corporation .................................................................................. 4

3.2 Public Health Engineering Department, Government of Madhya Pradesh .............. 5

3.3 Indore Development Authority ................................................................................. 5

3.4 Madhya Pradesh Public Works Department ............................................................ 5

4 Existing Infrastructure and Services ............................................................................... 5

4.1 Key issues in Service Provision .............................................................................. 7

5 Water supply and Sewerage Finances ........................................................................... 7

5.1 Cost recovery: current performance ........................................................................ 7

5.2 Tariff Structure ...................................................................................................... 11

5.3 Consumer Profile .................................................................................................. 14

6 Analysis ....................................................................................................................... 14

6.1 Economic Efficiency .............................................................................................. 14

6.2 Equity and Protection of Vulnerable Sections ........................................................ 15

6.3 Resource Conservation ........................................................................................ 15

6.4 Acceptability and Practicality ................................................................................. 15

7 Summary ..................................................................................................................... 15


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INDORE

1 Context and Background In order to access funds for water supply and sanitation improvements under JNNURM, municipal service providers are required to levy ‘reasonable user charges’ so that operation and maintenance costs are recovered within seven years. The Ministry of Urban Development, with assistance from the World Bank Water and Sanitation Program - South Asia, has prepared guidelines on the design and implementation of user charge reforms in line with JNNURM requirements. These guidelines are available as a separate document. The guidelines draw on lessons from a review of current user charges and cost recovery arrangements in 23 cities in India. This report focuses on one of those cities: Indore.

2 City Profile Indore is the most prominent city in Madhya Pradesh, having greater economic importance than the capital, Bhopal. The city served as the capital of the Holkar dynasty and has a rich cultural and political history. Today, Indore is a modern and dynamic hub, with seven major industrial towns close by. It has a population of nearly two million.

2.1 Physical environment and topography Indore occupies an area of 180 km2. It receives moderate rainfall in the range rainfall of 30-35 inches from June to September. Drainage is provided by two nonperennial rivers which receive all domestic and industrial wastewater generated in the city center.

2.2 Demography Indore has experienced rapid population growth in recent decades due primarily to economic growth and migration. Of its current two million population, roughly one-quarter lives in slums.

2.3 Socio-economic profile Indore is a leading commercial center for the whole of Western India. Cotton textiles are the city’s major product, but iron and steel, chemicals and machinery are also produced. The city accounts for roughly one-third of the total namkeen (savory) production of India and is often referred to as mini-Bombay. Due to the vibrant economic base, the average household income in the city is Rs. 5,272 per month while for BPL families it is Rs. 2,119 per month. Its forthcoming designation as both a Special Economic Zone and Agricultural Export Zone poses challenges for public infrastructure management. Indore’s literacy rate improved drastically from 68.4 percent in 1991 to 74.6 percent in 2001.

Table 4.1: Population Trend in Indore Municipal Corporation Area

Year Population Growth Rate (in %)

1981 829327 44.68

1991 1104000 29.86

2001 1639000 48.46


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3 Institutional Framework for Water Supply and Sewerage Services

In conformity with the 74th CCA, Urban Local Bodies (ULBs) in Madhya Pradesh have been assigned the functions listed in the 12th Schedule of the Constitution. Water supply and sewerage therefore fall under the remit of Indore Municipal Corporation (IMC).

3.1 Indore Municipal Corporation IMC is managed by the Deliberative and an Executive wings. The Deliberative wing is a congregation of elected members headed by a Mayor and elected councilors, under which are placed a range of committees (Figure 4.1). Figure 4.1: Structure of the Deliberative Wing

The Executive wing is headed by the Municipal Commissioner, supported by two Additional Commissioners and Deputy Commissioners. They, in turn, are supported by a team of Chief Engineers, Executive Engineers, Assistant Engineers and Sub-engineers (Figure 4.2). Water supply and sewerage services are primarily managed by Executive Engineers on deputation from the Public Health Engineering Department (PHED), though some functions fall under IMC’s purview, including bulk supply, the provision of tubewells in slums without a piped supply and sewerage development under JNNURM. There is a separate project manager for the Asian Development Bank (ADB)-funded project for Narmada Phase 3. The organizational structure for water supply and sewerage services is not ideal, having multiple reporting channels and widely distributed responsibilities. Figure 4.2: Organization Structure of the Executive Wing

Executive Engineer

Mr Gopal Dabkara (on dept from PHE)

Resp: 2 water sources (Narmada 1&2);

total c ity distribution;STP

Chief Engineer

Mr Anil Jain

Resp: Yashwant sagar source (through OHTs)

Executive Engineer

Mr Hans kr. Jain

Resp: Tubewells mostly in slums where

no piped supply

Superintendng Engineer

Mr Prabhash Sankhla

Resp: Independent Project Manager for ADB project

Assistant Engineer

Mr Jadon

Resp: Sewerae, JNNURM

Addditional Commissioner 1

Mr Vivek Singh

JNNURM Incharge

Executive Engineer

Mr Sonkar (on dept from PHE)

Resp: Pumping station at source (Narmada)

WTP

Additional Commissioner

Mr Avdhesh Sharma

Municipal Commissioner

Mr Neeraj Mandloi

Wards Com m ittee

12 in num ber for eac h ward

Adv is ory Com m ittees

Hous ing and Env , Water Work s ,Edu,Rev , M ark et, Planning and Rehab,Heal th

Food and Civ i l Supp, Law and Gen Adm in, Wom en and Chi ld Dev

M ay or in Counc i l

Chairm an of 10 adv is ory c om m ittees

M unic ipal Ac c ounts Com m ittee Appeals Com m ittee

Ty pe Ti tle Here

M ay or


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3.2 Public Health Engineering Department, government of Madhya Pradesh PHED is a state level body and assigns key staff to IMC for technical aspects of transmission and distribution and to oversee the Narmada water project.

3.3 Indore Development Authority The Development Authority develops new residential areas and hands them over to IMC. It also undertakes various infrastructure development schemes including the construction of major roads. The commissioner of IMC is an ex-officio member of the board of the Development Authority to enhance coordination between the two agencies.

3.4 Madhya Pradesh Public Works Department This deals with the construction and maintenance of buildings, roads, bridges, irrigation and flood control works.

4 Existing Infrastructure and Services The oldest water source in the city is the Yashwant Sagar Dam on the Gambhir River. This currently supplies 30 mld water, though its capacity is being enhanced under JNNURM. The principal water source for the city, however, is Narmada, 70 km away. This provides 140 mld and a considerable amount of pumping is involved in transmission. There are also nearly 3,000 tubewells and a rainwater harvesting tank. Raw water from Narmada is conveyed to a treatment plant employing conventional rapid sand filters. Treated water is then pumped to a break pressure tank. The development of Narmada Phase 3 has included a series of steps to improve service efficiency: 1. Meters are being installed at source to enable the monitoring of total production, and

transmission losses;

2. O&M of the pump house has been contracted out to the private sector for three years, with incentives for energy savings; and

3. To reduce leakage and long-term maintenance costs, only MS-DI pipes have been used

for the intake to the overhead tank section.

Distribution

IMC provides 87 lpcd to its consumers over an average of 45 minutes per day. Nearly 75 percent of the population is covered. The distribution system is old and in disrepair. According to IMC. technical losses stand at 18 mld while 54 mld is used illegally. Total NRW is estimated at roughly 80 mld. IMC is currently awaiting the sanction of a Rs. 3,000 million loan from the ADB which will be used to achieve 100 percent network coverage.

Figure 3: Distribution of Water Supply of various

Sources

79.63%

12.50%

1.85%

6.02% Bilawali Tank

Yashwant SagarDam

Narmada River

Ground Water


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Sewerage

The original sewerage system in Indore is old and in disrepair, and was designed to serve a population of just 1,50,000 in 10 percent of the city. A newer network installed in slums with donor assistance is not operational due to silt deposition and choking. Just over half of the sewage generated is discharged to sewers and only three-quarter of this reaches either of the two sewage treatment plants in the city. Roughly 43 percent is disposed via septic tanks that discharge into nallahs, while 2 percent arises from open defecation. In short, most sewage ends up in the rivers. Table 4.2: Water Supply and Sewerage System in Indore

A. BASIC PROFILE OF CITY/TOWN

Total area of the city/town 180 sq km

Total population of the city/town Approx 1900000 as of 2007

Total Slum Population Approx 455000

Number of slum settlements Registered -184 Unregistered – Data not available

Density of population 10,555/sq km

Number of wards 69

B. WATER SYSTEM DETAILS

Sources of Water Supply 1. Own source

Source Production (in kl) /day

River Narmada (Yashwant Sagar)

145000

20000

Other surface water sources Baolis

4500

Number of tubewells: 2900

9500

Other groundwater sources dugwells

Total water supply /water produced (in kl/day) 183000

Do you have flow meters at the production source? Yes (recently under the ADB project)

Total water demand or water shortage (in kl/day) 270000 kl/Day

Total shortage (in kl/day) i.e. demand-supply gap 90000 kl/Day

Total area served by water supply 135 sq km

Total population served by water supply (population coverage)

15,00,000

Total water supply coverage (network coverage %) 75%

Total sewerage coverage (in %) 45%

Total Transmission Infrastructure for Water Supply and Sewerage

WATER SUPPLY

Number of schemes currently running: 3

New schemes introduced/proposed in this financial year: Narmada Phase 3

Total pipeline length: 2040 km

Diameter range: 80 mm to 1200 mm

Rising main (in km): 23 km

Number of standposts: 893

Number of tankers: 185

Number of handpumps: 427

SEWERAGE

Total length of sewer line: 136 km

Number of manholes: 70719

Number of pumping stations:2

Number of STPs/sewerage farms: 2

Total Water Storage Capacity Current Capacity Number Capacity

OHT: 35 100 ml

Underground storage: 1 2 ml

TOTAL 36 102 ml

Shortage in storage capacity: NIL


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Source: Data provided in questionnaire

4.1 Key issues in service provision Discussion with city officials and a review of available literature revealed two key constraints on service provision. Firstly, the Narmada scheme is hugely expensive, both in terms of loan repayments and power costs. The state government is responsible for capital costs but power costs have to be covered from revenue. Secondly, the sewerage system is inadequate.

5 Water supply and Sewerage Finances

5.1 Cost recovery: current performance The financial analysis of IMC is based on the data from the January 2008 Credit Rating Report by Fitch Ratings.1 Table 4.3: Income and Expenditure Statement of Indore Municipal Corporation (in Rs. million)

Particulars 02-03 03-04 04-05 05-06 06-07

Property tax 381.15 416.30 406.80 443.20 490.00

Octroi tax - - - - -

Water tax 129.70 140.41 123.82 153.02 158.84

Other taxes 6.00 7.51 12.92 7.28 15.92

Total tax revenue 516.85 564.22 543.54 603.50 664.76

Nontax Revenue 20.13 19.98 17.91 22.55 23.54

Other income 125.03 227.71 133.37 202.05 228.22

Revenue from Own Resources 662.01 811.91 694.82 828.10 916.52

Grants, contributions and subsidies 979.27 743.67 905.20 1,183.63 1,329.80

Total Revenue Income 1,641.28 1,555.58 1,600.02 2,011.73 2,246.32

Loan/Borrowings 45.80 282.70 231.54 370.00 1,075.70

Establishment expenditure 461.43 495.23 536.31 545.86 584.33

Administrative expenditure 82.44 45.8 65.7 66.18 91.07

O&M expenditure 855.33 756.74 693.56 891.92 908.33

Interest/finance charges 34.46 58.07 61.04 58.54 82.5

Revenue expenditure 1433.66 1355.84 1356.61 1562.50 1666.23

Revenue surplus 207.62 199.74 243.41 449.23 580.09

Revenue loss (only own source revenue taken in to account)

771.65 543.93 661.79 734.40 749.71

Own source revenue failing short by (in %) 54 40 49 47 60

Capital works 0 0 0 0 760

Principal repayment of debt 14.77 24.89 26.16 25.09 35.36

The overall finances of IMC are in operative surplus2 during the period of analysis; however, if only own sources of revenue of IMC are taken into consideration against its revenue

1 The data provided by IMC could not be used for a comprehensive analysis on account of poor database

management caused by a change in vendor for maintenance of accounts. 2 The operative surplus figure needs to be read with qualification. Revenue expenditure is underreported on

account of many heads, for example nonpayment of interest and repayment installments of Rs. 5,000 million


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expenditure then, on an average, its own source revenue fell short by 50 percent. The total revenue income has grown at a Compound Annual Growth Rate (CAGR) of 8 percent while the total revenue expenditure has grown at 4 percent.

Revenue income

Revenue grants form the largest portion of the total revenue income contributing 59 percent and growing at a CAGR of 8 percent. Tax revenue constitute 30 percent of the total revenue income where property tax is the major source, contributing 74 percent in total tax revenue and 22 percent in total revenue income growing at a CAGR of 6 percent. Property tax income has almost doubled from 2001-02 to 2005-06 (Table 4.4), because of IMC’s drive to bring the unregistered properties on the tax register. However, the current collection ratio is less than 60 percent and IMC is taking steps to increase this by at least 5 percent every year to attain a target of 85 percent (Fitch Ratings, 2008). A door-to-door survey of properties and the introduction of geographic information system (GIS) to tap unassessed properties are currently in progress. Water tax, growing at 5 percent CAGR contributes 24 percent to the total tax revenue and 7 percent to the total revenue income. Other taxes -- vehicle, theatre, animal, conservancy, sewerage, education, electricity, professional , advertisement, fire, toll, building, drainage and special sanitary --- have grown at a CAGR of 28 percent from a small portion (1 percent) in the total revenue income. Nontax revenue from charges (water, conservancy, waste collection, development, and so forth); fees (water inspection, license, certificate, and so forth) and rental income from municipal properties constitutes a small portion of the total revenue income at 1 percent and is growing at 4 percent CAGR. Other income from sale of forms and publications. hire of vehicle, income from investments and interest constitutes 10 percent of the total revenue income and is growing at 8 percent CAGR.

Loans and borrowings

Loans and borrowings are growing at a CAGR of 120 percent with a steep rise in 2006-07 to Rs. 1075.70 million as against Rs. 370 million in 2005-06, primarily due to the water supply project under ADB.

Revenue expenditure

O&M expenditure including power and fuel, bulk purchases, consumption of stores, hire-charges and repair and maintenance constitute the biggest share in total revenue expenditure and are growing at a mere 2 percent CAGR.

special loan from the government of Madhya Pradesh to settle power cost dues, partial payment of power cost to

electricity board, and so forth. 3 These data are provided by IMC, therefore the figures do not match with Table 4.3..

Table 4.4: Growth in Property Tax Over Six Years (in Rs million)

3

Financial Year

Property Tax

2000-01 194.7

2001-02 280.0

2002-03 381.1

2003-04 422.2

2004-05 406.8

2005-06 449.5


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Establishment expenditures inclusive of salaries, wages, benefits and allowances, and pension and retirement schemes constitute 35 percent of the total revenue expenditure and are growing at a CAGR of 6 percent. Administrative expenditure on rents, rates, taxes, office maintenance, communication and so forth, and finance charges/interest both share 5 percent each of the total revenue expenditure and have been growing at a CAGR of 3-4 percent. Capital works have a maiden figure in 2006-07 at Rs. 760 million with no background for analysis. Repayment of debt is increasing at a CAGR of 24 percent.

5.2 Finances for Water Supply and Sewerage Services4 The analysis of IMC’s water account is limited due to information constraints; however, it is evident that the operative account is in deficit despite receipts of sizeable grants. Table 4.5: IMC’s Water Supply Operative and Capital Account (in Rs. million) ------------------------------------------------------------------------------------------------------------------------------------------------------------ Particulars 2002-03 2003-04 2004-05 2005-06 2006-07 ------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenue (Operative) Income Water charges/tax 129.708 140.402 123.819 153.022 158.837 Grant income 21.383 41.396 36.528 28.196 16.906 PHED grant (in the 87.600 89.000 90.001 90.200 91.000

form of salary paid by PHED to the staff) -------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Revenue Income 238.691 248.576 250.348 271.420 266.743

-------------------------------------------------------------------------------------------------------------------------------------------------------------- Capital Income A – From Own Source

Income from water connection 18.072 15.125 14.377 14.374 9.519 Transferred from gen surplus as project share ---- --- ---- ---- 37.800 Narmada Capital Renewal Cess 0.00 2.564 3.484 25.654 32.926 B - New Loans/Borrowing

Phase-1 0.00 50.50 0.00 0.00 0.00 Phase-2 0.00 28.395 20.585 0.00 0.00 Khatiwala 0.00 0.00 27.743 3.057 0.00 Phase 3 (ADB) 76.983 C -Capital Grants

For Yashawant Sagar improvement 41.800 For Narmada Phase III project (ADB) 86.810 ------------------------------------------------------------------------------------------------------------------------------------------------------------ Total Capital Income 18.072 51.134 66.187 43.085 285.838

------------------------------------------------------------------------------------------------------------------------------------------------------------ Total Income 256.763 299.710 316.535 314.505 552.581

------------------------------------------------------------------------------------------------------------------------------------------------------------ Revenue (Operative) Expenditure

Salary 129.112 131.841 135.330 141.873 136.132 Power (actually paid by IMC) 196.774 209.554 155.828 210.245 298.917 Power Bills not paid

5 227.553 297.528 297.529 357.528 241.083

4 The overall analysis of IM’s water account is not comprehensive, given the information constraints due to poor

data management. 5 Over the years, IMC has not being paying power cost fully. The power cost paid and not paid by IMC in past

years is shown separately in the table. Historically until 2000-01, IMC did not pay any amount towards power

consumption for water supply to the electricity board. The outstanding amount by the year 2000 reached a

staggering figure of Rs. 5,000 million which the government of Madhya Pradesh paid to its electricity board

by taking loan from ADB in the name of IMC. However, IMC is not paying any interest or repayment


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O&M 209.468 183.602 191.316 231.359 203.959 ------------------------------------------------------------------------------------------------------------------------------------------------------------ Total Revenue Expenditure 762.907 822.525 780.003 941.005 882.091

------------------------------------------------------------------------------------------------------------------------------------------------------------ Capital expenditure On capital works 68.860 42.632 116.457 149.947 153.536 Loan repayment P-1 14.644 14.644 14.644 14.644 14.6.44

P-2 0.00 0.00 0.882 2.646 4.410 Khatiwala 0.00 0.00 0.00 1.711 1.711 Other 0.00 2.165 1.063 0.00 4.000 ------------------------------------------------------------------------------------------------------------------------------------------------------------ Total Capital Expenditure 83.504 59.441 133.046 167.237 178.301

------------------------------------------------------------------------------------------------------------------------------------------------------------ Total Expenditure 846.411 881.966 919.349 1108.242 1060.392

------------------------------------------------------------------------------------------------------------------------------------------------------------ Operative Loss 524.216 573.949 529.655 669.585 615.348

------------------------------------------------------------------------------------------------------------------------------------------------------------ Total Loss 589.648 582.256 602.814 793.737 505.811

------------------------------------------------------------------------------------------------------------------------------------------------------------ Working (Operative) Ratio 3.19 3.31 3.11 3.47 3.31

------------------------------------------------------------------------------------------------------------------------------------------------------------

Water income

Income from water charges has increased from Rs. 129.7 million to Rs. 158.8 million at a CAGR of 24 percent. As a condition of ongoing ADB Urban Water Supply and Environment Improvement Project (UWSEIP) , IMC has increased its water charges from October 2006 but, in actual practice, implemented them from April 2007. It is too early to estimate how much increase in actual terms will be realized but current water demand due to revision of charges has gone up by 100 percent, that is, from Rs. 180 million to 360 million. Income from bulk connections has been increasing but, according the figures provided by IMC, of the 73 bulk connections from Narmada, 20 connections account for an outstanding of Rs. 4,8726,348 as of November 2007. Of these defaulters, key defaulters are government agencies and departments.

Grants for water supply service

IMC general grants and grants in the forms of salary paid by PHED to its staff on deputation at IMC. On an average, the salary grant amounted to Rs. 90 million while the general-purpose grant varied from Rs. 20 to Rs. 40 million. Capital grants have increased tremendously in the last few years for developing new sources of water, specifically Narmada Phase 3, in light of the negative externality faced by Indore for limited water sources.

Water expenditure

The total operative expenditure has increased at a CAGR of 4 percent between 2003 and 2006. However, this CAGR is highly underestimated as, in alternate years, expenditure shows ups and down because of the time lag in booking of expenditure. In 2006 data not included, it comes to 7.7 percent. The composition of operational expenses as of 2006-07 comprises power costs - 61 percent; O&M expenses -24 percent and; establishment expenses -15 percent. During 2003-06, O&M costs and salaries have remained almost

installment toward this Rs. 5000 million to the government of the Madhya Pradesh. Thus, IMC started with a

clean slate in 2001-02 and started paying toward power cost of water service but in a partial manner.

Consequently, in the last five years, it has again piled up an outstanding power bill of around Rs. 1,310 million.


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constant with yearly ups and down. It is the power cost which has increased continuously from Rs. 422.3 million to Rs. 550 million on average in the past two years. Of the total expenditure (operative plus capital), capital expenditure’s share is undergoing a drastic but temporary change as IMC is executing large capital projects with the ADB loan and JNNURM’s assistance.

5.3 Demand collection and arrears

Table 4.6: Demand Collection and Balance Statement for Indore Municipal Corporation’s Water Supply Services (in Rs. million)

Year

Arr

ears

at th

e b

egin

nin

g o

f th

e

year

Curr

ent

year

Dem

and

To

tal D

em

and

Recovery

of A

rrears

Recovery

of C

urr

ent

Dem

and

To

tal R

ecovery

Past years

' Arr

ears

at th

e e

nd

of year

Curr

ent

Dem

and A

rrears

at th

e

end o

f year

To

tal A

rrears

at th

e e

nd o

f year

Colle

ctio

n E

ffic

iency o

f P

ast

Arr

ears

Colle

ctio

n E

ffic

iency o

f C

urr

ent

Dem

and

To

tal C

olle

ctio

n E

ffic

iency

1 2 3 4(2+3) 5 6 7(5+6) 8 9 10(8+9) 11(5/2

12(6/3)

13 (7/4)

2003-04 343.914 167.300 511.214 47.487 92.915 140.402 296.427 74.385 370.812 14% 56% 27%

2004-05 370.812 173.297 544.109 30.959 92.860 123.819 339.853 80.437 420.290 8% 54% 23%

2005-06 420.290 194.079 614.369 42.991 110.031 153.022 377.299 84.048 461.347 10% 57% 25%

2006-07 461.347 215.000 716.347 47.651 111.186 158.837 413.696 103.814 517.510 10% 52% 22%

The demand collection and arrears situation of IMC’s water account is poor given the overall collection efficiency of 22 percent as of 2006-07. The arrears for the past year form 64 percent of the total demand in 2006-07 and have been growing at a CAGR of 10 percent against a CAGR of 9 percent for current demand. While the collection efficiency for past year arrears is a dismal 10 percent, current demand also has a very poor collection efficiency of 52 percent.

5.4 Tariff Structure The ADB-funded UWSEIP brought about long-overdue tariff reforms.

Box 4.1: Urban Water Supply and Environment Improvement Project This project was the third phase of augmentation of the Narmada scheme. The original scheme was designed to provide 120 lpcd for an estimated population of 33,00,000 by 2024; Phase 3 will provide an additional 360 mld. The project is financed by ADB through a 70 percent grant and a loan of Rs. 6412.50 million, broken down as follows: Upgrading existing water supply infrastructure and metering :Rs 260 million Narmada Phase 3 :Rs 5726million Sewerage Works :Rs 201.00 million Solid Waste Management :Rs 110.10 million Development Works and Awareness Generation :Rs 114.50 million Liability for repayment of the loan component is shared between MIC, the state government and UN HABITAT.


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MIC is mandated to set water tariffs and charges, the final decision resting with the Mayor. Currently, a single part tariff is used, comprising flat rates based on connection/ferrule size. The new tariff structure adopted in 2005 is designed to address cost recovery needs, in conjunction with the achievement of 100 percent metering by 2010. Tariffs were almost doubled for connection sizes up to 1 inch, and more than doubled for larger ones. For subsequent years up to 2010, a minimal rise was suggested to account for inflation (Table 4.7). At the end of 2010, when meters have been installed, the plan is to abolish flat rates. Table 4.7: Indore Municipal Corporation’s Tariff Structure for Water Supply (as decided under UWSEIP)

(Rs./month)

Type of Connection 2005 2006 2007 2008 2009 2010

1/2 inches domestic 60 150 160 170 185 200

1/2 inches commercial 150 300 350 400 450 500

1/2 inches industrial 300 600 650 700 750 800

3/4 inches domestic 120 250 260 270 285 300

3/4 inches commercial 300 600 650 700 750 800

3/4 inches industrial 600 1200 1250 1300 1350 1400

1 inches domestic 250 500 510 520 535 550

1 inches commercial 700 1400 1450 1500 1550 1600

1 inches industrial 1200 2400 2450 2500 2550 2600

1 1/2 inches domestic 480 1000 1010 1020 1035 1050

1 1/2 inches commercial 1200 2400 2450 2500 2550 2600

1 1/2 inches industrial 2400 5000 5050 5100 5150 5200

2 inches domestic 960 2000 2010 2020 2035 2050



3 inches domestic 1920 4000 4010 4020 4035 4050



4 inches domestic 3840 8000 8010 8020 8035 8050



6 inches domestic 7680 14000 14010 14020 14035 14050



Table 4.8: Indore Municipal Corporation’s Tariff Rates for Metered Connection (Rates/kl)

Type of Connection 2005 2006 2007 2008 2009 2010

Domestic 10 11 12 13 14 15

Commercial 11 14 16 18 20 25

Industrial 22 24 26 28 29 30

The connection charge for a half-inch connection is Rs. 2,500 and for a sewerage connection, Rs. 200 per toilet seat. No recurring charges are imposed for sewerage.


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In addition to the tariff, IMC charges a water cess in its property tax bills, but this is not accounted for separately or appropriated to the water supply account.


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5.5 Consumer profile In 2006, there were 163,075 water connections for a population of 19,00,000. An additional 2,729 illegal connections have been identified. For a population of this size, however, one would expect there to be roughly 380,000 connections.

Source: Data provided in questionnaire

Table 4.9 indicates that 98 percent of legal connections are domestic and nearly half of their bills are in arrears. Of the illegal connections, the concentration of commercial and industrial operations in Indore suggests that a huge number are nondomestic. In 2007, IMC introduced stringent penalties to reduce the number of illegal connections:

1. If a connection is found to be illegal, a charge of Rs. 2,500 is imposed for legalization in addition to payment of one year’s water tariff (Rs. 1,920). The latter can be paid in installments. In case the defaulter wants to opt for payment of the total amount (Rs. 4,220 ) in installments, the legalization charge will have to be paid immediately. The water tariff of Rs. 1,920 can be paid in three monthly installments;

2. Up to March 31, 2008, a special scheme applied. On self-disclosure of an illegal

connection, the Rs. 2,500 had to be paid but the water charge was calculated at a lower rate, subject to a minimum charge of three months’ tariff or Rs. 480; and

3. In order to expand the consumer base, IMC has targeted bulk connections in

residential colonies and multistoried buildings. These will be converted into separate household connections. Residents with an existing connection must register and pay a minimum charge of Rs. 100 while for new connections a one-time charge of Rs. 2,500 applies.

While these are important steps for the long term, IMC also needs interim measures to stabilize its revenue. One option could be a flat rate water tax on all unconnected consumers (as in Dehradun). IMC could also consider removing the water cess head from property tax bills and accounting for it as water supply revenue.

6 Analysis

6.1. Cost recovery IMC has not recovered its O&M costs for many years. Own resources revenue from water and sewerage services fall short of operational expenditure by about 70 percent, and if capital expenditure is included (without depreciation), the gap widens to 75 percent . The cost recovery objective is not attained because of following:

Table 4.9: Consumer Profile (as on March 31, 2006)

Type of Connection Percentage of Total Connections

Number of Connections

Domestic connection 97.62% 159201

Slum connections 0.92% 1500

Commercial connection 0.77% 1257

Industrial connection 0.63% 1024

Others 0.06% 93

Total 163075


Indor 15

Very low consumer coverage

The consumer coverage is just 42 percent (1,60,701 against potential 3,80,000) because there are a large number of bulk connections taken by residential colonies/multistoried buildings for self-distribution of water to individual flat owners and limited network coverage of up to 75 percent.

Nonrevenue water

The existing operations have a high quantity of NRW because of: (i) technical losses; and (ii) theft and pilferage. The total NRW is around 80,000 kld, that is, i.e. 45 percent of the total water produced. Of this 54,000 kld is lost in theft and pilferage while technical and distribution loss is 26,000 kld. IMC identified 2,729 illegal connections during its recent drive. However, IMC estimates the existence of around 40,000-50,000 illegal connections in the system.

Collection efficiency

The total collection efficiency is a mere 22 percent - past arrears: 10 percent; current demand: 52 percent. 48.50 percent of existing customers were found to have payment defaults. The 73 direct bulk connections from Narmada alone account for an outstanding amount of Rs. 48 million.

6.2. Economic efficiency The use of flat rates means that consumers have no incentive to moderate their consumption. This is set to change in 2010, however, following the introduction of 100 percent metering.

6.3. Equity and protection of vulnerable sections According to the CDP, poor households spend 1.6 percent of their income on water. This suggests that current tariffs are affordable to all.

6.4. Resource conservation The absence of metering means that there is no incentive for water users to conserve the resource.

6.5. Acceptability and practicality The interim tariff structure adopted in 2005 enables IMC to plan a revenue augmentation strategy, and is a citizen-friendly measure.

7 Summary The 2005 tariff revision is a positive step towards cost recovery in water and sewerage services, but it is important for IMC to meet its 2010 metering objective. The critical constraints on cost recovery are: Supply problems

High water supply costs from the Narmada scheme; An old and mismanaged distribution network and high levels of unaccounted for

water; and An old and inadequate sewerage system, with a considerable amount of sewage

disposed off without treatment.

Management problems


Indor 16

A high rate of defaulters and many illegal connections; An ineffective organizational structure for service delivery and excessive dependence

on PHED (effectively a subsidy); Poor accounting practices and poor database management; and Poor financial discipline and management.

7.1 Recommendations There is considerable scope for improving revenue by adopting the following recommendations:

Table 4.10: Indore Municipal Corporation’s Revenue Generation Potential (refer section 6)

Systemic and Administrative Gaps Revenue Potential

Coverage and illegal connections Rs. 391 million

Collection efficiency Rs. 280 million

NRW Rs. 35 million

Total Potential Revenue Rs. 706 million

Improve consumer coverage

If IMC is able to achieve 90 percent coverage then the revenue generation potential from the additional 1,81,299 (3,42,000-1,60,701)6 connections at the existing charges of ½ inch connection of Rs. 180/month will amount to Rs. 391 million annually.

Improve collection efficiency

If IMC is able to reach an international standard of 90 percent collection efficiency for current demand, the potential for yearly increase in collections will be Rs. 280 million.7

Reduce nonrevenue water

If IMC is able to reduce NRW due to technical reasons to international standards of 10 percent, the annual revenue generation on 8,000 kld8 of water will amount to Rs. 35 million9 at Rs 12/kl (O&M cost of production). NRW resulting from standposts should be completely done away by providing free connections to the poor using assistance available under JNNURM. This will not only reduce water wastage but also serve the Millennium Development and JNNURM goal of universal water coverage. It will also build IMC’s database of registered connections, which can be leveraged for revenue generation in the future.

Other measures

Reduce power costs, beginning with energy audits. New pumps may be needed, and could be procured, then maintained on a Build, Operate, Transfer (BOT) basis.

7 Before tariff increase, current demand in 2006-07 was Rs. 215 million as rates have been more than doubled;

revised current demand for 2008-09 is likely to be Rs. 440 million -- 90 percent of which will be Rs. 396

million. If current recovery of around Rs. 116 million is deducted from it, the feasible increase in collection will

be Rs. 280 million. 8 80,000-54,000 = 26,000 kld. If 10% percent of 1,80,000 kld is subtracted the total water saving equals 8,000

kld. 9 8,000 kld x 365 days x Rs. 12 per kl.

interim report on cost recovery and tariff practices for...

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