Module-c community Based Financial Management

for Setting 
Tariff
Once the WASHCO members and the user community recognize the need to pay 
for the cost of operating and maintaining the water supply schemes, then the 
discussion can progress to how to set the tariff. 
Ask participants „What should be the basis for setting the tariffs?‟ Facilitate a 
discussion on whether the tariff should be set according to one of the following 
criteria and what are the consequences of each: 
1. What people can afford; 
2. What people are willing to pay; 
3. What the project requires to cover the operating costs (partial cost 
recovery); 
4. What the project requires to cover all operating costs and to replace the 
assets when they need replacement (full cost recovery); 
5. The maximum the project can possibly charge; 
The facilitator should direct the discussion towards a consensus on an agreed 
basis for setting tariffs. 
Discuss what happens if people cannot afford to pay what is needed to operate 
and maintain the water supply schemes. 
 What happens to the water supply schemes? 
Important role of WASHCO is to educate the community members ! 
The User Communities are generally willing to pay fair prices for 
good water services! 

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Ministry of Water, Irrigation and Electricity 
 Operation and Maintenance Management Manual 
Training Module - D 
Community Based Financial 
Management 
 
DEMEWOZ CONSULTANCY 
26
 What happens to consumers if they lose the services provided by the 
water project? 
 
Who suffers most?
Step - 3: The 
need to 
regulate tariffs 
 
The facilitator should explain why tariffs are regulated. The following points 
should be made: 
 Water is a basic human need and is a constitutional right; 
 The cost of building water supply schemes with safe and reliable water is 
 expensive; 
 The net result is that there is usually only one water service provider in 
any given area 
– there is no competition between water services 
providers in the way that there is competition between two shops selling 
the same commodity. 
 This means that water service providers have a monopoly and could 
charge excessive tariffs. And since consumers do not have an alternative 
water supply they could be exploited. People in arid and semi-arid areas 
are more vulnerable to exploitation. 
 A balance has to be found between setting a tariff that covers the cost of 
operating the project and ensuring that consumers are not exploited. 
There are two ways to ensure that consumers are not exploited: 
1. A WASHCO should be transparent about the costs of operating the project 
and how the tariffs have been established. This approach is reflected in the 
preparation and approval of the annual budget, and the submission of the 
financial and audit report to the User Community and Woreda Water Office; 
1. An independent government organization is mandated to check that tariffs 
are justifiable. The organization with this mandate is the Water Services 
Regulatory Board (WASREB). They set guidelines and use the Water 
Services Boards (WSBs) to make sure that these guidelines are 
implemented. 
The issue is that tariffs should be fair and justifiable with respect to meeting the 
genuine costs of operating and maintaining the project. 
Discuss the term: „Socially Responsible Commercialization of Water