Assessing the Performance of Water and Sanitation Tariffs: The Case of Nairobi, Kenya

Abstract

AbstractPolicymakers and utility managers can use a variety of tariff structures to calculate customers' bills for water and sanitation services, ranging from a simple fixed monthly fee to complicated multi‐part tariffs with seasonal pricing based on metered water use. This study examines the performance of several alternative tariff structures for water and wastewater services in Nairobi, Kenya using a dynamic tariff simulation model applied to a complete set of billing records from Nairobi City Water and Sewer Company. Simulations show that a uniform volumetric price tariff structure performs as well as or better than several increasing block tariff (IBT) structures across the six performance metrics considered (customer welfare, social welfare, cost recovery, the subsidy delivered through the tariff, subsidy incidence, and water conservation). These findings are robust to changes in the level of cost recovery. This finding challenges the wisdom of the widespread use of IBTs in low‐ and middle‐income countries and current perceptions of best practice in tariff design.