Economists Analysis...4. Naod Mekonnen – MA, MSc and Ph.D Candidate Submitted to: Dr. Geremew Sahilu – Project Leader The Study of Water Use and Wastewater Discharge Charge WP1:

The Study of Water Use and Treated Wastewater Discharge Charge

Economists Analysis

Final Report

Submitted to

Federal Democratic Republic of Ethiopia

Awash Basin Authority

MelkaWerer, Ethiopia

Prepared By School of Civil and Environmental Engineering Addis Ababa Institute of Technology (AAiT) Addis Ababa University P. O. Box. 385, Addis Ababa, Tel. + 251- 111-232437

October, 2018 Addis Ababa

The Study of Water Use and Wastewater Discharge Charge

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Team Members

1. Negussie Semie (Ph.D) – Team Leader

2. Zekarias Minota – Ph.D Candidate

3. Marshal Negussie – Ph.D Candidate

4. Naod Mekonnen – MA, MSc and Ph.D Candidate

Submitted to: Dr. Geremew Sahilu – Project Leader


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Contents 1. INTRODUCTION ............................................................................................................ 3

1.1 Background and ToR ................................................................................................... 31.2 Objectives of the Study ................................................................................................ 41.3 Scope and Limitations ................................................................................................. 5

2. LITERATURE REVIEW ................................................................................................ 5

2.1 Concepts and Definitions ................................................................................................. 52.2 Brief Theoretical Review .................................................................................................. 82.3 Water Pricing Experiences from different Countries ..................................................... 10

3 CHARGE SETTING METHODOLOGY .................................................................... 13

3.1 Description of the Awash River Basin ...................................................................... 133.1.1. General ................................................................................................................... 133.1.2 Water Demand ........................................................................................................ 16

3.2 Conceptual Framework .............................................................................................. 173.3 Data Type, Data Sources and Sample Size ................................................................ 183.4 Data Collection .......................................................................................................... 20

3.4.1 Data collection methods ..................................................................................... 203.4.2 Data collection instruments ................................................................................... 20

3.5 Methods of Data Analyses ......................................................................................... 213.5.1 Trend Analyses ................................................................................................... 223.5.2 Cost-benefit analyses .......................................................................................... 223.5.3 Stakeholders analyses ......................................................................................... 233.5.4 Key Informants Interview (KII) ......................................................................... 23

4 CHARGE SETTING ...................................................................................................... 28

4.1 The Models ................................................................................................................ 284.2 Affordability .............................................................................................................. 324.3 Willingness to Pay ..................................................................................................... 34

5. CONCLUSIONS ............................................................................................................. 37

6. REFERENCES ............................................................................................................... 38


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1. INTRODUCTION

1.1 Background and ToR Water is both public and economic good and generally it is a renewable resource. However,

unless these two ends are balanced and renewability is not properly managed water resource

may amount to exhaustible resource. This time, it is becoming globally scarier with time,

where serious attention needs to be given without further delay. At the same time, it is a

public good to the extent of a question of life in which everybody need to access it. This water

right can lead to misuse and depletion of the resource without limit. Beyond necessity and this

right, there should be price to reflect the scarcity of water. Setting water abstraction charge

and establishing treated wastewater discharge fees are a very difficult task because of the

aforementioned unique characteristics (attributes) of water (hydrologic and physical attributes

and socio-economic attributes). Charge setting involves considerations of equity as well as

efficiency. Low-income production areas, especially those served by high-cost systems, may

face affordability or equitability problems if prices are too high. To alleviate these problem,

water abstractors and treated wastewater dischargers are allowed to offer pricing structures

(through WTP and/or WTA) that mitigate impacts on domestic use (high value water use) and

low-income businesses (Lisa and Frank, 2002).

Water pricing is a key way to improve water allocation and encourage conservation Prices

which accurately reflects water's economic, or scarcity, value gives information to users,

which they use to make choices. Thus water pricing can affect water use efficiency, at both

the individual and social levels. The literature provides many examples of the influence water

charges can have on water use efficiency. However, if prices do not reflect the value of the

resource, but are determined to meet other objectives, they will not send the right signals to

users. In practice, water pricing schemes may be designed to meet many objectives besides

better water allocation and water use efficiency. Policymakers may wish to discriminate

among different categories of users or use water charges to raise revenues for general

purposes. Because different levels of decision makers may interpret such pricing policies

differently, this can lead to undesirable outcomes and, sometimes, to disputes (WB, 1997). To

overcome all problems related to water the Awash Water Basin Authority has hired Addis

Ababa University – AaiT to set water abstruction/use and treated wastewater discharge


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charges that brings about water sustainability, leads to productive use of water, which

considers affordability and fairness (ToR).

Following the terms of reference (ToR) of the Authority, this financial and economic report

focuses on creating financial/economic factor, estimating affordability (C-B analysis) and

capturing fairness (WTP) for each of the four work packages. Water abstraction charge

includes water extraction for commercial agriculture, industry, and other commercial

purposes as end users or those which abstract water and supply or distribute to others as

intermediaries. The source of water could be natural (surface and/or underground) or

manmade (artificial) ponds (harvested rain). The report is mainly deal with the attainment of

the following objectives which include the economic and financial part of the ToR..

1.2 Objectives of the Study 1.2.1 General objective

The general objective of the consultation is to set charges for water abstraction

and for treated wastewater discharge for Awash Basin Authority in

collaboration with other work-package teams and sub-teams.

1.2.2 Specific objectives

• Examine the willingness to pay (WTP) for water abstraction or use treated

wastewater discharge in the Awash Basin;

• Willingness to pay (WTP) for water use or willingness to accept (WTA) to

forgo water public utility water use of domestic, non-domestic or industry in

sample respondents of urban areas;.

• Analyze determinants of WTP and/or WTA sample water user entities in

Awash Basin;

• Conduct cost-benefit (affordability) analyses of sample water abstractors

and check their capacity to afford water use charge,

• Conduct cost-benefit (affordability) analyses of sample treated wastewater

dischargers and check their capacity to afford treated wastewater discharge

fees;

• Set water abstraction charge for the Awash Basin Authority;

• Set treated wastewater discharging charge for Awash Basin Authority


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1.3 Scope and Limitations The report is limited to price setting for water abstraction and treated wastewater

discharge in collaboration with other work-packages for the Awash River Basin

Authority and creating a national price setting guideline or framework. It is time and

area specific study that can be considered as case study. The issue was very complex

and time taking. On the other hand, the result was subject to the data availability and

this was the serious problem which handicapped to attain the objectives set above.

In the case of willingness to pay or accept the response was an intention (near to

opinion) not actual performance as expected during early conceptualization. Here, there

was serious resistance to fix minimum and maximum willingness to pay. On the other

hand, cost-benefit and trend analyses were found to be the most difficult areas because

of data availability. The economists were expecting to collect five years historical

financial statements data from sample organizations and do affordability analysis.

Unfortunately, except very few, it was not possible to access financial statements for the

reason that these data were considered as business secret and confidential.

2. LITERATURE REVIEW

2.1 Concepts and Definitions In this section, important concepts, key and frequently used words in water pricing will be

defined and conceptualized.

Water: According to the Merriam-Webster (1828) dictionary, water is a liquid that descends

from the clouds as rain, forms streams, lakes, and sear, and is a major constituent of all living

matter and that when pure is an odourless, tasteless, very slightly compressible liquid oxide of

hydrogen H2O which appears bluish in thick layers, freezes at 00C and boils at 1000C, has a

maximum density at 40C and a high specific heat, is feebly ionized to hydrogen and hydroxyl


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ions, and is a poor conductor of electricity and a good solvent. In this study water related

issues refer to in or around Awash basin.

Pricing is the process whereby WP1 sets the price at which the Awash Basin Authority

(ABA) is going to claim from water abstraction and treated wastewater discharge In setting

the price the WP1 the authority will take into account both the economic and public good

characteristics of water (Chambers Dictionary of Etymology, 1977)

Price of Water Services: User (abstraction and treated wastewater discharge) fees typically

generate funds for daily operation and maintenance and long-term capital investments

(optional) for agriculture irrigation and treated wastewater systems.

Anything scarce and in demand commands a price; this is one of the basic principles of

economics. Water is scarce in some contexts (drought, degraded quality), so water pricing is

increasingly seen as an acceptable instrument of public policy. Water-use charges, pollution

charges, tradable permits for water withdrawals or release of specific pollutants, and fines are

all market-based approaches that can contribute to making water more accessible, healthier

and more sustainable over the long term . (Tom Jones, 2017)

Pricing of water services should reflect the true costs of providing water and treated

wastewater discharging services to consumers to maintain infrastructure and plan for

upcoming repairs, rehabilitation, and replacement of that infrastructure as well as keep the

quality and quantity of water.

Information on pricing water services can help consumers, policymakers and other

stakeholders learn about the economic value of water and contribute in limiting pollution

(USA Environmental Protection Agency (EPA, 2017).

Affordability Considerations - Pricing to ensure everyone can have the service they need..

Pricing decisions involve considerations of equity as well as efficiency. Low and medium-

income business, especially those served by high-cost systems, may face affordability

problems if prices are raised. To alleviate these hardships, users can offer pricing structures

that mitigate impacts on low and middle-income businesses like agriculture and industry and

the price setting will capture sectoral differences. .

The most common example is "lifeline rates," where low and meddle-income businesses are

charged lower rates on non-discretionary water.

Pricing Structures - Approaches to pricing water sector services.

https://www.epa.gov/sustainable-water-infrastructure/pricing-and-affordability-water-services#affordability�

https://www.epa.gov/sustainable-water-infrastructure/pricing-and-affordability-water-services#pricing�


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Prices signal value to consumers and help determine whether consumers use water efficiently

and sustanability. If prices are too low, consumers will use too much water. It is also essential

that the pricing of water services covers the costs of providing service, for both operations and

maintenance and capital expenses (optional).

Full cost pricing factors all costs into prices, including past and future, operations,

maintenance, and capital costs. Full cost pricing can take the form of any of the rate structures

shown below, as long as all costs are recovered.

Price Structures that Encourage Conservation

a) Increasing block rates - Using block rates or tiered pricing that increase with water

usage. The per-unit charges for water increases as the amount of water used increases.

The first block is charged at one rate, the next block is charged at a higher rate, and so

on.

b) Time of day pricing - Charging higher prices for water used during a utility's peak

demand periods.

c) Water surcharges - Charging a higher rate for "excessive" water use (i.e., water

consumption that exceeds the local or regional average).

d) Seasonal rates - Water prices rise or fall according to weather conditions and the

corresponding demand for water.

Price Structures that are Less Effective in Encouraging Conservation

• Uniform rate structures - A uniform rate charges the same price-per-unit for water usage

beyond the fixed customer charge, which covers some fixed costs. The rate sends a

price signal to the customer because the water bill will vary by usage. Uniform rates by

class charge the same price-per-unit for all customers within a customer class (e.g.,

irrigation, fishery, industry, etc.).

• Flat fee rates - Flat fee rates do not vary by customer characteristics or water usage (EPA,

2017),

Benefit Cost Analysis:

Cost-benefit analysis tries to mimic a basic function of markets by setting an economic

standard for measuring the success of organization’s investments and programs. That is, cost-

benefit analysis seeks to perform, for public policy, a calculation that markets perform for the


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private sector. In evaluating a proposed new initiative, how do we know if it is worth doing or

not? The answer, it turns out, is much simpler in business than in government (Lisa and Frank

2002), In this price setting benefit-cost analysis is considered to capture the affordability of

the firms concerned based on their past financial performances mainly on their last five years

profit loss statements.

Willingness to Pay:

“WTP is the maximum amount that individual states they are willing to pay for a good or

services” (DFID, 1997). Generally, users may not be “happy” paying a certain cost of

services, but they are willing to pay this amount rather than go without such services.

According to Wedgwood and Sansom (2003), there are three ways to estimate WTP as

follows, the first two approaches are called revealed preferences and the third approach called

stated preferences.

1. Observe the prices that people pay for goods in various markets (i.e. water vending,

buying from neighbours, paying local taxes).

2. Observe individual expenditures of money, time, labour, etc, to obtain goods – or to

avoid their loss.

3. Ask people directly what they are willing to pay for goods or services in the future.

The issue of willingness to pay for water abstraction and treated wastewater discharge was

conducted to set corresponding fairness of the charge set.

2.2 Brief Theoretical Review The theory of price is an economic theory that contends that the price for any specific

good/service is based on the relationship between the forces of supply and demand . The

theory of price says that the point at which the benefit gained from those who demand the

entity meets the seller's marginal costs is the most optimal market price for the good/service.

The theory of price, also known as price theory, is a microeconomics principle that involves

the analysis of supply and demand in determining an appropriate price point for a good or

service. The goal is to achieve equilibrium in which the quantities of goods or services

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http://www.investopedia.com/terms/m/market-price.asp�

http://www.investopedia.com/terms/m/microeconomics.asp�


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provided match the corresponding market's desire and ability to acquire the good or service.

This concept allows for price adjustments as market conditions change.

Supply denotes the amount of products or services the market is able to provide. This can

include tangible goods, such as automobiles, or intangibles, such as the ability to have an

appointment with a skilled service provider. In each instance, the available supply is finite in

nature. There are only a certain number of automobiles available, and only a certain number

of appointments available, at any given time.

Demand applies to the market’s desire for the item, be it tangible or intangible. At any point

in time, there is also only a finite number of potential consumers available. Demand may

fluctuate depending on a variety of factors, such as whether an improved version of a product

is available or if a service is no longer needed. Demand can also be impacted by an item's

perceived value, or affordability, by the consumer market.

In order to achieve equilibrium, the goal is to locate a price point that allows the number of

items available, referred to as the supply, to be reasonably covered by potential customers.

Should a price be too high, customers may avoid the good or service, resulting in excess

supply. In contrast, should a price be too low, demand may significantly outweigh the

available supply. Economist use price theory in an attempt to find the selling price that allows

the supply and demand to be as close to equal as possible (Investopedia, 2017)

Reasons for inefficient allocation Although water resources perform many functions and have important socio-economic values, water is in many respects a classic non-marketed resource. Even in its use as a tradeable commodity, market prices are not generally available. The reasons why water has no price are often related to the historical, socio-cultural and institutional context in which water is used and managed (e.g. the return of water use rights for groundwater or surface water on respondents’ land). In addition, although water can be captured and shared, water flows can also be recycled. This often makes it difficult to break water down into marketable proportions. An important cause of this economically inefficient water use (where costs outweigh benefits) is the failure of institutions involvement with the allocation and management of water. 'Failure' refers here to institutions where 'they induce or favour decisions that lead society away or prevent society from achieving socially optimal resource allocations' (OECD, 1994). Sources of institutional failure include markets, policies, and political and administrative factors. They derive from a fundamental failure of information or lack of understanding of the multitude of values that may be associated with water resources (Turner and Jones, 1991).

Pricing and cost recovery in the irrigation use and other agricultural production, fishery and aquifers

http://www.investopedia.com/terms/p/perceived-value.asp�


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Irrigation water is commonly priced volumetrically or using a flat rate or fixed charge. A special case of volumetric pricing is marginal cost pricing which requires metering of water use (which makes it suited to pumped water supplies such as tube-wells) and the necessary administrative capacity. A review of World Bank policy and practices recommends that for efficient use, irrigation water is priced volumetrically, based on opportunity costs (Julius and Alicbusan, 1989). Where this is not feasible (e.g. for gravity-fed systems and canal irrigation), water can be charged for at a flat rate or a fixed charge. The charges are based not on the amount of water used but on other variables such as the land area, value of landholding, crop output, or non-irrigation inputs (e.g. land improvements). The most common form of charging is based on land area, as this is easy to administer and suited to continuous flow irrigation (Johansson, 2000). However, the actual preview of charging for irrigation water is not necessarily consistent with economic expectations and straightforward notions of price and costs (FAO, 2004). Nevertheless, respondents place high marginal values on irrigation water, often a number of times higher than the charges actually imposed (Repetto, 1986) and increases in charges may not affect demand where these marginal values are so high. On the other hand, underpricing can be expected to encourage wastage of water, poor maintenance of irrigation systems and inefficient applications of water, resulting in reduced agricultural output. With regard to private irrigation schemes, while irrigators have to meet the full financial costs of private irrigation schemes (although subsidies reduce the costs in some cases), it can be agreed that they rarely face the opportunity costs of water use (Briscoe, 1996). However, public irrigation schemes throughout the world have been subsidized to such an extent that charges rarely cover even operation and maintenance costs. Recovery of at least these costs is needed to enable the maintenance of irrigation systems, which is crucial to improved irrigation performance. Nevertheless, cost recovery can achieve such improvements only if the associated revenues are applied to improvements in the system. In public schemes, respondents sometimes do face a restricted measure of opportunity costs, which can arise implicitly as a consequence of water rationing. However, this is likely to underestimate the true opportunity costs significantly. This study Maass and Anderson (1978), has indicated large differences in the economic losses arising from water shortages between market systems (which incorporate opportunity costs) and public allocation systems. Market systems were also found to be greatly superior in terms of the equity of distribution of the losses resulting from water shortages (contrary to the expected doctrine regarding procedures that perform well in terms of allocative efficiency) (Lisa Heinzerling and Frank Ackerman, 2002)

2.3 Water Pricing Experiences from different Countries

In the Czech Republic surface water levies represent the main basis for funding the

management of water resources. Five river boards are in charge administering water courses

and operating and maintaining WRM infrastructure, and water abstraction charges represent

65% of their budget, while revenues linked to hydropower generation represent above 15% of

their budgets and less than 9% of their revenues come from the State budget.


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In Sweden, licensing charges are set at a rate between EUR 150 and EUR 40,000 and help to

recover about 24% of the cost of issuing water permits. Daily or weekly sport fishing licenses

are the only example of payments for ecosystem services.

In China, most of the water sector revenues come from government funds but there is a

general trend to increase the contribution of users and beneficiaries – which varies across sub-

sectors. China has been collecting water abstraction charges since 1980 and total amounts

collected have been increasing rapidly (27% annually in nominal terms from 1998 to 2005)

and in 2010 accounted for 2-3% of water resources management expenditure. The Central

government has given a national framework to set the hydropower charges, they vary in price

and in approach from one province to another. Nevertheless, the main criteria in all provinces

are the power output of the nation, and, in some provinces, the size of the power plant is taken

into consideration. Hydropower charges in each province greatly vary: the most economically

developed provinces in southeast China, specifically the provinces of Fujian, Guangdong and

Zhejiang, impose a high fee (about US$1.25/MWh), while less developed regions, for

example, the autonomous region of Tibet, require lower fees (for instance, US$0.3/MWh).

In Korea, contributions from water users are an important source of funding for the water

sector. Water use charges were introduced in 1999 and are in place in the four river basins,

with rates ranging between 0.11 and 0.13 USD/m3. The proceedings go to a watershed

management fund managed by a watershed committee. Between 2002 and 2007 the revenues

from user charges increased from USD 288 million to USD 663 million. Part of the increase

had to do with the improvements in the invoicing rate (from 77.2 to 80.2%) and in the bill

collection rate (from 82.7% to 83.3%), (Cho and Ryu, 2010).

In South Africa, the 2005 Strategic Framework for Water Services identified seven charges

that may be levied for funding the water management functions. Since 1994, the development

of water resources infrastructure has predominantly been funded off-budget and costs

recouped from water users. In South Africa, cost recovery from users for governance

functions provides an important mechanism for financing the increasing WRM requirements

in highly developed-utilised basins, but users tend to resist additional charges, except where

the value-benefit of these charges is apparent, the collection-disbursement is transparent

and/or the information-billing systems are effective (Pegram and Schreiner, 2010).

Table 1 also shows the summary of water charges of 22 other countries

In general, the basis for charging is in some cases capacity to use, in other cases actual use,


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and in some other cases a combination of both. Despite the fact that in most countries

abstraction charges are designed with the objective of providing funding for water resource

management or for watershed protection activities, abstraction charges tend to be relatively

low. Higher charges tend to be imposed on groundwater than on surface water, and

abstraction charges are differentiated by user type.

Table 1. Price Ranges for Various Sectors and Countries (in 1996 USD)

Country Agriculture Domestic Industry

Fixed (Per ha. per year)

Variable (per cubic meter)

Fixed (Per HH. per year)

Variable (per cubic

meter)

Fixed (Per Plant per year)

Variable (per cubic

meter) Algeria 3.79 – 7.59 0.019-0.22 0.057–0.27 4.64

Australia 0.75-2.27 0.0195 9-162 0.23-0.54 7.82

Botswana 0.28-1.48

Brazil 3.50 0.0042-0.032 0.40

Canada 6.62-36.65 0.0017-0.0019 0.34-1.36 0.17-1.52

France 0.11-0.39 0.36-2.58 0.36-2.16

India 0.164-27.47 0.824' 0.0095-0.0S2 5.49 0.136-0.290

Israel 0.16-0.26 0.36 0.26

Italy 20.98-78.1 0.14-0.82

Madagascar 6.25-11.251 0.075-0.25 0.3921

Namibia 53.14 0.0038-0.02 1.54-4.28 0.33-1.38

New Zealand 6.77-16.63 16-164 .31-.69

Pakistan 1.49-5.807 0.25-1.63' 0.06-0.109 0.38-0.97

Portugal 0.0095-0.0193 4.46-1937 .1526-.5293 8.86-2,705 1.19

Spain .96-164.48 0.0001-0.028 0.0004-0.0046 0.0004-0.0046


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Sudan 4.72-11.22I 1.67-3.33 0.08-0.10 1.67-3.33" 0.08-0.10

Taiwan 23.30-213.6 0.25-0.42

Tanzania 0.260-0.3981 0.062-0.241 0.261-0.398

Tunisia 0.020-0.0781 0.096-0.5292 0.583

Uganda 7 0.38-0.59 15 0.72-1.35

United States 0.0124-0.0438

United Kingdom 152-171 0.0095-0.0248

Source: World Bank (1997) Water Pricing Experiences – As International Perspective

3 CHARGE SETTING METHODOLOGY

3.1 Description of the Awash River Basin The Awash Basin develops along the Awash River forming one of the 12 basins in the

country and is rich in water resources and is the most utilized Basin in Ethiopia (Mokonen

et.al., 2015).

The basin is specified and described as follows.

3.1.1. General The Awash River Basin covers a total area of 116,220 km2 of which 70, 831km2 comprising

its Western catchments, drains to the Main River or tributaries of the Main River courses. The

remaining 45,389km2 is called Eastern catchments of the basin, which drains to a desert area

and does not contribute to the main river course. The River Awash rises at an elevation of

about 3,000 m (asl) in the central Ethiopian Highlands, West of Addis Ababa and flow North

Eastwards along the Rift Valley into the Afar triangle where it terminates in Lake Abe at an

elevation of below 250 m. The main river line has length of 1,200 km in total starting from its

initial point in West Shewa zone around Ginchi town to Lake Abe, its last destination (Fig. 1).


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Figure 1. Awash Basin with Major tributaries and towns

The mean annual rainfall varies from about 1,600mm at Ankober, in the highlands North East

of Addis Ababa to 160mm at Asayita on the Northern limit of the Basin. The mean annual

rainfall over the entire Western catchment is 850mm. Similarly, the mean annual temperatures

range from 20.8 °C at Koka to 29 °C at Dubti, with the highest mean monthly temperatures at

these stations occurring in June, as 23.8 °C and 33.6 °C respectively (FAO and MoWEI,

2013). With regard to water resources potential, it has an annual potential 5 billion m3 with

very high seasonal variability.

Awash basin is the most utilized river basin in the country. The total population of the basin

in 2015 was 15 million which is about 17% of the national population and 35% live in urban

areas which is almost double the national average value of less than 20%. Over 200,000 ha is

irrigated agriculture and 60 % of the industries in the nation are located in the basin. There are

also newly proposed industrial parks, as shown in fig. 1, of which some have already started

operation. Fig. 2 shows that about 50% of the industrial parks are located in Awash Basin.


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Fig. 2. Distribution of Industrial Parks in Ethiopia Considering the available water resource of about 5 billion m3/year and the total population

of about 15 million, the annual available potential water volume per person is about 350 m3

which makes the basin highly water scarce basin since this value is much lower than

boundary between water stressed and water scarce – 1000 m3/person/year as shown in fig. 3.

Fig. 3. Fresh water availability map (FAO, 2008)


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3.1.2 Water Demand

As per the results of the recent Water Allocation and Conflict Resolution study, the total

annual water demand is estimated to be about 3.2 BCM of which agricultural water demand

takes the lion’s share with about 2.5BCM (79.17%) followed by domestic water demand

(including Institutional, Public, fire and Non-revenue water) 438.3MCM (13.7%) and

Industrial demand of 15.74 MCM (0.5%) and livestock water demand of 211.5MCM (6.62%).

Table 4.1 shows the monthly sectoral water demand.

Table 2. Summary of monthly estimated sectoral water demands (Mm3

January February March April May June July August September October November December Total

214.9 194.1 214.9 208 214.9 208 214.9 214.9 208 214.9 208 214.9 2530.4

27.494 26.578 28.411 27.494 28.411 27.494 28.411 28.411 27.494 28.411 27.494 28.411 334.516

17.383 16.803 17.962 17.383 17.962 17.383 17.962 17.962 17.383 17.962 17.383 17.962 211.489

1.294 1.251 1.337 1.294 1.337 1.294 1.337 1.337 1.294 1.337 1.294 1.337 15.742

Domestic Demand(Mm3)

Livestock Water Demand (Mm3)

Industrial Demand (Mm3)

Agricultural Demand (Mm3)

Month

)

Awash basin, being water scarce basin is supply water for various sectors of which about 20

% is for domestic and non-domestic water supply. The scarcity implies there should be

stringent measures to ensure sustainability of water supply by Awash Basin Authority. One of

the first actions is to increase efficiency of utilization of water resources through the

introduction of water abstraction/use tariffs at various levels.


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3.2 Conceptual Framework

3.2a Generic conceptual framework

Water Pricing

Technology• Type• Sectoral

Institutional Factors• Formal & Informal rules &

Regulations • Property rights• Transaction costs

Efficiency (All)• Technical or yield • Allocative

Sustainability (All)• Economic• Social• Environmental

Affordability (All)• C-B Analyses• WTP/WTA• Stakeholders

Fig. 4. Generic conceptual framework applicable to all work packages

The above flow chart or framework shows the generic conceptual boundaries that has been

considered almost in all working packages and taly to the term of reference (ToR) entered to

agreement with the authority. In all working packages the efficiency, affordability,

sustainability and fairness are among the important aspects that have been considered.

On the other hand, operational framework, which is linked to methodology of the pricing

process has be shown in Fig. 5. The figure flows that the charge setting start with the general

problem and the ToR and ends up to the charge in the corresponding category of

abstractors/users of treated wastewater dischargers.


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3.2b Methodological Framework

Fig. 5. Operational framework

The objectives were used as inputs to craft appropriate methods, and methods by default were

indicators of the type of variables required. Based on the variables identified, the data

collection instruments were produced and data were collected accordingly. Both primary and

secondary data collected has been processed and analyzed to set the charge and check

affordability and fairness of the charge.

3.3 Data Type, Data Sources and Sample Size

Primary and secondary data was collected from expected water abstractors/users sample,

expected wastewater dischargers sample and published materials related to water charge and

the price setting.

Primary data in this study was cross-sectional collected from selected sample respondents

from different sectors (irrigation, water supply, treated wastewater discharge, hydro-power,

aquaculture, recreation and other stakeholder) in Awash basin in 2017/18 production year.

The data was collected using structured questionnaire and survey schedule to solicit

respondents’ interest, their expectation from the Awash Water Bain Authority, their


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contribution to sustainability, affordability, and WTP for water abstraction and discharge

treated wastewater.

After purposively selecting Awash Basin as study area of water abstraction and treated

wastewater discharge charge, stratified sampling techniques was used to include representatives

from different heterogeneous study or working packages that includes similar activities.

Accordingly, Irrigation Working Package (WP2), Domestic and Non-domestic Water Supply

Working Package (WP3), Treated Wastewater Discharge Working Package (WP4), and

Hydropower-Aquaculture-Recreation Working Package (WP5

Work packages

) were identified. To further

reduce the heterogeneity within each working package, homogeneous groups were created based

on type of abstractors or treated wastewater discharger (agriculture, industry or service), location

in the Awash basin (upper, middle or lower Awash) and size (large, medium or small).

Table 3. Sample by working packages, sub-categories and sample size

Sub-category Sample visited Remark

WP2- Irrigation

Large 7 Location, crop type, and technology used to abstract water were also considered in the stratification

Medium 16

Small 13

Sub-total 36

WP3 – Water Supply

Municipalities 10

Size, location and type of activities were considered in the stratification

Loges and recreation areas 2

Industries 6

Livestock - beef 1

Universities 4

Water construction & Agri 2

Sub total 25

WP4 – Treated Wastewater

Municipalities 2

Type and location were considered in the stratification

Industries 20

Animal products 2

Crop production (Flower0 1

Hospital 1

Sub-total 26

WP5 – Hydro, Fish & Recreation

Hydropower (Koka & Awash) 2

Type of activities and location were considered

Fishery 20

Recreation 5

Sub-total 27

Grand total 114


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The approach has helped to create homogenous groups where application of the acceptable

probability sampling and to end up to true sample that represent population Following this

procedure, the sample size has been determined based on proportional sampling within each

working package. Table 1 depicts the procedure and the sample size from each category.

Totally, 114 sample respondents as firm and more respondents were considered. Irrigation

working package rank first by considered 36 (about 32%) of the firms. WP5

3.4 Data Collection

rank second

consulting 27 (about 24%) of sampled firms. Treated wastewater discharge and domestic –

nondomestic water supply working packages followed as third and fourth, respectively.

3.4.1 Data collection methods The data collection method was comprised of detail field survey, key informant interview and

collection of relevant secondary data from journals, books, CSA, etc . In addition, field

observations, spot checks and investigations on the physical situation of the basin, on the

extent and degree of problems and on existing water management practices were made

through extensive traveling to different stakeholders and firms in the basin (upper, middle and

lower basin).

3.4.2 Data collection instruments Three types of instruments that correspond with willingness to pay, affordability, stakeholder

analyses and data for charge setting were used in the data collection. These instruments

include: instrument for contingent valuation, survey questionnaire or survey schedule, checklist

for key informant interview and stakeholders analysis and camera to collect pictorial data.

Questionnaire/Schedule

Structured questionnaire/schedule was prepared for general information and survey data

collection. Because of time shortage no pre-testing was conducted and as a result some

questions were adjusted during administration of the instrument.

Contingent Valuation Survey

In most part of the study area, there was no experience of charge in water abstruction or

treated wastewater discharge charge. Therefore, the instrument contingent valuation survey

instrument was employed in order to measure the Willingness to Pay or Willingness to

Accept of water abstraction or treated wastewater discharge charge, contingent valuation

structured survey questions were employed.


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Cost-benefit survey format

In order to measure the ability to pay of water abstractors and treated wastewater dischargers,

their financial history was collected. As much as possible, information regarding their

investment costs, annual variable costs and annual profit was collected using structured

format prepared for this purpose.

Key informant interview checklist

A Key informant interview (KII) was made with individuals who have a well experience in

each working pacages. A checklist and guiding questions were used to frame the interview

within the scope of the study. The interview was used to identify the consent of stakeholders

that could directly or indirectly affect the charge and capture their interest.

Stakeholder discussions questions

Top management members, employees and other relevant persons in each sample

organizations were contacted and issues like the interest of the organization, prioritization of

the interests in the order of importance, the influence of the organization in exercising the

water abstraction charge, the contribution on their part on sustainable use of water resource

and their willingness to pay were raised during the discussion sessions.

Focus Group discussion checklist

Although this method was assumed to be one of the ways of collecting data and checklist

instrument developed, its implementation on the ground found to be difficult for the reason

that gathering of different focal persons and forming groups have been impossible within the

given very short visiting time. Therefore, group discussion is expected to be conducted during

validation workshop (if any).

Personal observation

The economists have observed the financial and record keeping system of the sample firms

and the reaction of decision makers towards their willingness to support and whether or not

positively respond to water abstruction or treated wastewater discharge charge. Production

sites and important pictures were taken.

3.5 Methods of Data Analyses


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In this water price setting study, there will be a number of research methods be employed

among others Contingent Valuation Method (CVM – Both WTP & WTA), Cost Benefit

Analysis, and Qualitative analysis (FGD and KII).

The following methods assumed to be crosscutting and applicable in all type of water

abstractors/uses and treated wastewater discharges and work packages.

3.5.1 Trend Analyses

This method was expected to capture the past experience and to employ in constructing

financial ratio analyses path way. However, because of resistance of respondents to provide

historical financial statements, this important activity could not be done as planned.

3.5.2 Cost-benefit analyses

This method was expected to indicate the financial viability, affordability and sustainability of

the charge system. Both fixed and variable costs as well as revenue and other benefits will be

considered and projected for some period of time.

The benefits from an action are contrasted with the associated costs within a common analytical

framework. The benefits and costs are usually measured physically in widely differing units;

comparison is enabled through use of the common numeraire of money. The benefits and costs

of each option are determined relative to the common scenario that would prevail if no action is

taken. The net benefit of each option is given by the difference between the costs and benefits.

The most economically efficient option is that with the highest present value of net benefit, i.e.

net present value (NPV). When NPV is positive the investment is taken as financially viable.

Selection of cost-benefit analysis as a decision-support tool is at the discretion of analysts and

policy- and decision-makers. It is the responsibility of analysts to ensure that the underlying

assumptions of a cost-benefit analysis are appropriate to a specific situation and that the results

are valid and reliable. Cost-benefit analysis reflects a specific paradigm that is considered more

or less appropriate in different domains of decision-making.

It was possible to deduce the affordability of different entities based on cost-benefit analyses. In

this case, each sampled entity was analysed in terms of cost and benefits and the would be

charge was included and then affordability was checked.


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This has been done based on the scantly available financial data of respondents for the last

five years. But, it should be taken as rough indicator of charge affordability of the

respondents.

3.5.3 Stakeholders analyses

This stakeholders’ analysis was one of the important tools to capture the interest of entities or

sample respondents involved in the study. It was also used as a tool of making the water

charge setting participatory as the check list includes the interest, expectations and priority of

interest fulfillment if they pay water abstruction and/or treated wastewater discharge charge.

Here, in the water use charge and treated wastewater discharge fee construction, identifying

the important stakeholders and analyzing their interest and influence have been among

important assessments. In this regard, stakeholder analyses matrix was employed as follows.

Table 4. Stakeholders classification and addressing their interest

Identify stakeholders Interests Potential project impact

Relative priorities of interest

Primary

Secondary

External

Theoretically, primary stakeholders are the one who directly influence or influenced by the

issue in question in this case water use charge or treated wastewater discharge fee. The

secondary stakeholders are those who have indirect effect on the charge to be set and also

play bridging role between the basin authority and payers or persons affected directly. On the

other hand, externals are the one who plays lesser role but cannot be neglected in the analyses.

However, as mentioned above, due to shortage of time, stakeholders were interviewed

without such categorization and by and large they fall under primary stakeholders.

3.5.4 Key Informants Interview (KII)

This data collection and analyses method is different from FGD. Here, individuals who were

expected to have well experience, skill and knowledge in water price setting and related


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issues were consulted to share their experience and knowledge. Key informants have been

informed people such as water experts, policy and decision makers in water issues, as well as

gainers or losers of price setting. Check list have been prepared to guide the discussion in the

interest of the study and limit the scope. Economists from the sub-team has taken the

responsibility of handling this data collection and taken place along with the main survey data

collection.

Contingent Valuation Method (CVM)

This method is applicable in a situation where there is not price of resource. It has two

approaches, namely: willingness to pay (WTP) and willingness to accept (WTA). WTP can be

used in estimating water user and treated wastewater dischargers tariff and that of WTA set

charges on treated wastewater discharges (here, sample respondents would be those who –

downstream water users- expected be affected negatively with wastewater discharge.

Model Specification for determinants of willingness to pay (WTP)

After gathering raw data using double bounded question, bivariate logit or probit model will

be employed because the bivariate normal density function is appealing to statisticians in the

sense that it allows for non-zero correlation, while the logistic distribution does not (Cameron

and Quiggin, 1994 cited in Jeanty et al., 2007).

Following Haab and McConnell (2002), econometrically modeling data generated by this

format relies on the formulation given by:

WTPij = β0+βX+ μ

Where,

WTPij= The dependent variable - jth respondent’s WTP and i=1, 0 represents yes willing and

not willing respectively

Β0 = Constant

β = Vector of coefficients

X = Vector of explanatory variables

μ = error term

εij = unobservable random component


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This formulation is referred to as the bivariate discrete choice model. Assuming normally

distributed error terms with mean 0 and variances σ2

Past awareness of payments for water use and/or treated wastewater discharge

(AWERNESS): A dummy variable, which takes a value 1 if the respondent has awareness in

some way in the past and 0 otherwise. Knowing available options for water use payments

makes water users to be more receptive to efficient use of the resource (Bekele and Holden,

1998). Therefore, experience regarding the water use payment and payment for discharging

(Haab and McConnell, 2002):

Description of Explanatory Variables and Hypothesis

The hypotheses to be tested in the model are how enterprise owner and/or manager or

respondent specific characteristics and attributes of water users affect the decisions of

WTP/WTA for price of water abstraction and/or treated wastewater discharge. Therefore,

based on the previous similar studies and own experience, the following variables are

expected to determine the WTP/WTA for water abstraction and/or treated wastewater

discharge. The sign shows the relation with the dependent dummy variable of choice.

Age of the respondent head (Age): The effect of a respondent’s age on water and treated

wastewater discharge price ecision can be taken as a composite of the effect of experience and

planning horizon. While longer experience has a positive effect, young respondents on the

other hand may have longer planning horizon and hence, may be more likely to be willing to

pay. The net effect could not be determined a priori (Lucila et al, 1999). Featherstone and

Goodwin (1993) reported that an older respondent who is looking at a shorter time horizon

may not be able to recoup all of the benefits of water resources. Similarly, Tegegne (1999)

found out that age had a negative effect on conservation decision in that it decreases

participation in water resource protection. Thus, in this study it is hypothesized that age has a

negative influence on the willingness to for water use and discharge treated wastewater.

Attitude of the respondent (ATTITUDE): This variable takes a value 1 if there is a desire to

pay at own cost and 0 if the desire is to wait until other users pay for the same. It is a proxy

variable for the respondent’s attitude towards willingness to pay for the water use and treated

wastewater discharge (Lynee et al, 1988). Bekele and Holden (1998) indicated that

respondents with a general positive attitude towards efficient use of resources are considered

to be keen on undertaking and keeping sustainable use of the resource. Hence, in this study

attitude is hypothesized to have a positive effect on the willingness to pay.


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wastewater in the past which is a proxy variable for water price awareness was hypothesized

to have a positive effect on the willingness to pay.

Education level (EDUC): Education level of the head of the respondents to easily get,

analyze, and interpret information (Dasgupta, 1989) about water pricing and treated

wastewater discharge tariffs. Thus, educated respondents can compare the pros and cones of

water use and decide rationally and expect positive direction.

Area (PLOAREA): This variable refers to the area of a particular plot, which was selected

for water price by a sample respondent. Rees (2000) mentioned aboveground and surface

pond structure groups are generally demanding a large area for their construction. Therefore,

this variable may serve as an input to choose between water uses sectors. Distance of the plot

from residential house (DISTPLO): Distance of a plot from homestead is expected to

highly affect the respondents selected. Those use (agriculture, industry, etc) groups, which

need day to day follow up, should necessarily be built near home (Martinson et al., 2001).

Therefore, it is expected that distance of the plot may relate negatively with aboveground and

underground structure groups and positively with surface pond type structure groups.

Size of landholding (LND): Size of the land may affect the choice decision of respondents

for alternative water use. Rees (2000) remarked that one of the pros of aboveground structures

is that it can be constructed from lighter materials so that they can be carried from place to

place.. On the other hand, respondents working on their plot are expected to construct stable

and long lasting structures and willing to pay for the water abstraction that they diverted from

the natural course.

Labour Availability (LABORAVA): Water use particularly for irrigation is a labour

demanding practice. Constructing water storage structures, watering the plants, protecting the

water from evaporation and the like practices require labour. This variable represents

availability of labour in adult equivalent ratios. Hence, a respondent who has large labour

units is expected to be willing to pay as production increase as a result of water use ,

Sex of the respondent (SEX): This is a dummy variable, which takes a value 1 if the

respondent is male and 0 otherwise. The sex of the respondent was included to differentiate

between males and females in their valuation of resource protection. Tegegne (1999) reported

that females as opposed to males tend to participate more in the water resource protection.

The net effect may not be determined a priori.


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Security of tenure (SECURE): A dummy variable, which is a proxy for security of tenure

that takes a value 1 if the respondent considered that he/she would be able to use the parcel at

least during his or her lease time and 0 otherwise. The incentive to land improvement decision

is based in part on secured future access to land. In many studies, insecurity of tenure has

been found to be a deterrent factor to efficient use of resource including water and may not be

willing to pay (Norris and Battie, 1987; Reardon and Vosti, 1995).

Financial constraints of the respondent (FINANCON): In addition to its larger labor

requirements, water use for irrigation require huge amount of money (Rees, 2000; Martinson

et al., 2001). Hence, shortage of money is anticipated to negatively affect willingness to pay.

Income of the owner of the enterprise/s (INCOME) = +ve

Average volume of water abstracted per day by the firm (AVWATER) = -ve

Average daily wastewater discharge by the firm (AWWD) = -ve

Credit taken from formal bank/s (CREDIT) = -ve

Source of water the firm is using (SWATER) = +ve

Marital status of the respondent (MARITAL) = to be determined


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4 CHARGE SETTING

4.1 The Models

4.1.1 Irrigation

In order to estimate the economic factor for irrigation we chose to use the revenue or profit

based analysis. In this approach firms were categorized in six category based on their crop

type (cotton, Flowers, fruit, sugarcane, vegetable, cereals, pulses, root crops). As presented in

the following table the economic factor was calculated based on share of profit and model

based estimation. The share of profit suggest that farmers should pay at least 1- 5 % of the

total profit per hectare. This is somehow some international experience but lacks objectivity.

Thus, we also estimated a simple regression model to calculate the elasticity of profit to water

and land. The estimate from of the model is stated as follow;

Where AR; is average revenue / or profit

Q; is output in value of production

Land _irrigation; amount of land allocated for irrigation

Water _per A; amount of water used per hectare

E; is the error term

Even though the R square of the estimated model is low (as there could be omitted variables)

still the result indicates that there is a positive and significant effect of both land and water in

revenue function. The result of the estimation also shows that elasticity of water to profit per

hectare is about 0.028.

4.1.2 Water supply


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The model for water supply charge setting has an financial factor element. To create this

factor, certain assumption were developed based on the responses and interest as a

prerequisite for willingness to pay byf sample respondents. If they receive sufficient and

quality water and to have so, if watershed develop, they will be willing to pay. This fact lead

to consider the concept of time value of money. The assumption is that the Authority will

spend first and claim at the end of the year. Therefore, the formula

Will b FV = PV (1+r)n , where FV= Future value, PV = Present value, r = bank deposit rate

and n = number of years. In this case the r which is the deposit rate in Ethiopia is 7% i.e.,

0.07. Finally, FV = PV (1.07)1 . The present value will be amount of cost that is expected to

be incurred and payment will be collected at the year end. Thus, the financial/economic factor

in the following model would be 1.07.

Model is modified from the original as follows:

WAUcharge = (WSPmcf+WSM) + Ef*Kf *Uf*If(WSPcv*Vannual)

WAUcharge = Water Abstraction / Use Charge [Birr/year]

Ef = Economic factor [1]

Kf = Location factor [1]

Uf = User factor [1]

If = Industry factor [1]

WSPcf = Water Source Protection Management Cost : Fixed [Birr/year]

WSM = Watershed Management Cost [Birr/ year]

WSPmcv = Water Source Protection Management Cost : Variable [Birr/m3]

Vannual = Volume of Water Abstracted/Used annually [m3

• No difference is based on type of sources

/year]

There are some reconsiderations made based on international experience and due to lack of

detailed data and prevalent existing policy and legal frameworks.

• Difference is made between municipal and industrial water abstractors

• Abstraction charges for rural water supply not considered – domestic and livestock is

assumed to be subsidized

• Municipalities annual water abstraction volume and population are used to calculate

the annual variable and fixed charge respectively.


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• Industries are categorized in to two – water based and others to differentiate them

those who are almost totally dependent on water for their production and others who

use it as input for manufacturing

Previous water allocation modeling and conflict resolution study at Awash Basin

Level and recent Water Demand study are utilized for some critical water

demand data

4.1.3 Treated wastewater

The polluter-pay principle and benefit-principles guides pricing approaches.

There are two basic pricing approaches: full cost and variable cost-based

methods. While full cost approach is best from sustainability dimension, it is

often questioned with respect to economic viability from payers’ side. In our

case, both fixed and variable costs are assumed in the charge setting process;

and is given by:

DC = FC + VC

Where, DC= Treated Wastewater Discharge Charge (in Birr/ M3)

FC= Fixed costs (in Birr)

VC= Variable costs (in Birr/M3)

Fixed Costs: are costs that do not change with the level of output produced.

Unlike the conventional definitions, we included several costs in this category

for two reasons: encouraging regular budgeting for treatment plant and most of

the items involve expenditures. Here, all costs related to treatment plant except

for the volume of discharge are fixed costs, as they can’t be nil as long as all

firms have treatment plants. These may include: administrative cost (permit fee);

capital cost (laboratory, equipment, IT Infrastructure); Operation and

Maintenance costs (monitoring, personnel, chemicals & consumables); Research

and Development (technology innovation & dissemination, study); Capacity

building (training, HRD, awareness, policy dialogue and coordination);

Information management system (data base, data security, IT service),


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watershed management (rehabilitation/ restoration activities). But, those firms

who install best available technologies may need a special rule or exempted for

a given period.

Variable Costs (applies polluter-pay principle): are those costs that vary with

the level of output/emission. The VC increases with the level of production; may

comprise costs associated with the volume of discharge, standard-based

changes, size of waste emission.

Following the estimation models indicated above, the treated wastewater

discharge charge, different charge is estimated for industries located in the first,

second and third level towns (cities). The result indicated that the average

charge for industries per M3 of wastewater discharge is Birr 1.9. The per unit

charge for industries found in level one, two three and above respective are Birr

2.2; Birr 1.8; and Birr 1.5. Finally, the benefit cost ratio (BCR), the

profitability index (PI), and the willingness to pay for TWWDC of industries.

These decision variables revealed that the charge is economically feasible,

environmentally sustainable and socially equitable. Thus, the determined charge

for the implementation can be considered.

Table 4: Treated Wastewater Discharge Charges (TWWDC) for Industries

CHARGE ITEMS LEVELS OF TOWNS

AVERAGE 1st LEVEL 2nd LEVEL 3rd & ABOVE

Profit Based (ETB/M3) 2.2 1.8 1.5 1.9

Elasticity Based (ETB/M3) 0.092 0.092

DECISION VARIABLES

BCR(Discounted) 2.3 2.3

PI(Discounted) 1.0 1.0


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WTP (ETB/M3) 5.0 5.0

FINAL DECISION Thus, the above estimators are acceptable

Source: TWW Sub-team, 2018; BCR=benefit cost ration; PI=profitability index

However, we can take either the above charge alone or augment the coefficient

(0.092) with that of technical team’s charge following logical indexing

procedure. Alternatively, the regression result (see annex) also provided us with

the charge per cubic meter of wastewater discharge: Dc= 1.77+ 0.092M,

implying that the fixed charge will be 1.77 Birr and variable charge will be

0.092 Birr per M3

4.2 Affordability

.

4.2.1 Irrigation

The irrigation sector is found to be profitable and therefore, afford water

abstraction/use charge. the following table indicates that the economic factor is presented in

tow options. These are as percentage share from profit per hectare and base on calculated the

elasticity. In this regard, we consider the minim amount i.e. 1 percent of the profit per hectare

per crop (based on 1%-5 % profit criterion) which can be estimated simply by multiplying

0.01*profit per hectare. On the other hand, 0.028 *profit per hectare has been considered for

the model based analysis.and the result is summarized in the following table.

Type of crop

Cost per Ha

Revenue per Ha

Profit (Ha)

Share from per Ha profit (1% -5%)

Cotton 1045.5 13227 12182 121.81 Flowers 383863 1052632 956667 9566.60 Fruit 3632.0 17378 13746 137.46 Sugarcane 7544.5 25976 24090 240.89 Vegetable 4071.8 19930 18572 185.75 Cereals 4800.0 10600 5800 58.00 Pulses 4500.0 10583 6083 60.833 Root crops 2307.7 7846 5538 55.38

4.2.2 Water supply


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To see the affordability of organizations, past 5 years income statements has been taken and

their financial results were calculated as annex 2 shows. If the current performance of

municipal water supply continue as it is, then one out of three will incur loses. If we assume

that costs increase by 5% and income by 10%, still lose will persist. However, if we assume

that cost decrease by 5% and income increase by 10%, considering the favorable condition to

come, then all municipal water suppliers and industries will be profitable and can afford for

water charge payment.


Given the data constraints, we got the benefits and costs of industries and

estimated from secondary data. Five years data (2011/12-20115/16) was

employed; and the assumed annual discount rate was 10 percent. Then the

present value and net present value of benefit and costs were calculated; then the

ratio of present value of all benefit streams to present value cost stream was

taken; and finally, the ratio was checked whether the quotient is greater than one

before acceptance decision. The value is greater than one (2.3); indicating that

the firms can easily pay the determined charge.

4.2.4 Hydropower, aquaculture and recreation

4.2.4.1 Hydropower

It is difficult to identify the exact ability to pay of the power plants as the economic life of the

power plants has matured and as the power plants are not directly responsible for selling the

generated power. To make matters worse, there is no clear financial benefit rapport/division

between EEP and Ethiopian Electric Utility (EEU). Thus, it is difficult to separate the profit

generated by each power plant as the money collected is flowing to different tasks/institutions

including ongoing projects. In general terms, according to EEP official claim, the existing

electric power generation costs are about US $0.09/KWh and the current electric tariff is at

US $0.06/KWh. The remaining three US cents have long been subsidized by the government.

However, this claim is inclusive of ongoing projects. A rough estimate of income of power

plants can be generated to establish a comparison with the annual budget allocation. For

instance, if Koka power plant with a capacity of 43 MW is assumed to produce 15 MW per

year its income would be approximately 220,752,000.00 Birr. This is a very high amount


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when compared to the annual budget/cost incurred by the power plants. Therefore, in contrast

to the money it could claim Birr 220,752,000.and the budget amount average of Awash Birr

24,056,457 and Koka Birr 21,374,109, if considered as cost, then the hydropower sector can

afford water abstraction charge.

4.2.4.2 Fishery

The range of income levels represent a wide range of capacity to pay from high experienced

earners to very low paid commission workers. The minimum income is 1,125 birr per annum

and the maximum income is 270,000 birr per annum. The mean production and marketing

period in a year is 8.35 months, ranging from 1 month at Kessem to 12 months at Besseka.

The mean price of fish is about 22 birr/kg, considering all fish types and all marketing

seasons. The mean annual production per fisherman is 2892 kg with mean annual income of

65,133 birr and with mean annual profit of 62,988 birr. In general, this sector has the capacity

to pay for water use (See WP5 economist report).

4.2.4.3 Recreation

Using their audited annual report, trend analysis is used in measuring the capacity to pay of

recreation centers and their profit has been growing with average annual rate of 16% in the

last four years. Their average annual net profit is 4,149,422 birr, with minimum profit of

322,754.63 birr and maximum profit of 11,560,511 birr. The huge variability is a testament

that recreation centers that are closer to Addis Ababa (e.g. lodges at Bishoftu) have a

relatively higher profit than those that are far away from the center (e.g. lodge at Awash

National Park). Therefore, this sector can safely be said afford the charge intended to be

employed.

4.3 Willingness to Pay

4.3.1 Irrigation

The quantitative firm level survey data reveals that the majority of the industries are willing to

pay for irrigation water use. About 14 (87.5 %) of the respondent have indicated that they are

willingness. However the result for the Key informant interview indicated that the irrigators

have concern over the supply and quality of irrigation water. They have stated that the current


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price is very low that it could not help to maintain that sustainability of the Awash basin river.

Moreover, the KII indicated the readiness of willingness varies depending on farm size and

income level.

Finally, the average willingness to pay for irrigation water is found to be Birr 120 per

hectare of land served per year.

4.3.2 Water supply

Willingness to pay is assumed to be proxy for fairness and indicator of participation of sample

representatives. Annex one shows that the minimum mean willingness to pay is about Birr

1.12 and the maximum mean Birr about Birr 2 per cubic meter of water use and the average

of maxima and minima will be Birr 1.6/m3


. This means that for all domestic water users this

amount of payment expected to be fair.

Willingness to pay (WTP) for treated wastewater (TWW) discharge charge is

assessed. The data show that the industries are fairly willing to pay. About 55

percent of them responded positively and the rest replied negatively.

However, some industry owners were asking as why they are required to pay for

the treated waste discharge tariff as long as they emit within the allowed permit

standard. After through discussion later on, most of them were convinced to pay

for the proposed new charge and to play a vital role in managing the resource.

The average willingness to pay per cubic meter of wastewater discharged was

Birr 5. But, the number of respondents and non-respondents were equal.

4.3.4 Hydropower, aquaculture and recreation

4.3.4.1 Hydropower

The sampled hydropower plants: i.e., Koka and Awash Melkasa (II & III), are operated by

Ethiopian Electric Power Cooperation (EEP). Koka Hydroelectric Power Plant is with a


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design capacity of 43 MW and has 3 units. Awash II and III Hydroelectric Power Plant is with

a design capacity of 64 MW and has 4 units. Initially, Koka dam was built with a chief role of

hydroelectric power generation. But currently, water releases are controlled by irrigation

requirements rather than energy generation. Its multipurpose aspect include water regulation,

sedimentation reduction for downstream works and production of fishery on the reservoir.

Interestingly, higher officials of the power plants believe that they are mainly serving

AwBA's interest, by controlling water flow for downstream, and they consider the power

generation as a secondary task. Thus, they are totally unwilling to pay for AwBA or any

water resource management, instead, they insist that they should be subsidized for the service

they are providing.

4.3.4.2 Fishery

About 90% of fishermen had positive willingness to pay for water use. The average

willingness to pay per fisherman per kilogram is 1.4 Birr, which is about 6% of their income.

The willingness to pay ranges from zero willingness to pay as a minimum to 3.5 birr/kg as a

maximum. All the respondents believe that the government should take the responsibility for

controlling pollution and illegal fishermen.

4.3.4.3 Recreation

About 80% of the recreation centers are willing to pay for water use, provided that the

necessary water resource management is introduced. The average WTP is 1% of profit with a

minimum WTP of 0 and a maximum WTP of 1.5% of profit.


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5. CONCLUSIONS The report presented the charge setting for water abstruction/use and treated

wastewater discharge charges by irrigators, industrialists, domestic and non-

domestic abstractions/use (municipalities, hotels, industries, universities, loges,

livestock) located in Awash Basin Authority. The basic objective of the study

was to determine affordability, fairness, environmental, economic and social

sustainability and proper water management. However, information accesses,

awareness, shortage of time, financial and technological capacity of sample

entities were among important constraints. Generally, both financial/economic

analyses were conducted to complete the water abstraction/use and treated

wastewater discharge charges. Despite the data limitation, both primary and

secondary data were used in the analysis. The findings from qualitative

assessment indicated that most respondents are willing to pay. The cost benefit

analyses also revealed that most of the sectors are capable of affording the

charges.

The report of each economist within the corresponding work packages are also

attached to along this main document for further detail assessment reference.


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6. REFERENCES

Chambers Dictionary of Etymology, 1977. New York) EPA (USA Environmental Protection Agency), 2017. Pricing and Affordability of Water.

Investopedia, 2017. Theory Of Price Definition | Investopedia http://www.investopedia.com/terms/t/theory-of-price.asp#ixzz4apnO0xkC accessed on 20/03/2017

FAO 2004 Water charging in irrigated agriculture: An analysis of international experience, FAO water reports 28

FAO. 1998. Crop evapotranspiration - Guidelines for computing crop water requirements. By: Allen, R.G., Pereira, L.S., Raes, D. and Smith, M. FAO Irrigation and Drainage Paper No. 56. RomeFAO and MoWEI, 2013

Lisa Heinzerling and Frank Ackerman, 2002, Pricing the Priceless – Cost – Benefit Analysis of Environmental protection, Georgetown University)

Tom Jones, 2017. Retrieved from

http://oecdobserver.org/news/fullstory.php/aid/939/Pricing_water.html accessed on 16/03/2017)

WB (1997). Water Pricing Experiences- An International Perspective, WB Technical Paper No. 386, eds, Ariel Dinar and Ashok Subramanian.

Investopedia, 2017. Water abstraction (Transitional Provisions) Regulations.

Sweetapple, C., Butler, D. (2014). Multi-objective optimization of wastewater

treatment plant control to reduce greenhouse gas emissions. Water Res. 2014,

55, 52–62.

http://www.investopedia.com/terms/t/theory-of-price.asp#ixzz4apnO0xkC�

http://www.investopedia.com/terms/t/theory-of-price.asp#ixzz4apnO0xkC�

http://www.fao.org/docrep/X0490E/X0490E00.htm�



http://oecdobserver.org/news/fullstory.php/aid/939/Pricing_water.html�


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7. ANNEXES

Name of entity Sex educational level religion Source of

water Ethnicity investment cost

willing to pay yes = 1 and 0 =

no per m

willingness to pay

maximum (in m

3 3

willingness to pay

minimum (m) 3)

1 Kuriftu resort male BA Orthodox Ground water Amhara 1

2 Kombolcha share company male diploma Protestant Ground water Amhara 4000000.00 1 4.50 2.50

3 Awash city water supply and sewage service

male 1-12 Muslim Ground water Afar 0 0 0

4 Adama Science and Technology University

male BA other Ground water Oromo 30000000.00 1 1.00 .50

5 Gimbichu Fentalet rural water supply project

male diploma Orthodox Spring and Ground water Oromo 105000000.00 1 1.00 .50

6 Chiro town water supply and sewage office

male BA Orthodox Ground water Oromo 1 5.00 3.00

7 kuriftu resort male BA Orthodox Ground water Amhara 1 2.00 1.00

8 Logiya Semera water and sewage office male diploma Muslim Ground water Afar 0 0.00 .00

9 kombolcha city water and sewage service

male diploma Orthodox Ground water Amhara 1 .45 .23

10 METEC male Msc Orthodox Ground water Tigre 1 1.00 .50

11 Ethiopian tanery share company male Degree Muslim Ground water Gurage 1 .50 .05

12 Wello University male Ph.D Protestant Ground water Amhara 1


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Name of entity Sex educational level religion Source of

water Ethnicity investment cost

willing to pay yes = 1 and 0 =

no per m

willingness to pay

maximum (in m

3 3

willingness to pay

minimum (m) 3)

13 Dire Dawa University male Msc Protestant Ground Oromo 1 .03 .03

14 Dassie Towen Water supply Office male Msc Muslim Spring Amhara 6630000.00 1

15 Kombelcha Tamur Share Company male diploma Protestant Ground Water Amhara 1 10.00 5.00

16 Efratana Gidim Water and Energy Office male BA Orthodox Spring,well or

Ground Amhara 1 6.00 4.50

17 Awash Fall male Degree Ground and surface Amhara 1

18 Awash water Authority male Msc Orthodox Ground Amhara 1 0.1 0.05

19 Bishoftu Towen water supply and sewerage service

male BA Orthodox Ground Water Oromo 1

20 Dirredawa Towen Water and Sewerage office

male Degree Muslim Ground water Somali 1 .02 .00

21 Adama Water Supply and Sewerage male BA Protestant

Awash rever and ground water

Oromo 342000000.00 1 .01 .00

22 Adama Science and Technology University male diploma Protestant Ground water Oromo 4000000.00 1 .01 .00

Sum 22 31.614 17.86

Maxim 10.00 0.00

Mean 1.9759 1.1163


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Annex 2. Affordability in Domestic and non-domestic water supply

INOCOME

Sr.No The Company Name 2013 2014 2015 2016 2017 2018 (9months) Total Average

2019 projection

10% increase over average 2020

1 Shoa robit water sewage office 2,436,715.13

2,272,790.01 -

2,705,326.08

5,700,725.67 4,966,690.30

18,082,247.19

3,013,708 3,315,079

3,646,587

2 Epheson water and sanitation office 628,943.59

788,559.34

882,526.24

990,066.98

1,185,641.71 2,062,994.00

6,538,731.86

1,089,789 1,198,768

1,318,644

3 Chiro town water supply and sewage office 2,568,678.97

3,941,231.36

5,806,548.00

8,192,741.89

8,892,032.35 9,666,853.34

39,068,085.91

6,511,348 7,162,482

7,878,731

4 Kombolcha Textile Share Company 24,529,771.00

1,517,841.00

13,881,668.00

20,783,174.00

9,020,712.00 1,422,891.00

71,156,057.00

11,859,343 13,045,277

14,349,805

5 Ethiopian Pulp and Paper Share Company - - -

201,083,771.00

161,896,685.0 9,328,555.00

372,309,011.00

124,103,004 136,513,304

150,164,634

6 Moha Soft Drink Industry _

21,073,306.00

16,153,393.00

17,349,796.00

7,718,579.00 11,205,894.00

18,833,617.00

3,138,936 3,452,830 3,798,113

EXPENSES


2019 projection 5% increase over

averae 2020


2,455,464.94 -

2,224,103.50

5,161,189.04 2,430,907.00

31,570,834.17

5,261,806 5,524,896

5,801,141


547,967.32

769,026.24

925,265.59

1,185,641.71 2,062,994.00

5,943,953.91

990,659 1,040,192

1,092,202


2,145,129.05

3,575,249.26

4,414,820.98

6,326,850.20 7,611,848.50

26,082,463.37

4,347,077 4,564,431

4,792,653


14,270,250.00

16,122,521.00

21,513,976.00

23,118,405.00 26,581,847.00

116,669,981.00

19,444,997 20,417,247

21,438,109


25,922,297.00

36,251,009.00 19,509,368.00

81,682,674.00

27,227,558 28,588,936

30,018,383

6 Moha Soft Drink Industry - 18,225,054.00

18,805,466.00

17,521,549.00

25,349,786.00 25,556,476.00

105,458,331.00

17,576,389 18,455,208

19,377,968


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PROFIT OR LOSS


2019 Change of

Affordability 2020

1 Shoa robit water sewage office - 16,862,454.56

- 182,674.93 -

481,222.58

539,536.63 2,535,783.30

- 13,488,586.98

- 2,248,098 - 2,209,817

- 2,154,554


240,592.02

113,500.00

64,801.39

- -

594,777.95

99,130 158,576

226,443

3 Chiro town water supply and sewage office 560,113.59

1,796,102.31

2,231,298.74

3,777,920.91

2,565,182.15 2,055,004.84

12,985,622.54

2,164,270 2,598,051

3,086,078


- 12,752,409.00

- 2,240,853.00 - 730,802.00

- 14,097,693.00 - 25,158,956.00

- 45,513,924.00

- 7,585,654 - 7,371,970

- 7,088,304


175,161,474.00

125,645,676.0 - 10,180,813.00

290,626,337.00

96,875,446 107,924,368

120,146,252


- 2,652,073.00 - 171,753.00

- 17,631,207.00 - 14,350,582.00

- 86,624,714.00

- 14,437,452 - 15,002,378

- 15,579,856

5% COST DECREASE SENARIO

EXPENSES


2019 projection 5% decrease over average cost 2020


2,455,464.94 -

2,224,103.50

5,161,189.04 2,430,907.00

31,570,834.17

5,261,806 4,998,715

5,248,651


547,967.32

769,026.24

925,265.59

1,185,641.71 2,062,994.00

5,943,953.91

990,659 941,126

988,182


2,145,129.05

3,575,249.26

4,414,820.98

6,326,850.20 7,611,848.50

26,082,463.37

4,347,077 4,129,723

4,336,210


14,270,250.00

16,122,521.00

21,513,976.00

23,118,405.00 26,581,847.00

116,669,981.00

19,444,997 18,472,747

19,396,384


25,922,297.00

36,251,009.00 19,509,368.00

81,682,674.00

27,227,558 25,866,180

27,159,489


18,805,466.00

17,521,549.00

25,349,786.00 25,556,476.00

105,458,331.00

17,576,389 16,697,569

17,532,448


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NET INCOME IN 5% DECREASE IN COSTS


2019 Change of Affordability 2020


2,638,139.87 -

1,742,880.92

4,621,652.41 - 104,876.30

45,059,421.15

7,509,904 526,181 552,490


307,375.30

655,526.24

860,464.20

1,185,641.71 2,062,994.00

5,349,175.96

891,529 99,066 104,019


349,026.74

1,343,950.52

636,900.07

3,761,668.05 5,556,843.66

13,096,840.83

2,182,807 434,708 456,443


27,022,659.00

18,363,374.00

22,244,778.00

37,216,098.00 51,740,803.00

162,183,905.00

27,030,651 1,944,500 2,041,725

5 Ethiopian Pulp and Paper Share Company - - - - 149,239,177.00

- 89,394,667.00 29,690,181.00

- 208,943,663.00

- 69,647,888 2,722,756 2,858,894


21,457,539.00

17,693,302.00

42,980,993.00 39,907,058.00

192,083,045.00

32,013,841 1,757,639 1,845,521

Documents

Economists Analysis...4. Naod Mekonnen – MA, MSc and Ph.D Candidate Submitted to: Dr. Geremew Sahilu – Project Leader The Study of Water Use and Wastewater Discharge Charge WP1: