A KPMG India strategy for Bangalore Water Supply & Sewerage Board has suggested that while domestic consumers should be charged 20 per cent higher tariff every year, bulk consumers should be spared stiff hikes.
The board hired KPMG to suggest a water tariff model for the Rs 3,000 crore water supply privatisation project to be implemented under build-own-operate-transfer scheme for the Cauvery Stage IV Phase I and II.
The Phase I project is being funded by OECF, the Karnataka government, and other state agencies. The OECF had on its part asked the board to link water tariff with the cost of recovery which meant that it had to be worked out on the basis of fixed and variable cost mechanism. Phase II is being funded by private agencies.
At present, the board charges Rs 8 on an average for domestic consumers for every kilolitre of water it supplies whereas it costs the board Rs 10 per kilolitre. By taking into account the present rate, water tariff is expected to go up to Rs 50 per kilolitre by 2015.
The KPMG model indicates that at current prices, every million litres per day of water capacity installed will cost around Rs 3-5 crore which includes transmission and distribution.
KPMG designed a matrix which gave three options for the board to choose from. For the domestic consumers, the first option suggested a hike in water tariff by 8 per cent every year which is the current inflation rate. If the board chooses this option, it will have to incur a major loss in terms of revenue which will have to be made good by funds from the state government.
The next option is to hike the tariff by 12 per cent every year which reduces losses to a some extent. The third option is to hike the tariff by 20 per cent every year to break even.
For public taps (fountains), the model suggested a similar pattern, tariff for which will have to be borne by the Bangalore City Corporation. At present, the recovery rate from the corporation is less than 50 per cent.
For bulk consumers, the model wanted lesser hikes to get this crucial segment under the tariff band. By roping them in to their consumer profile, the board will be in a position to cross-subsidise to a large extent the losses it will incur from domestic consumers.
The model suggested that tariff for bulk consumers should be raised once in three years by around 10 per cent.
The board has been raising tariff for top-end consumers by as much as 100 per cent for the last three years, which has kept away this segment from buying water from the board and instead hire water tankers at cheaper rates.
The KPMG strategy indicated that while political considerations could make it difficult for the board to raise tariff rates at the lower end of the tariff band, raising tariff at the top end to balance any loss in revenue was not a foolproof method. The strategy points out that there is strong competition from private sources who provide water at cheaper rates, taking away the consumers from the board. Hence, taxing them less will prove beneficial for the board as they will increase their intake substantially which, in turn, will increase the revenue of the board.
Phase I of the Cauvery water supply Stage IV project involves supplying 270 million litres to the residents every day. It is expected to be completed by 2001.
Phase II is expected to be completed by 2004 and involves pumping in an additional 500 million litres per day. When implemented, it will take care of Bangalore's needs till 2011.
Stages I, II and III have already been implemented which involves supply of 540 million litres daily to residents.
