Is AAP Delhi water formula full of leaks?
Vivek Khaitan 02 January 2014

The people of Delhi may be in for a rude shock, following the new water pricing formula of AAP. They may have to shell-out 2-3 times more. Where meters are faulty, cost will be even higher

The Aam Aadmi Party (AAP) has delivered on its electoral promise of providing 700 litres of free water per day per household even before they have proven their majority in the legislature. However, putting aside questions of political morality, no analysis of probable impact of this move on households and on fiscal health of the government, has been released by AAP so far. How genuine is the promise of free water? Could it be that the water bills are set to actually rise for a large number of people?

 

AAP claims to have pioneered the concept of “lifeline water” in India by promising minimum quantity of water required for survival. But how does the economics of water work in practice in Delhi as against what has been claimed conceptually?  How does it impact household budgets? What probable behavioural changes could be expected from different sections of Delhi population because of this measure? Is it a subsidy for the poor or the middle class? Here is the reality.

 

There are three major components of water charge that is billed to domestic consumers (Category 1) in Delhi. (There are two more categories of consumers, residential with mixed commercial use (Category 1A) and commercial and industrial use (Category II) but we have kept them out of our analysis as subsidy is not applicable to them.)
 

  • Metered water consumption: Divided into four slabs with progressively higher rates
  • Sewerage maintenance charges: Levied at 60% of price for metered water consumption
  • Fixed service charges: Levied based on slab under which your metered water consumption falls
     

There are two more components -- water cess charge and meter rent of Delhi Jal Board (DJB) which is negligible and hence not considered in this analysis.

The four slabs with progressively higher rates for each slab for both metered water consumption and fixed service charge are given in Table 1.1

 

Table 1.1

Consumption  per month

Old Rates

Fixed charges

1-10 KL

2.42

60.50

10-20 KL

3.63

121.00

20-30 KL

18.15

181.50

30-above KL

30.25

242.00

1 KL = 1,000 litres

 

Now, the AAP government has made consumption within first two slabs free of cost and increased rates for both metered water consumption and fixed service charge by 10% as per this ET report. Additionally, consumption beyond 20 KL in a month would be chargeable in full and it is implied in this report that such calculation would be on the basis of higher slab rates. The new rate brought in force by AAP is given in Table 1.2

 

Table 1.2

Consumption  per month

New Rates

Fixed charges

1-10 KL

0

0

10-20 KL

0

0

20-30 KL

19.97

199.65

30-above KL

33.28

266.20

    1 KL = 1,000 litres

 

So, how does water billing change at different consumption points for Delhi households? Below is the table (Table 1.3) and graph (Graph 1.1) for comparison. Also, DJB claims to incur a cost of Rs28 per KL including sewerage maintenance cost for supplying water.

 

Table 1.3

S No             

Consumption per month (In KL)

Billing Amount (Old Rate)

Billing Amount (New Rate)

Additional burden due to new rates

Increase in Billing

1

10

99

-

(99)

 

2

15

189

-

(189)

 

3

20

218

-

(218)

 

4

21

308

871

563

183%

5

22

337

903

566

168%

6

23

366

935

569

155%

7

24

395

967

572

145%

8

25

424

999

575

136%

9

26

453

1,031

578

128%

10

27

482

1,063

581

120%

11

28

511

1,095

583

114%

12

29

540

1,127

586

109%

13

30

569

1,159

589

104%

14

31

678

1,278

600

88%

15

35

872

1,491

620

71%

16

40

1,114

1,758

644

58%

17

45

1,356

2,024

668

49%

18

50

1,598

2,290

692

43%

19

55

1,840

2,557

716

39%

20

60

2,082

2,823

741

36%



What are the conclusions from this chart?

  1. Earlier there was a gradual increase in prices as you consume more. Now, there is a steep incline at 21 KL consumption due to a massive combined effect of free water till 20 KL, higher applicable slabs and increase in rates above 20 KL
  2. Marginal rate for consumption even slightly above 20 KL per month is severely high compared to earlier rates, an incredible Rs871 against Rs308 earlier!
  3. Consumers in the 20-30 KL slab get the worst deal and would have to pay 200%-300% times more!
  4. Against principles of fairness, cost for higher category consumers (>30 KL per month) will be less steeper as their bills would go up by 30%-80%

Faulty Meters

Apart from the steep hike, there is an additional problem of fast meters that many in Delhi complain about. We have monitored our meter for past three days and found it to be running faster by 25%-40% (showing a gain of 1.25 to 1.4 KL for filling a water tank of 1,000 litre). Any evidence for such faulty meters is largely anecdotal and a systematic study is required to establish it as a fact. However, complaints of fast-running faulty meter are widespread. If we assume it to be a factor, then actual consumption would have to be limited to less than 500 litres per day to take advantage of new tariff structure. Suspicion about faulty meters will get combined with incentive to stay below the punitive consumption threshold. This will force consumers into adopting means that are totally against the principle and philosophy of AAP. Talk of unintended consequences!

 

Over the course of the next few months, all this will get clearer to Delhi citizens. How will it impact the different consumer classes and what impact it may have on their behaviour?

  1. The middle class in Delhi, who have placed high hopes on AAP due to its clean image, would be in for a rude shock. Any additional gain they expected may not be realised and they may actually have to shell-out 2-3 times more.
  2. Those who can limit their consumption to 20 KL per month do not pay anything and get the best deal. However, if they fail to do so in even one billing cycle, their entire gains would be wiped out and they may have to shell-out some additional money (DJB seems to be settling into a 3-month billing cycle so we have assumed four bills in a year) due to steep incline at 21 KL consumption level. A lower-income category household of up to 5 persons can be expected to limit their consumption within the free water limit and gain from this scenario. However, excess consumption due to extraneous factors (festival consumption, water coolers use in summers, temporary increase in household number due to guests) in even one billing cycle would prove very costly.
  3. DJB allows households to install their own meters which can be sourced from certified manufacturers. But all kinds of water meters are available in the market which can be easily registered with DJB. Of course, it’s entirely possible that model citizens of Delhi would display exemplary behaviour and actually get down to learning about water conservation! And in the case of deviation, the gargantuan bureaucracy planned by AAP that goes by the name of Jan Lokpal would be at hand to take care of the enforcement problem! 
  4. Even assuming that 40%-50% households would be able to limit their consumption and gain from new tariff structure, their gains would be Rs218 per month at the most. However, it does not bear out that such gains are so substantial even for lowest income category that it has become a calling card for AAP. The minimum wage in Delhi for unskilled category is Rs8,086 per month and Rs218 per month for water was a sensible tariff to charge.

As far as fiscal health of DJB is concerned, in the earlier tariff structure, DJB was giving a subsidy of Rs17-18 per KL up to 20 KL per month consumption and was recovering full cost for consumption between 20-30 KL and making a profit of ~40% on consumption beyond 30 KL. In the new tariff structure, DJB would be providing subsidy of Rs28 per KL up to 20 KL per month consumption and would not be able to recover any part of the cost, but would make profit of  ~30% for consumption between 20-30 KL and super-profit of ~50% for consumption beyond 30 KL. Additionally, rate increase is expected across-the-board so billing for other two categories of consumers would also be higher so it may be possible that the new tariff structure actually bring additional revenues to DJB. (The ET report suggests that DJB officials expect a subsidy of Rs160 crore annually. However, this is not clear as household data for water consumption in Delhi is not available in public domain)

 

This policy definitely does not address concerns like water for all, assured supply, good quality, developing long-term sources as Delhi ‘imports’ 80% of its water from other states, cleaning river Yamuna, dual supply lines for potable and non-potable water, metering all connections, tackling tanker mafia, reducing distribution losses for long-term sustainable water availability and supply. Instead, AAP has taken the easy route to gain political mileage. Strangely, price of water was hardly an issue in Delhi (price of electricity was definitely an electoral issue). This move is of a piece whereby a supposed benefit has been provided to half of Delhi which was not asked for but would create a legacy that may be replicated elsewhere and would be difficult to eradicate in near future.

 

Another calling card of AAP, which has generated even more interest and debate, is their promise to reduce electricity rates by 50%. Given that electricity pricing, unlike water pricing, is not entirely in the hands of the Government of Delhi, AAP may want to replicate the same model for new power tariff structure as well. However, sensitivity to electricity bills is quite high in Delhi and any such move to cross-subsidise part of the population may have negative consequences

 

New water tariff structure has been approved for the period Jan-Mar 2014. The bills, therefore, would start hitting households in the month of April and would provide quite a shock just in time for parliamentary elections and a possible re-election in Delhi. AAP would be well-advised to re-think the tariff structure and at least continue with the earlier rates for 0-10 KL and 10-20 KL slabs for billing of consumption beyond 20 KL. Otherwise, the most vociferous backers of AAP, the middle class and young, may not be available to vote for AAP six months down the line.

 

(Vivek Khaitan is an MBA from IIM Calcutta and is working as a management consultant for past five years in New Delhi)

Comments
Tarun jain
4 years ago
My water bill is 131000 for last 18 months and i cant do anything , they are bastards
Raghavendra Rao
8 years ago
Hi Vivek

Very good article. Can i have your mail id so that i can correspond with you.

Regards
Raghavendra Rao
Bangalore.
My Id: [email protected]
T Sekhar
8 years ago
Mr. Vivek,

AAP has been in power for only a week. They will streamline all the above issues in due course. There is nothing wrong in taxing the rich (all of us are paying through our nose now for LPG, petrol etc. - isn't it?), who have wasted public money earlier while in power, collecting only 40% of the water bills! People would now take more care to ensure that they have properly working meters, and Govt. staff who do not co-operate will be taken to task by the Delhi Govt. quickly.

It is better if you post these issues in the AAP site for quicker attention. Pl. see the following video if you have missed out seeing it earlier, to know how Delhi Jal Nigam worked earlier: https://http://www.youtube.com/watch?v=Elbvy3V87Is
Vikas
8 years ago
Vivek, I am still awaiting your response to your comment where you said - "The methodology of calculation" is also changing...
kritika
8 years ago
Vivek, you need to first explain how did you get this calculation of 100% increase.
If the slab rates change only by less than Rs. 3, how did you manage to project such a huge increase. What additional subsidy has been considered in Old rate calculation? And what additional costs for New rate calculation?
Is it a hoax to undermine AAP's policy impact?
Abhijit Gosavi
Replied to kritika comment 8 years ago
Boy, how many times do you expect the author to explain? :(

Nothing wrong in some objective questioning, but go the extra mile with some individual effort (read all comments & use a calculator) --- before calling something a hoax in a public comment :(

AAG

PS: I have also explained some calculations in my own comments, but I sat with EXCEL. And although pricing is a research area for me, I had never seen such a scheme for water before.
mathai
8 years ago
good points to ponder. it is definitely wrong to increase the
bill of 20kl to 30kl range by more than 100%.
but that does not negate the need for supplying free water and if possible free power to those who can not afford the cost.
may be aap will rework the rates to redistribute the subsidy burden which should not be very difficult.
or decide to meet the subsidy from the tax funds.
either way it should not be such a big issue to warrant reconsideration of the free water promise.
as rightly pointed out in this article, aap should find time and expertise to reduce the cost and avoid waste. not only in water and power but also in all the segments of governance. which should not be difficult given the sincerity of aap leaders and involvement of the people
rohit
8 years ago
This is just another biased article. There are many facts, which have not been considered.

I wish that the author had shown the same sincerity to point out mistakes in previous government's policies.

shadi katyal
Replied to rohit comment 8 years ago
The previous Govt did not give free water.
If you have any facts different than this please enlighten us.
shadi katyal
8 years ago
It is evident that only way to get elected is to buy voters with this kind of figure juggling. Now when the populism has become part of elections, why not let the nation flow down with such shenanigan.
Kejriwal is no different than other politicians and he wants perks and power.We saw how he accepted the house and after people criticized he is willing to give it up.
Some one should write about his background.
Sandeep Chowdary
8 years ago
Agree that DJB might make more money now than earlier with the new tariff kicking in.

From the consumer stand point, I believe this will help in water conservation especially by those families who would like to avoid the financial burden due crossing the 20KL, and for those who dont mind the large marginal increase, they will pay more due to the usage.

Also on the 50% reduction in power tariff. While this can be perceived as a populist move, it could very well be a valid number, given the example of what price Gujarat Govt could procure power for, if they wouldnt have opted for taking power from Adani Group for twice the rate.
Another key component of power tariff is cost due to power theft, which was not reduced due to the corruption. Fixing this also would contribute to Power tariff reduction.
SATTI RAJU DUMPALA
8 years ago
Our leaders are short sighted and Kejriwal is no exception. How long would they cheat people with these freebies.
T Sekhar
Replied to SATTI RAJU DUMPALA comment 8 years ago
I do not understand how Kejriwal is taken as short-sighted. Pl. see the following link for more on how AAP decided on this equitable re-allocation of water of Delhi:

https://http://www.youtube.com/watch?v=Elbvy3V87Is
Ashok Aggarwal
8 years ago
The Article is misleading. It is not correct that if a consumer uses more than 20 kl/month, he/she pays for the entire consumption @slab rate of 20-30 kl. it is evident from the press statement as below:

Those consuming more than 20,000 litres per month xwill need to foot the full bill according to the hiked tariff of 10%, also applicable from January 1.

The author should verify facts and correct his post.
Vivek Khaitan
Replied to Ashok Aggarwal comment 8 years ago
This reply is for all those who are doubting calculations and its basis.

As I have said in the article, the basis for the assumption is the news reports (hyperlinked in the article) after DJB press conference which implies that consumption beyond 20 KL would be charged at higher slab and not in respective consumption slabs as was the case earlier. Lots of people have already checked the calculations and found it to be absolutely correct. Please read full comments section for that esp. the exchange between me, Abhijeet Gosavi and Amitabh Kumar

The other thing, about getting the clarification on exact calculation method from govt or DJB, unless you write about such things, you don't get clarification. The purpose of this piece is to get that clarification. Otherwise, bills would start hitting in April 2014 without anybody being wiser about it. If indeed no new calculation method is proposed, a clarification needs to be issued
Vikas
8 years ago
Hi Vivek, In one of your replies you mentioned - "There is a new method of calculation too, no slab-wise calculation like earlier but all consumption between 20-30 KL would be charged at 20-30 KL slab rates which is 6-9 times higher than first 2 slabs so the effect of exponential increase"

Can you please confirm the source of this because this is the inherent assumption in your calculations?
abhishek
8 years ago


25 Kl will be charged 19.97 per KL (Table 1.2)
bill will be (19.97x25=499.25) +fixed surcharge + sever charges
( for 21KL fixed charge=199.65 table 1.2)
499.25+199.65 =698.9

now 60% of 499 is severage chages which will also add to bill
60% of 419.02 is 299.55

now total= bill + severage charges (which is 60% of bill)
= 499.25+199.65+299.55
= 998.45

where as in old bill it is
424Rs I think it is straight 50% rise in bill

the article seems to be legitimately right and Delhi Jal Board press release does not says any thing about these calculations

http://www.delhi.gov.in/wps/wcm/connect/...

and most of the people on AAP group or other places are doubting this article saying that author has assumed that if someone is using even 1 litre extra than 20K then he will have to pay full , I do not know what is an answer to that,except I learnt at some places that it is done to save water but what about tenants who live at the mercy of land lords
Vinay
Replied to abhishek comment 8 years ago
Please do the same calculation useing the old rates it comes to 907.5

Increase is only 10%. The basis of the article is not correct.
Neel
8 years ago
Use less water - period!
Save natural resources which are anyways not abundant - whichever govt rules - nature rules over us all - What we NEED is <500 Litres - rest are wants
Vinay
8 years ago
The whole basis of this article which is the table 1.3 is wrong. It needs to be corrected. 60% charge not applied properly on he old rates section.
Free Helpline
Legal Credit
Feedback