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Water Prices in CEE and CIS Countries. Volume II: Case Studies

Chapter 2.
Executive Summary

The planned water and wastewater project in Kaliningrad demands significant increases in water tariffs. The Krüger Feasibility Report¹ assumes that the tariff almost has to triple compared to the tariff in 1998. A number of federal regulations influence the tariff setting in municipal utilities. According to a presidential decree, the share of payments by the population for communal services should be 60% of the total costs. However, it seems that in reality the tariffs are negotiable, and therefore water tariffs must be analysed in conjunction with tariffs for other public services.

Public acceptability is more likely if the public is well informed, receive due notification of intended increase and if these increases are clearly linked to the investment project. This is important because water tariffs might emerge as a salient political issue if a tripling of the water tariffs is implemented over a short period of time.

Furthermore, consideration should be given to a mechanism that automatically causes the cost of water services to be indexed in order to avoid a renewed gradual reduction in water prices resulting from a cumbersome approval process.

The consumers in Kaliningrad are in general dissatisfied with the cold water quality. Few consumers drink the water straight from the tap, and almost half of the interviewed respondents are willing to pay higher tariffs to improve the quality. If the cold water quality is improved the respondents are willing to pay 20% extra. The willingness to pay varies between different income and age groups. The increases in the water tariff as anticipated in the feasibility study from Krüger, by far exceed the present willingness to pay.

Furthermore, the affordability analysis indicates that cold water service will become a significant item on the household budget. This is expected to create problems for a large part of the population in Kaliningrad as food expenditure at present exceeds 50% of the income for most households. Hence, a significant increase in the cold water tariff will probably imply that a large proportion of the households will be unable to pay the water bill.

Therefore, consideration should be given to introduction of water meters, new tariff structures, and compensation for households for which the higher tariffs are unaffordable.

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