Increasing Block Tariff structures as a water subsidy mechanism in South Africa: An exploratory analysis

The primary goals of water pricing are to ensure that water is used sparingly and that sufficient revenues are earned. Pricing can, however, also be used to address equity concerns. One such policy often applied in developing countries is to charge a higher marginal price as consumption increases, to encourage a more efficient use of water, and to finance water subsidies by cross-subsidising water use. However, in reality water subsidies do not necessarily reach their intended beneficiaries. This paper explores the efficacy of such a pricing structure in subsidising water consumption for poor households in South Africa. The main finding is that this pricing structure does not ensure that water subsidies reach the intended targets; that is, the poorest. A further important result from these findings is that the magnitude of redistribution via the water tariff system is relatively small compared with other components of social spending.