Business to subsidize the household water tariffs
07 October, 2010
Business to subsidize the household water tariffs

To streamline water tariffs according to individual consumption, Georgian government intends to abolish statutory prohibition on cross subsidizing for ten years. The idea of cross subsidizing means maintenance of currently active different tariffs [lower for families and higher for businesses] till the overall metering procedure is completed. Sector pundits find cross subsidizing somewhat unfair but an inevitable temporary measure to streamline consumer water tariffs ultimately.
Water shortage in Tbilisi is an endemic problem irrespective of ample water resources Georgia owns thanks

to its geographic characteristics.
The reason is misuse of water supplies. Tbilisi’s daily water consumption ranges between 800-1000 liters per capita at average and about 400 liters out of the figure are a waste. European consumers use about 150 liter per day meanwhile.
According to Georgian Water and Power (GWP) company, water distribution corporation of Georgian capital, it has an obligation [against the state] to optimize water consumption and losses, and the single way out to this end is overall individual metering of household that makes the bigger part of Tbilisi consumers. GWP supplies about 400 thousand consumers out of which 2 thousand and 15 thousand is made up by state organization and business respectively, the remainder 383 thousand is the household.


The state budget-based organizations and commercial sector are already metered as the law obliges them to install meters and pay bills based on volume of consumed water - GEL 4.4 per cubic meter (pcm). Household is exempted from obligatory installation of meters at the moment and pays water-bills based on fixed tariff system imposing GEL 2.4 monthly payment per capita. However private consumer is allowed to install meters on a voluntary ground. But since it is related with significant outlays only few appear volunteers. The bigger part of household consumers waits for mandatory metering that GWP plans to implement till 2015.


GWP has already appealed to Georgian National Energy, Gas and Water  Regulatory Commission (GNERC) to allow the company to launch the metering process and the regulatory body approved the request in this past August. GWP is supposed to face serious outlays to this end and GNERC does not exclude that GWP may submit a request on tariff-review soon. In this case GNERC would have to equalize business and household tariffs that will reduce tariff burden to business but catastrophically increases it to household.


“Household pays 10 tetri pcm of water at the moment and business pays GEL 4.4 pcm. Equation of these two tariffs will cause decrease of the business-tariff and increase of the household tariff. I cannot say exact figures as of yet but the monthly fixed tariff for population can hit roughly GEL 8-10 per capita. This is a staggering sum that Georgian population can scarcely afford, “Gocha Shonia, Head of Tariffs and Price Division at GNERC, explained to Georgian Journal.
And as water is a social issue tariff-hike to household consumers can lead to social unrest ultimately. To avoid catastrophic outcomes GNERC proposes to activate cross subsidizing [forbidden by law at the moment] for tentatively 5-10 years that gives a chance to keep the currently active tariffs untouched  till the overall metering process is over. Cross subsidizing idea is to keep lower tariffs to household through fixing higher tariffs to non-household consumer including business. Shonia assures it is a temporary remedy to spare population from imminent tariff hike on water during metering period.
“After metering is through the household tariffs fixed per capita will be abolished and population will be able to pay 10 tetri pcm for volumes it actually consumed,” Shonia said adding that population becomes quite thrifty after metering, it reduces water consumption and pays much less than via fixed tariffs per capita. 
According to Joerg Matthies, Director General of GWP, overall metering is supposed by four-fold cut down water consumption in population and save their family budgets. Matthies seems not happy over the cross subsidizing as such but finds it inevitable for a while.
“We do not greet cross subsidizing but it is inevitable during transitional period and will be removed gradually,” He told Georgian Journal.
According to Shonia, cross subsidizing in electricity and gas is prohibited by law for consumers in these sectors differ for they are supplied by different pressure-gas-pipelines and voltage-lines. Corporate consumers [commercial sector and industry] unlike population use high pressure and voltage lines and pay more. And to allow high pressure and voltage industry to subsidize household or vice versa is a no-no. But water supply network is unified; it provides all consumers by similar lines and spends similar outlays on population and commercial sector alike. So cross subsidizing can be admitted in water system without problems.
Government upholds GNERC idea on cross-subsidizing. It has already submitted at parliament a bill amending the law on Electricity and Gas so as to lift a ban on cross subsidizing mechanism till 2020. Sector Economy and Economic Policy Committee approved the bill for its first hearing on September 10, 2010. 
But some MPs fear that due to high tariff burden business will increase prices on production and provoke price-hike badly affecting social picture to population ultimately.
Shonia plays down this fear.
“Cross subsidizing does not increase tariffs to business. It just maintains currently active tariff for several years of transitional period. It is the world’s best practice, many countries exercise cross subsidizing in water system,” Shonia said.

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