7.4 Urban Water Supply Tariff
159
Construction 1993). The 1994 Urban Water Supply Regulations reiterated the same
principles (State Council 1994).
The 1998 Urban Water Supply Pricing Management Methods, as the most important document in urban water pricing, elaborated on the 1994 Urban Water Supply
Regulations, providing the following stipulations (National Planning Commission,
Ministry of Construction 1998):
• The urban water supply tariff should implement governmental pricing, hearing,
and public notice systems; tariff classifications should include residential,
industrial, public agency, commercial, and special uses.
• The tariff formulation should follow the principles of cost recovery, reasonable
profit, water saving, and fair affording; the tariff consists of water supply costs,
expenditures, taxes, and profits. The average reasonable profit should be 8–10%
of the net asset of enterprise: where mainly government invested, this profit should
not be higher than 6%; where mainly enterprise invested, including loans, foreign
investments, bonds, or stocks, it should not be higher than 12% during loan-return
time and should revert to average thereafter.
• The two-part tariff should be implemented where the capacity charge covers fixed
asset costs and the volumetric charge covers operational costs; the application of
the two-part tariff for non-residential use should be consistent with the overcharge
for plan-exceeding use.
• The block tariff should be implemented for residential use according to specific
conditions. Three blocks could be applied at the rate of 1:1.5:2, where the first
block covers basic water usage, the second improves living standards, and the
third meets special requirements according to market price.
• The enterprise could apply for tariff regulation if its tariff revenue could not
compensate operational costs or debt after governmental subsidy and enlarge
supply capacity. The tariff regulation is approved according to the principles of
promoting water supply development to meet social and economic demand, to
ensure water saving and social affordability, and to improve cost-restraining.
The 1998 Methods is advanced and comprehensive in terms of pricing principles,
pricing structure and procedure. Consequently, no major revisions have been made
since the document was first issued. However, the profit rate is too high to achieve,
probably due to the intention to attract private investments and the high inflation
rate between 1993 and 1996 when the Methods were formulated. Additionally, the
attempts to introduce the block tariff did not fully consider metering issues. Thus, the
following years saw a struggle to implement the measures proposed in the Methods,
particularly the block tariff.
In 2000, the urban tariff could only cover the purification cost, not the network
costs, and it had not been regulated with change of costs. Therefore, the NDPC began
to reform tariff levels and structure, considering both urban sector development and
social affordability, by increasing tariffs and implementing a block tariff system
to cover costs, ensure profitability, and promote enterprise self-accumulation and
self-development (NDPC 2000). In the same year, the urban tariff was increased to
promote water saving (State Council 2000).
159
Construction 1993). The 1994 Urban Water Supply Regulations reiterated the same
principles (State Council 1994).
The 1998 Urban Water Supply Pricing Management Methods, as the most important document in urban water pricing, elaborated on the 1994 Urban Water Supply
Regulations, providing the following stipulations (National Planning Commission,
Ministry of Construction 1998):
• The urban water supply tariff should implement governmental pricing, hearing,
and public notice systems; tariff classifications should include residential,
industrial, public agency, commercial, and special uses.
• The tariff formulation should follow the principles of cost recovery, reasonable
profit, water saving, and fair affording; the tariff consists of water supply costs,
expenditures, taxes, and profits. The average reasonable profit should be 8–10%
of the net asset of enterprise: where mainly government invested, this profit should
not be higher than 6%; where mainly enterprise invested, including loans, foreign
investments, bonds, or stocks, it should not be higher than 12% during loan-return
time and should revert to average thereafter.
• The two-part tariff should be implemented where the capacity charge covers fixed
asset costs and the volumetric charge covers operational costs; the application of
the two-part tariff for non-residential use should be consistent with the overcharge
for plan-exceeding use.
• The block tariff should be implemented for residential use according to specific
conditions. Three blocks could be applied at the rate of 1:1.5:2, where the first
block covers basic water usage, the second improves living standards, and the
third meets special requirements according to market price.
• The enterprise could apply for tariff regulation if its tariff revenue could not
compensate operational costs or debt after governmental subsidy and enlarge
supply capacity. The tariff regulation is approved according to the principles of
promoting water supply development to meet social and economic demand, to
ensure water saving and social affordability, and to improve cost-restraining.
The 1998 Methods is advanced and comprehensive in terms of pricing principles,
pricing structure and procedure. Consequently, no major revisions have been made
since the document was first issued. However, the profit rate is too high to achieve,
probably due to the intention to attract private investments and the high inflation
rate between 1993 and 1996 when the Methods were formulated. Additionally, the
attempts to introduce the block tariff did not fully consider metering issues. Thus, the
following years saw a struggle to implement the measures proposed in the Methods,
particularly the block tariff.
In 2000, the urban tariff could only cover the purification cost, not the network
costs, and it had not been regulated with change of costs. Therefore, the NDPC began
to reform tariff levels and structure, considering both urban sector development and
social affordability, by increasing tariffs and implementing a block tariff system
to cover costs, ensure profitability, and promote enterprise self-accumulation and
self-development (NDPC 2000). In the same year, the urban tariff was increased to
promote water saving (State Council 2000).