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Likely Impact of Reforming Water Supply and Sewerage Services in Delhi

This study was undertaken to gain an understanding of the baseline water supply and sewerage services in Delhi, and assess consumer coping strategies and associated costs, their preferences for service improvements, willingness to pay and affordability for the preferred options. For this purpose, a representative sample survey of around 8,000 households and about 2,000 non-domestic consumers was carried out. The survey results bring out the deficiencies in services, and the significant coping costs the consumers are bearing. The survey data reveals that the consumers are willing to pay - and can afford - the extra cost that service improvement will entail. The analysis of survey data indicates that, for poor households in informal settlements, substantial improvement in water supply can be made by introducing/implementing paid group connections. Significant social gains, which could be as high as Rs 5,500 to Rs 8,000 million per annum, are expected from the efficiency improvements in the present system and other reforms that could be undertaken by the Delhi Jal Board.

the efficiency improvements in the present system and other reforms that could be undertaken by the Delhi Jal Board.

ORG Centre for Social Research

The findings of this study are the personal views of the authors and do not reflect any official position of the World Bank group or its affiliates or any other organisation to which the authors belong.

Domestic consumer (8,000) Underserved Authorised flatted Authorised plotted ●Commercial ●Institutional ●Industrial

Non domestic consumer (8,000)

Janta/LIG Plots <150 sq m Plots >150 sq m Total MIG/HIG
Janta/LIG MIG/HIG Plots <150 sq m Plots >150 sq m Total
Janta/LIG MIG/HIG Plots <150 sq m Plots >150 sq m Total

51 per cent of non-domestic consumers are reportedly dissatisfied with piped water supply arrangements, mainly due to inadequate supply and low water pressure.

Water filter Pump Overhead reservoir Borewell
Other recurring cost Booster energy charges Interest and depreciation on coping investments
lonies s d egularised s All Opportunity cost of time spent for water collection Other recurring cost Booster energy charges Interest and depreciation on coping investments
SPECIAL ARTICLEEconomic & Political Weekly EPW october 11, 200861depreciation on investment in water related assets) and Rs 128 per month is recurring cost. Out of the recurring cost, about Rs40 per month are the electricity charges for booster pumps. The average water and sewerage bill of the domestic consumer is Rs 140 per month. This translates into a payment of Rs 6 per kl, taking the average water consumption levels according to the water bills. The coping cost per kl of water consumed is Rs 10. Thus, in total, the domestic consumer bears a cost of Rs 16 per kl of water consumed. This may be contrasted with the operating cost of water supply by theDJB, which is about Rs 6 per kl.3.4 Non-domesticConsumersAbout 41 per cent of industrial consumers have invested in borewells with an average investment of Rs 8,000 per consumer. For commercial consumers, the proportion is 16 per cent and the average investment is Rs 11,000 per consumer. For institutional consumers, the proportion is 24 per cent and the average invest-ment is Rs 9,000 per consumer. About 54 per cent industrial enterprises have invested in pumps and 72 per cent in overhead reservoirs. The average investment made by industrial enter-prises is Rs 2,100 in pump, Rs 1,400 in sump, Rs 1,100 in overhead reservoir and Rs 1,400 in pipelines. The average investment made by commercial consumers varies from less than Rs 1,200 for over-head reservoirs to more than Rs 4,000 for sump. For the institu-tional consumers, the average investment for similar arrange-ments varies from Rs 700 to Rs 7,800. The average coping cost borne by commercial, industrial and institutional consumer are Rs 422, Rs 907 and Rs 539 per month respectively (details inAnnex 2). The cost per kl of water consumed by these three categories of non-domestic consumers is Rs 42/kl, Rs 47/kl and Rs 18/kl respectively. 4 Willingness to Pay for Improved ServicesThe contingent valuation (CV) method has been applied in this study to assess consumer willingness to pay (WTP) for improved WSS services. The CV method has found wide application in em-pirical environmental economics. A number of earlier studies on assessment of demand for improved water services have applied the CV method.3 Of the three common approaches to the CV studies, the “open-ended” elicitation method, the “closed-ended” referendum type elicitation method and the “payment card” method or the checklistCV method, the last one was preferred for this study. In this method, the respondent is asked to circle (indi-cate) the highest WTP from an ordered set of values (ranging from zero to “RsX or more” per month) for a particular level of service. To allow for alternate levels of improvement in service, multiple “payment card” was offered to the respondent and he/she was asked to select the highest WTP for each level of services. The scenario for improved level of WSS service was described as follows: (a) water supply 24 hours in a day, all days in a week (this scenario was presented to households in pilot zones; in other areas, the initial improvement to six to eight hours of supply, eventually reaching 24/7 was presented); (b) potable quality water supplied, safe to drink without using filters or aqua-guard; (c) pressure good enough to reach everywhere in the house (up to four stories and tanks on the roof); (d) meters in working condition and payment according to the quantity of water consumed; and (e) a good sewerage system with cleaner surroundings and no problem of sewer backflow or drinking water getting contaminated by sewer water.Specially designed payment cards were used to elicit the respondent’sWTP with an ordered set of monthly payments (water and sewerage bill) shown in the cards for various levels of service. The respondent was asked to tick the highest payment level (out of the list) he/she considered as acceptable payment for the improved level of services in a range of Rs 50/month to Rs 1,000/month. The four levels of services, ranging from A4 at present to A1 as the best service level possible, were specified in the cards:– A4 level: six to eight hours of daily supply; pressure and water quality as existing at present– A3 level: six to eight hours of daily supply and good water pres-sure; water quality as existing at present – A2 level: six to eight hours of daily supply, good water pressure, and potable quality water – A1 level: 24 hours of daily supply, good water pressure, and potable quality water The WTP corresponding to level A1 services was specifically asked in the pilot zones (southII andIII) and WTP for level A2 services was asked in the rest of DJB zones. The average willingness to pay for improvedWSS services across Delhi (all zones) is found to be Rs 130 to 240 per month in low-income households in authorised colonies (households resid-ing in Janta flats, typeII government quarters andLIG flats), and Rs 290 to 368 in high-income households (HIG flats and plotted house over 300 sq m).4 The average willingness to pay for authorised colonies, taking all categories of households together, is Rs 215 per month. The average willingness to pay for improved services is about Rs 163 per month in underserved areas, excluding the JJ clusters. As compared to the average water bill (about Rs 140 per month, combining authorised and underserved colonies), the average willingness to pay is substantially higher, reflecting thereby a strong demand among consumers for an improvement in the level of services. It may be useful to compare the above estimates withWTP of households in the pilot zones (southII andIII). For authorised colonies, the estimates of WTP for improved services (A1 level, i e, 24/7) is in the range of Rs 198 to 281 per month for low income households (households residing in Janta flats, typeII govern-ment quarters andLIG flats) and Rs 322 to 361 per month for high-income households (HIG flats and plotted house over 300 sq m). The average WTP for authorised colony households is Rs 258 per month for the A1 level of service and Rs 246 per month for the A2 level of service, which is comparable with the estimate for entire Delhi presented above. The average willingness to pay forimproved services in underserved areas of the pilot zones, excluding the JJ clusters, is about Rs 180 per month for an A1 level of service. For an A2 level of service, which is comparable with the estimate presented above, the average willingness to pay is about Rs 172 per month. Evidently, the willingness to pay for improved services is higher in the pilot zones as compared to that for Delhi as a whole, even after controlling for the level of improvement in service.5 A comparison of WTP (Rs per month) by

400 350 300 250 200 150 100

up to 4 4-7 7-10 10-15 15-20 20-25 25-30 above 30

Affordab (3.3% of

Given the existing inefficiencies in the WSS system, there is considerable scope for downsizing opex and capex. It is reasonable to envisage that energy efficiency and outsourcing programmes could reduce DJB opex by as much as 20 per cent down to Rs 4,500 million per year. Similarly, better planning of infrastructure development and improved design criteria to systematically seek the least cost option could save up to one-third of DJB capex and reduce it to an average Rs 5,000 million per year to achieve the same output. Assuming that such savings could be achieved over a period of about seven years and that improvement of the public

Water bill WTP Coping cost + current water bill Affordable water bill

piped water and sewerage service could eliminate the need for relying on substitutes altogether, the amount of cash currently injected in the sector by customers could cover 100 per cent of DJB opex and contribute 80 per cent to DJB capex. Of course, achieving such efficiency gains would require investment to address some of DJB’s systemic technical, commercial and financial problems. Investing Rs 4,250 million per year for seven years (equivalent to about $ 700 million) for this purpose would yield an internal rate of return of 25 per cent. The overall saving of resources under such an “optimistic scenario” is about Rs 8,000 million ($ 178 million) per year, to be achieved from the seventh year onwards8 (details presented in Annex 3, p 65).

Even in a less optimistic scenario that considers reducing DJB opex by 10 per cent only to Rs 5,000 million per year and DJB capex by 20 per cent only to Rs 6,000 million per year and limiting DJB collection from customers to the “assessed willingness to pay” of about Rs 6,000 million per year, yielding an internal rate of return not lower than 25 per cent would still allow an annual investment of about Rs 2,900 million per year for seven years (equivalent to $ 450 million) to fix DJB operations. In such a scenario, which is more realistic, the overall saving of resources is about Rs 5,500 million ($ 122 million). Thus, investments which are required to: (i) address DJB’s systemic technical, commercial and financial management problems; (ii) reduce DJB opex and capex costs; and (iii) direct most of the cash injected in the WSS sector to finance DJB operations (by eliminating the need for investing and operating customer substitutes) are fully justified by the high return they would yield and the limited financial effort customers would be requested to make (details presented in Annex 3).

Coping cost + current water bill Water bill Affordable water bill WTP

energy efficiency improvements and least cost design of infrastructure, reduction in operating expenditures and capital expenditures are likely to be about 20 per cent and 33 per cent, respectively. Such an improvement of the public piped water and sewerage service could eliminate the need for customer coping strategies altogether and the amount of cash currently injected in the sector by customers could cover 100 per cent of DJB operating expenditures and contribute 80 per cent towards DJB capital expenditures. Such an “optimistic scenario” also allows investment of about Rs 4,250 million per year for seven years (equivalent to $ 700 million) to address some of DJB’s systemic technical, commercial and financial problems, yielding an internal rate of return of 25 per cent and an overall saving of resources of Rs 8,000 million per year. However, even assuming a more “realistic scenario” with slower efficiency improvements will allow an annual investment of a maximum of Rs 2,900 million per year for seven years (equivalent to $ 450 million) to fix DJB operations and at the same time, yield an internal rate of return of 25 per cent, with an overall saving of resources of about Rs 5,500 million per year. Overall, a saving of Rs 5,500 to Rs 8,000 million per year is expected, depending on the efficiency improvements and other reforms that could be undertaken by the DJB.

SPECIAL ARTICLEEconomic & Political Weekly EPW october 11, 200865Unauthorised regularised coloniesare those unauthorised colonies, which were formed before 1977 and regularised by the govern-ment. Individual connections are provided for water supply and sewerage on payment of development charges.Urban villagesare villages that are surrounded by urban settlements. The rural settlements that have become part of urban area have been declared as “urban villages” under the Delhi Municipal Corporation Act, 1957. Water supply is provided by DJB/NDMC/DCB on an individual basis at flat rates.Rural villagesare those areas where land use type predominantly remains agricultural. MCD/NDMC provides basic civic services in these areas and DJB provides individual connections at flat rates.Flatted developments include all dwelling units built by DDA and Central Public Works Department on plots of land more than 3,000 sq m and all dwelling units built by cooperative group housing societies. All other residential developments are considered as plotted housing.Table A2 : Non-Domestic Coping Strategies and Costs Industrial Commercial and All Non-Domestic InstitutionalConsumers% of consumers that have invested in: Borewell 41 20 30 Pump 54 33 43 Overheadreservoir 72 48 60 Sump 11 5 7 Waterfilter 11 13 12 Investment per consumer (Rs) 6,974 4,539 5,709% of consumers incurring expenses on purchase of additional water 46 27 36 Average expenses on additional water purchase made by such consumers (Rs per month) 1,283 1,050 1,177Recurring expenses per consumer per month (Rs): Water purchase (Rs/month) 589 270 423 Expenses on maintenance of water related assets (Rs/month) 47 34 41 Expenses on electricity for running booster (Rs/month) 166 107 136 Total recurring cost per month (Rs) 802 411 600Interest and depreciation cost of water related assets per month (Rs) 105 68 86 Total coping cost per month (Rs) 907 479 686Annex 2: Domestic and Non-Domestic Coping Strategies and Costs Table A1 : Domestic Coping Strategies and Costs Authorised Underserved ColoniesColonies% of households that have invested in: Borewell 4 12 Pump 58 45 Overheadreservoir 46 46 Waterfilter 48 10 Investment in water related assets per household (Rs) 5,541 2,902% of households incurring expenses on: Bottled water/vendor supplied water 4 4 Boiling of water 7 7 Filters 49 24 Boosters(electricity) 73 44 Cleaning and maintenance of sewage disposal – 46 Average recurring expenses per month (Rs) 101 82 Interest and depreciation cost of water related assets per month (Rs) 83 44Opportunity cost of time spent for water collection(Rs/month) – 63Total cost per month (Rs) 184 189Annex 3: Potential Resource Saving from WSS Efficiency Improvements(Rs Million; Rs 1 million = $ 0.022 million)Year 1 2 3 4 5 6 7 8 9 101112131415CashinjectedintheWSSsector Without reform for… DJBOpex 5,5005,500 5,500 5,500 5,500 5,5005,500 5,500 5,5005,5005,5005,5005,5005,5005,500DJB Capex 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500Substitutes bycustomers 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 17,500 17,500 17,500 17,500 17,500 17,50017,500 17,500 17,50017,500 17,500 17,500 17,500 17,50017,500By… Customers DJBcollection 4,000 4,000 4,000 4,000 4,000 4,0004,000 4,000 4,0004,000 4,000 4,000 4,000 4,0004,000Substitutes 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500GoNCTD DJB operating subsidy 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500DJBdevelopmentgrant 7,5007,500 7,500 7,500 7,500 7,5007,500 7,500 7,5007,5007,5007,5007,5007,5007,500 17,500 17,500 17,500 17,500 17,500 17,50017,500 17,500 17,50017,500 17,500 17,500 17,500 17,50017,500Withreform(optimisticscenario) for… DJB opex 5,500 5,350 5,200 5,050 4,900 4,750 4,600 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500DJBcapex 7,500 7,150 6,800 6,450 6,100 5,7505,400 5,000 5,0005,000 5,000 5,000 5,000 5,0005,000Substitutes bycustomers 4,500 3,850 3,200 2,550 1,900 1,250 600 17,50016,35015,20014,05012,90011,75010,600 9,500 9,5009,500 9,500 9,500 9,500 9,5009,500Financedby… Customers DJB bills and arrears 4,000 4,650 5,300 5,950 6,600 7,250 7,900 8,500 8,5008,5008,500 8,500 8,500 8,5008,500 Substitutes 4,500 3,850 3,200 2,550 1,900 1,250 600 (Contd)
SPECIAL ARTICLEoctober 11, 2008 EPW Economic & Political Weekly66GoNCTD DJB operating subsidy 1,500 700 DJBdevelopmentgrant 7,500 7,150 6,700 5,550 4,400 3,2502,100 1,000 1,0001,000 1,000 1,000 1,000 1,0001,000Investmenttoaddress 4,250 4,250 4,250 4,250 4,250 4,250 4,250 systemicproblems 21,75020,60019,45018,30017,15016,00014,850 9,500 9,5009,500 9,500 9,500 9,500 9,5009,500FinancialIRR 25% -4,250-3,100-1,950 -800 350 1,5002,650 8,000 8,0008,000 8,000 8,000 8,000 8,0008,000Withreform(morerealisticscenario) for… DJBopex 5,5005,400 5,300 5,200 5,100 5,1005,100 5,000 5,0005,000 5,000 5,000 5,000 5,0005,000DJBcapex 7,500 7,300 7,100 6,900 6,700 6,5006,300 6,000 6,0006,000 6,000 6,000 6,000 6,0006,000Substitutesbycustomers 4,5004,000 3,500 3,000 2,500 2,0001,500 1,000 1,0001,000 1,000 1,000 1,000 1,0001,000 17,50016,700 15,900 15,100 14,300 13,60012,900 12,000 12,00012,000 12,000 12,000 12,000 12,00012,000Financedby… Customers DJBbillsandarrears 4,0004,300 4,600 4,900 5,200 5,5005,800 6,000 6,0006,000 6,000 6,000 6,000 6,0006,000Substitutes 4,5004,000 3,500 3,000 2,500 2,0001,500 1,000 1,0001,000 1,000 1,000 1,000 1,0001,000GoNCTD DJB operating subsidy 1,500 1,100 700 300 DJBdevelopmentgrant 7,500 7,300 7,100 6,900 6,600 6,1005,600 5,000 5,0005,000 5,000 5,000 5,000 5,0005,000Investmenttoaddress 2,9002,900 2,900 2,900 2,900 2,9002,900 systemicproblems 20,40019,600 18,800 18,000 17,200 16,50015,800 12,000 12,00012,000 12,000 12,000 12,000 12,00012,000FinancialIRR 25% -2,900-2,100-1,300 -500 300 1,0001,700 5,500 5,500 5,500 5,500 5,500 5,500 5,500 5,500Annex 3: Potential Resource Saving from WSS Efficiency Improvements(Rs Million; Rs 1 million = $ 0.022 million)(Continued)Year 1 2 3 4 5 6 7 8 9 101112131415

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