FRAMEWORK FOR A NATIONAL WATER TARIFF STRATEGY IN LEBANON

1. FRAMEWORK FOR A NATIONAL WATER TARIFF STRATEGY IN LEBANON Roger Melki May 2016

2. Tariff Strategy Framework • Water and wastewater tariff strategies play a key role in the supply and management of water resources. • Strategies are prepared in the frame of an overall policy to set a whole strategy for water development in a country. • Tariff strategies vary according to • The desired objectives and priorities decided by the Public Authorities. • The existing infrastructure of water production and distribution, • The management organization • The current tariff situation.

3. General Principles of Water Tariff Strategies • Economic efficiency: water resources are used at lowest social cost, from financial, resource, and environmental perspectives; • Cost-recovery: produce revenue sufficient to meet the financial needs • Fairness: tariffs should treat all consumers equally: Cross-subsidy needs to be limited to a last-resource tool; • Financial stability: minimize risks of unexpected fluctuations;

4. General Principles of Water Tariff Strategies • Resource conservation: encourage resource conservation • Social orientation of water services: guaranteed provision to all • Water utility is not a social agency. • Economic and social incentives cannot be used as political objectives • Simplicity and understandability no unnecessary complexity

5. Tariff Strategy: The Lebanese Context • Parties Involved within the National Water Plan • Ministry of Energy and Water, • The 4 water establishments. • Other involved bodies are: • CDR • Council of the South • Ministry of Environment • Ministry of Public Health • Ministry of Public Works • Ministry of Interior and Municipal and the Municipalities • Ministry of Finance gives his approval on water tariffs.

6. Tariff Strategy: The Lebanese Context • Actual Tariff Policies in Lebanon • Involved institutions • “Water establishments will be in charge…. taking into consideration social, and general economic constraints” • Ministerial decrees based on proposals by the Minister of Energy and Water together with the Finance Minister. • Tariffs Financial Concepts • Tariffs are disconnected with the real cost of the provided services and fail to cover not only sector investment, but in many cases operational costs. • The existing fees finance mainly the salary charges and a small part of the operation and maintenance costs; • tariffs are therefore highly subsidized.

7. Tariff Strategy: The Lebanese Context • Tariffs structures • Flat tariffs are applied on subscription • tariffs are not related to real consumption. • The main part of the bill is the consumption charge. • Other fixed charges are the connection charges. • Cost covering • Unrelated Links Between Costs, Prices and Consumption neither the water utilities nor subscribers are able to measure volumes of water effectively used or paid for • Privileges • Although some few exceptions remain, all individuals or organizations including administrative institutions, public schools and the army… are due to pay water charges.

8. Tariff Strategy: The Lebanese Context • Management environment • Limited Autonomy of Water Establishments • Insufficient Technical and Managerial Human Resources. • Obsolescence of the Network • Problems in Electricity Supply charges. • Poor Billing and Collection • Weakness of Infraction Control • Water Leakage and Losses • Absence of Accurate and Reliable Data for the Sector • Absence of Accurate Financial Information

9. Setting a Tariff Strategy Framework Various elements and components to any tariff strategy. • Cost Components objectives Several cost components are associated with providing water services: • Operation and maintenance (O&M) costs of the water and wastewater systems; • Depreciation costs of existing assets; • Debt service or financing costs; • Replacement and expansion costs; • Profit margin • Environment rate

10. Setting a Tariff Strategy Framework • Rate Structures • Tariff structures may include fixed and variable components elements • Increasing Block Rates • tariff strategies are given priorities to designs addressing water conservation in addition to cost of service concern • Minimum Charges • A minimum charge is a fixed regardless of whether or not the water is used • Metering, Billing, Collecting • Main component of the tariff strategies

11. Setting a Tariff Strategy Framework • Low Income Affordability Rate • To keep water services affordable for low income water users • Negotiated Rates • A utility may set a negotiated contract rate tailored to meet a customer's needs under special circumstance • Economic Development Rates • An economic development rate encourages economic development in some areas or sector activities

12. Conclusion • Integrated Approach - Global Action Plan • Guiding Principles • Concerned Stakeholders • Political Commitment for Water Resources Management • Public Private Partnership • Role of International Funding/Financing Agencies