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Surcharging ahead!

WSUP has been investigating how redistributive taxation and surcharges could be used to finance sanitation for low-income customers. This guest blog from Guy Norman discusses WSUP’s research and next steps. 

African cities desperately need better sanitation for low income communities, and that’s going to cost big money. People living in these areas often can’t afford to cover the full costs themselves.

That’s a fact and one the sector is grappling with, even more so since the advent of the Sustainable Development Goals. So where will the money come from?

At least some of it will have to come from redistributive taxation: in other words, non-poor citizens and businesses paying taxes or cross-subsidies to support sanitation for poorer citizens.

That could be general taxation at the national or city level; some sort of ring-fenced ‘sanitation tax’, again at the national or city level; or (more likely) some combination of the two. Both are very challenging to achieve, particularly for something like sanitation.

Ring-fenced taxation at the city level is an emerging theme of WSUP’s Urban Sanitation Research Initiative. We don’t think it will cover the whole financing requirement for sanitation, but it can potentially make a substantial contribution.

This blog outlines some of the research we’re doing and how we’re striving to translate that into real change—the big challenge of any research-into-policy programme.

One area of interest is the idea of a ‘sanitation surcharge’: strictly speaking a cross-subsidy not taxation, but essentially the same concept. The funds raised from this surcharge could be used by governments to make sanitation investments, provide targeted subsidies, or pay for services for customers.

The most long-standing example is the ‘sanitation levy’ in Zambia, where your water bill includes: a) your water services charge; b) your sewerage services charge; plus c) the surcharge—a small additional amount (around 4%) to support sanitation services in low-income communities.

The water services regulators in Kenya and Mozambique are keen to introduce a similar model, and we’ve been doing research to support them.

Kenya

In Kenya, WSUP commissioned research consultancy, Aquaya, to explore Kenyan utility customers’ support for a surcharge of this type, and to explore factors affecting that their willingness to pay. The work was based on survey of 400 utility customers in two Kenyan cities.

Findings were encouraging: 75% of people indicated that they’d be willing to pay something, and median willingness-to-pay was about $1 (about 9% of the median water bill). If you extrapolate that to Kenya’s 91 utilities, this could potentially add up to around $16 million annually—not enough to plug the urban sanitation financing gap by itself, but a significant contribution.

For more details of this research, check out this blog on the WSUP website.

Mozambique

More recently, we have commissioned the consultancy, Hidrozono, to look at the sanitation surcharges already in place in the Mozambican cities of Beira and Quelimane. This work is to support the water services regulator, CRA, to think about how to design a sanitation surcharge for the capital, Maputo.

WSUP has some history here: alongside other actors including the World Bank, WSUP has been providing technical support to CRA and the Municipality of Maputo on introducing a pro-poor sanitation surcharge. In 2017, the Municipality formally approved introduction of such a surcharge.

However, it’s not being collected yet, and we hope that the Hidrozono research will provide useful inputs about how the surcharge will be raised and spent (watch out for an update soon on our website WSUP’s website). It won’t happen overnight, but we think they’ll get there in the end!

What next then?

The research is in many ways the easy part. Translating findings into real change on the ground is just a wee bit more difficult.

But in Kenya, there is already a lot of momentum. In February, the water regulator WASREB organised a two-day workshop for key figures from five county governments and eight water utilities, to present the findings of the Aquaya research and explore ways forward.

There was strong and unanimous consensus that this is a very promising idea, and that a trial of the scheme at least needs to be introduced, as soon as possible. Of course, ‘as soon as possible’ is invariably longer than we’d like in the complex world of politics!

But we see strong likelihood that at least one Kenyan water utility will introduce a sanitation surcharge within the coming 18 months. Six months would be nicer, of course, but when research-into-policy is your aim, then patience must be your game…

This momentum is encouraging. Sanitation surcharges can create a stable source of income for investment in sanitation—that can be used for direct subsidy, infrastructure construction, or to support to some of the exciting new enterprises now emerging in the urban sanitation sector.