Water Prices in CEE and CIS Countries. Volume II: Case Studies
Chapter 2.
Ukmerge, Lithuania
The municipality of Ukmerge is comprised of the city of Ukmerge, six small townships, and small rural settlements. The total population of the municipality is 51,000 inhabitants, thirty-one thousand of whom reside in the city of Ukmerge.
In this chapter the technical baseline will be described briefly, and the results of the willingness to pay and affordability analyses will be presented. Most of the material is based on work in Lithuania Environmental Financing Strategy by Mileu and AAPC, as well as a survey conducted by SICRikos Tyrimai regarding the willingness to pay for environmental services in Ukmerge.
The analysis has been made without the input of the toolkit, but the analysis carried out does cover the willingness to pay analysis by using contingent valuation methods. Likewise, the data collected in the survey is quite useful when considering affordability problems.
2.1 Technical baseline
In the city of Ukmerge, 74.5% of the city's population are connected to the water supply system. The quality of drinking water is good in Ukmerge and conforms to the standards. Regarding wastewater treatment, the city of Ukmerge completed construction of a new plant in 1998. The treatment plant complies with both Lithuanian and EU standards, and 67.7% of the households are connected.
There are 11 wards in Ukmerge district, which run the water supply and sewage systems in 23 small settlements or villages. The Municipality has estimated the costs of upgrading the water and wastewater system in the wards to be 5 million litas.
The total cost of the new wastewater treatment plant was 22 million litas, 6.4 million litas of which was in the form of a loan. At the time the municipality decided to take the loan, its calculations of cash flow suggested that the loan could be repaid out of revenues from user fees. These calculations were based on high water consumption rates that have since fallen, especially among industrial customers.
In order to resolve the consequences, the municipality has taken steps to increase tariffs for water and wastewater. The approved rates are presented in the far right column in the table below.
Table 2.1:
Proposed tariffs for water and wastewater in Ukmerge (LtL/m3)
Source: Mileu and AAPC
The problem faced by the municipality of decreasing water consumption as a response to an increase in the water price per m3 illustrates the importance of conducting demand analysis, cf. Chapter 4 in the Toolkit.
2.2 Willingness to payThe willingness to pay analysis is conducted by Mileu and AAPC with the purpose of estimating the magnitudes to the willingness to pay for the environmental benefits associated with a number of EEC directives, including directives on drinking water. In addition, willingness to pay analysis for connection to sewerage was conducted among households not already connected.
The method used for estimated the willingness to pay is the so-called contingent valuation, which is a useful method when the proposed improvements are well known when conducting the survey.
The survey was implemented in Ukmerge in September 1999, by the firm SIC - Rinkos Tyimai of Vilnius. A sample of households was chosen and 755 were visited resulting in a total of 500 households completing the questionnaire.
2.2.1 MethodDrinking water
A description of the change in services was prepared which detailed the benefits respondents would enjoy if the measures stipulated in the directive were implemented. Respondents were read this description and asked if they understood it and if they had any questions.
Respondents were then asked if they would support the program if their monthly tariff for water supply/waste management was increased by an additional fee of, say, 1 litas per person per month. Respondents were given one of ten possible prices, where the lowest additional tariff offered was 0.10 litas more per person per month and the highest was 3.7 litas more per month.
The description read was:
Suppose there were a program to complete all upgrades necessary to ensure that the water supply system would be completely safe in the future and no colours or odours would be present. First, some groundwater wells that supply Ukmerge with drinking water would need to be re-drilled and repaired. Approximately 23 kilometres of water supply pipes must be reconstructed or cleaned to reduce leakage of drinking water from the system, and to be sure that the water delivered to your home would be clean and tasty. These measures together would assure that you, your neighbours, and businesses in Ukmerge would have access to drinking water that had no colour (e.g. no red or orange), no odour, tasted good and was completely safe to drink."
Respondents then said either yes they would support the program or no they would not, given the increase in the tariff. Those who said yes were then asked if they would pay an amount 30% higher than the first number given. Those who said no were given a figure 30% less than the first number given. These data were then analysed using logit regression analysis.
The willingness to pay is given in Table 2.2., indicating some willingness to pay.
Table 2.2:
Willingness to pay for improved water services
Source: Mileu and AAPC
At present, almost half of the respondents drink water directly from the tap, while the rest either boil or filter water before drinking.
The improvement of services offered to respondents was relatively modest - water supply pipe upgrading. It is therefore not surprising that willingness to pay was also modest.
Sewerage (wastewater treatment)
In Ukmerge, 43% of households indicated that they are not connected to sanitary sewerage. The description of the services offered to respondents was:
If you were connected, you would not need to service your private septic system or pit toilet. This would create a more sanitary environment in your yard. If you currently use a pit toilet, connection would allow you the opportunity to have indoor plumbing. Furthermore, there is little or no smell associated with centralized sewage systems.
Each respondent was then asked if they would support the program if they had to pay an additional monthly fee (on top of the tariff they already pay) of from 0.20 litas to 4.90 litas per person per month. The demand for sewerage services was also estimated using logit.
Half of the respondents are willing to pay an additional tariff of 0.64 litas. Hence, there is a willingness to pay for the services, cf. Table 2.3.
Table 2.3:
Willingness to pay for sewerage services
Source: Mileu and AAPC
The results suggest substantial willingness to pay for sewerage services. Whether this figure is "enough", of course depends on the costs.
2.3 Affordability analysisAlthough information on disposable income is not available on a municipal level, information on average monthly per capita gross earnings indicate that levels in Ukmerge are only 78% of the national average. The distribution of income can be established from the willingness to pay survey, assuming that the sample is reasonably representative of the population in the town, cf. Figure 2.1. The average household income among the respondents interviewed was between 600 and 700 litas per month.
Figure 2.1:
Income distribution in Ukmerge
Note: 500 respondents are included in the figure. The survey was conducted in
September 1999.
Sources: SIC - Rinkos Tyimai
Present and future payments for water services can be compared to income distribution in order to investigate whether there are a large number of respondents with affordability problems. Almost every sixth household pays more than 5% of the household income for water services, cf. Figure 2.2. This indicates that there is a problem of affordability for this group, especially if tariffs are increased further.
Figure 2.2:
Water and wastewater cost as a percentage of income
Note: The survey included 500 respondents, 406 of them replied to the questions on
water cost and household income. The figure includes 61 respondents who indicated that
they do not pay for water services.
Sources: SIC - Rinkos Tyimai
An increase to 4.97 litas as approved, cf. Table 2.1, corresponds to an increase by 18% compared to the level in September 1999.
If it is assumed that all households experience the same increase, 23% of the households will pay more than 5% of their income on water and waste water services. Among these, 9% of the households will pay more that 10% of their income to water and wastewater service.
These calculations are made under the assumption that the increase will be distributed equally and that the income is constant. Neither assumption is realistic, as the poorest households will certainly decrease their consumption of water more than wealthier households, none the less the results indicate affordability problems for a large part of the inhabitants.