Module-c community Based Financial Management

Step 
– 3: Why 
Cost Recovery 
is needed?
 
The cost coverage is needed to: - 
 Mach the current market price, 
 Facilitate tariff determination, 
 To meet Ethiopian Water Resource Management Policy, 
 To guarantee replacement of fixed asset, 
 Assuming full ownership and independently run the operations of the water 
system. 
Step 
– 4: Ability 
and Willingness 
to Pay 
 With regard to income related issues, detailed up-to-date information 
regarding specific income data of aforementioned beneficiary should be 
collected using structured household survey for sample households 30-50. 
 However, experiences show that people are usually unwilling to reveal their 
periodic income.
 Affordability deals with the analysis of ability of consumers to pay for water. 
In order to analyze the ability of consumers to pay for water, the water supply 
consumption of the users and the income level of Consumers (Low-income 
section of the society) should be identified and computed. Specially, the 

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Ministry of Water, Irrigation and Electricity 
 Operation and Maintenance Management Manual 
Training Module - D 
Community Based Financial 
Management 
 
DEMEWOZ CONSULTANCY 
18
MODULE 
– D:
 
COMMUNITY BASED FINANCIAL MANAGEMENT FOR RURAL 
WATER SUPPLY SCHEMES 
ability of the very poor households in the area shall be focused upon. 
 For reasons of practicality, Affordable Price is defined as maximum amount, 
which a household can pay for water without greatly compromising its ability 
to buy other basic goods and services for its members. 
 Therefore, affordability can be expressed as a fraction or percentage of the 
household income. Based on the accepted practice of institutions, which is 
derived from analysis of domestic expenditure behaviour in Ethiopia, up to 
5% of household’s income is assumed affordable for water. It is advisable if 
calculation made for affordability adopts this assumption. 
The rational for conducting studies of affordability of water tariffs evolves from 
two basic considerations: 
 The Ethiopia Water Resource Management Policy recognizes water as a 
commodity with not only economic value but also a social value. Therefore 
providing affordable water supply to the rural population is one of the major 
objectives of the policy. It is of paramount importance to make sure water 
price does not limit the access to potable water by the poor.
 The other important consideration is that Price of water that is not affordable 
by the majority of the intended beneficiaries makes the water supply system 
financially unsustainable.