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Reducing Leakage: Subsidies and Tariff Reform in Water and Sanitation Services in Metropolitan Lima, Peru

Author

Listed:
  • Andrés Gómez-Lobo

    (Department of Economics, Faculty of Economics and Business, University of Chile, Santiago, Chile)

  • Tomás Serebrisky

    (��Inter-American Development Bank, Washington D.C., USA)

  • Ben Solís Sosa

    (��Inter-American Development Bank, Washington D.C., USA)

  • Helena Cárdenas

    (��Global Science Team, The Nature Conservancy, USA)

  • Mauro Orlando Gutiérrez Martínez

    (�National Superintendence of Sanitation Services and Peruvian University of Applied Sciences, Lima, Peru)

  • Sandro Alejandro Huamaní Antonio

    (�National Superintendence of Sanitation Services and National University of San Marcos, Lima, Peru)

Abstract

Water utility companies around the globe are seeking to improve their financial sustainability and expand services in growing urban areas, while guaranteeing low-income families access to water. In Lima and Callao, the biggest metropolitan area in Peru, an important tariff reform for their water and sanitation services was implemented in 2017. The new policy differentiated tariffs between customers residing in poor and non-poor blocks, and revised the subsistence level (lifeline block) used in its tariff structure from 25 to 20m3. This study uses utility historical billing records of the population to evaluate three outcomes: (i) the effect on the subsidy amount received by poor and non-poor households at different consumption levels, (ii) the subsidy distributive incidence, and (iii) the effects on the utility’s financial situation. Results show that after the reform, the subsidy for the poor was 45% higher than that of non-poor households at 14m3, the mean consumption of subsidy-eligible households. Subsidy targeting changed from being regressive to progressive, with the poor receiving 22% more than they would have under a random subsidy scheme. In turn, by reducing subsidies to non-poor households, the utility’s monthly income from customer payments has increased by 7%.

Suggested Citation

  • Andrés Gómez-Lobo & Tomás Serebrisky & Ben Solís Sosa & Helena Cárdenas & Mauro Orlando Gutiérrez Martínez & Sandro Alejandro Huamaní Antonio, 2023. "Reducing Leakage: Subsidies and Tariff Reform in Water and Sanitation Services in Metropolitan Lima, Peru," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 1-37, June.
    • Handle: RePEc:wsi:wepxxx:v:09:y:2023:i:02:n:s2382624x23500042
    DOI: 10.1142/S2382624X23500042
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    Keywords

    Residential water demand; subsidy distributive incidence; tariff reform;
    All these keywords.

    JEL classification:

    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • N56 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - Latin America; Caribbean
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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