Professional paper

Willingness to Pay for Wastewater Collection and Treatment Services in B&h

38

Willingness to Pay for Wastewater Collection and Treatment Services in B&hAdmir Ceric1, Branko Vucijak1,2

Hydro-Engineering Institute Sarajevo, Bosnia and Herzegovina1

Mechanical Engineering Faculty Sarajevo, Bosnia and Herzegovina2

PROFESSIONAL PAPERSummaryObjective: Social and economic factors that are linked to the consumers of wastewater services oftentimes determine the sustainability of a sewage system, and consequently the level of environmental protection and public health conditions in the respective region. Taking into account that the consumers have to allocate a limited household income to different purposes, this research was carried out with the objective of assessing the affordability and willingness of the households to pay for the wastewater services. Methodology: The study was carried out at the Municipality of Bihać, which has foreseen a 40-million KM investment in the extension of the sewage networks and construction of a new wastewater treatment plant. The research was conducted by carrying out a household survey of 536 randomly selected households. Results: Based on the household survey, average household income of the respondents is in amount of 730 KM. Considering that an average monthly water and wastewater bill is 13.71 KM, this means that the current bill amounts 1.88% of the average household income. The current consumers are ready to pay additional 1-10 KM monthly per household for new services, which is below the average affordability (additional 15.5 KM per month). The households that are not connected to the sewage system have shown less willingness to pay the sewage services. This opinion may be of concern, because it can affect the bill collection rates once the households are connected and charged for the services provided. Conclusions: This study shows there is a willingness to pay for additional wastewater collection and treatment services, if such raise in prices is accompanied by an improved quality of services. It is possible to further increase water and wastewater bills, without jeopardizing the population’s affordability to pay.Key words: affordability to pay, willingness to pay, wastewater services, B&H.

1. IntroductIonLarge population growth, intensive urbanization, and

economic development were the cause of significant in-crease in water consumption during the twentieth century. This trend in turn resulted in larger quantities of waste-waters, which are considered a serious threat for public health, environmental protection and economic develop-ment in case of improper wastewater management practices (UNEP/WHO/HABI TAT/WSSCC, 2004) (1).

The discharge of untreated wastewater is particularly affecting the human population, because of public health implications of such actions. Poor water supply and sewage services are still the cause of health disorders throughout the world, especially in developing countries. It was esti-mated in 2003 that 4% of all health disorders and 1.6 mil-lion deaths were related to improper water and wastewater services and poor hygiene (WHO, 2003) (2).

In the British Medical Journal poll, which surveyed more than 11,000 readers on the most prominent medical achievements in the last 170 years, the majority of the re-spondents answered it had been the “sanitary revolution” – connection of households to water and sewage networks. This achievement was assessed more significant than for example the discovery of antibiotics, vaccine, or identifi-cation of DNA structure. This opinion is supported by the

fact that the nineteenth century epidemics of cholera were the trigger to build public sewage systems in London and New York, as well as other parts of Europe and Northern America. Consequently, this disease has never been the problem in those areas, whereas it is still a significant “killer” in developing countries. In 2006, the World Health Organization reported as much as 236,896 cases of cholera, with 6,311 deaths in 52 countries, which was a step back to the statistics of 1990’s (3).

The status of water supply and sanitation in Bosnia and Herzegovina is unsatisfactory. Only 56% of the popula-tion in FB&H and 48% in RS are served by public water supply systems (FB&H/RS, 2003). The level of wastewater collection and treatment services is even lower; around 56% of urban population is connected to public sewage systems (FB&H/RS, 2003), whereas in semi-urban and rural areas the connection rate is estimated below 10%. Most of the wastewaters are discharged into the recipients without treatment, and only a small number of cities in B&H own wastewater treatment plants (WWTPs) that are operational (Trebinje, Ljubuški, Neum, Grude, Čelinac, Gradačac, Srebrenik, Trnovo) or require substantial reha-bilitation (Sarajevo). These numbers indicate significant public health risks, especially with regard to infectious and intestinal diseases.

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Willingness to Pay for Wastewater Collection and Treatment Services in B&h

Considering the presented indicators, the development of public water and sanitation systems is essential for stronger economic development, improvement of public health conditions and better environmental protection. The development of community infrastructure is a very com-plex task because of high investment costs. For instance, the Water Management Strategy of FB&H (ZZVS/ZZVM, 2009) has foreseen the development of wastewater collection and treatment systems for all agglomerations above 2,000 inhabitants by the horizon year 2020, which is in line with the Urban Waste Water Treatment Directive (91/271/EEC, 98/15/EEC). This action is supposed to provide full sanita-tion services for 1,239,500 inhabitants, or 45% of the pro-jected population in 2020. The total investment costs have been estimated to over 700,000,000 KM (ZZVS/ZZVM, 2009), which is a substantial budget considering the avail-able financial resources of the country.

The above assessments are confirming a notion that one of the key wastewater management issues in developing countries is related to the costs of construction and opera-tion and maintenance (O&M) of public sewage systems (UNEP/WHO/HABITAT/WSSCC, 2004). Having in mind that such projects are typically financed by state and local authorities, the focus is usually directed at the sources of financing and allocation of limited national resources. The role of other stakeholders, particularly the consumers of wastewater services, is often neglected.

Indeed, social and economic factors that are linked to the consumers of wastewater services oftentimes determine the sustainability of a sewage system, and consequently the level of environmental protection and public health conditions in the respective region. The wastewater service consumers have the responsibility to pay for the services rendered, which is the major source of financing of O&M and other service related costs. Taking into account that the consumers have to allocate a limited household income to different purposes, affordability and willingness to pay for wastewater services have become major issues in many countries throughout the world, including the developed ones (OECD, 2003). The study of socio-economic factors is particularly important in developing and transitional countries such as Bosnia and Herzegovina. In such coun-tries, very little research has been done on the behavioral patterns of the wastewater service consumers, which are determining factors for successful development, operation and maintenance of sewage systems, and are consequently affecting the level of environmental protection and public health conditions.

This paper presents the results of a research of relevant socio-economic factors related to water and wastewater services in a study area for which a substantial investment in the wastewater collection and treatment sector has been foreseen. Specifically, the research was focused on assessing the affordability and willingness of the households to pay for the wastewater services.

2. MethodoloGYStudy areaThe study was carried out at the Municipality of Bihać,

which has foreseen a 40-million KM investment in the ex-

tension of the sewage networks and construction of a new WWTP. The municipality, which is the administrative cen-ter of the Una-Sana Canton, is situated in the northwestern part of Bosnia and Herzegovina. The municipality extends to approx. 900 km2. At the time of the research, the popu-lation of around 60,900 was living in 59 local settlements.

The water and wastewater services in Bihać are provided by the Public Company “Vodovod”, which was founded by the Municipality in order to provide the said services. The PC “Vodovod” manages the central water system of Bihać, as well as three local subsystems, which supply the settlements of Kulen Vakuf, Orašac and Gata. The sewage system currently covers only the city area, that is, some 10 out of 22 local communities within the urban limits. Only around 37% of the water consumers are connected to the sewage system (Eptisa/HEIS, 2008), 36% in the household category and 40% of legal persons (industries, public in-stitutions, etc.).

3. MethodsThe research was conducted by carrying out a household

survey. Households for the survey were selected from differ-ent local communities. As a representative survey sample, 536 households were selected. Percentages of households from each local community to be represented in the sample were determined based on the total number of households in each of the local communities. Local communities which are covered by the survey are: Donje Prekounje, Gornje Prekounje, Ozimice I, Ozimice II, Jezero Privilica, Luke, Vedro polje, Veliki Lug, Brekovica, Pritoka, Pokoj, Mali Lug, Hatinac, Bakšaiš, Ribić, Žegar, Ripač, Ružica, Centar, Sokolac, Kulen Vakuf, Orašac, Harmani and Kamenica.

The survey was aimed at the assessment of the afford-ability and willingness of the households to pay for the wastewater services. The consumers’ opinions on the service tariffs were surveyed, as well as the financial situation of the households – the households’ income. Also, the survey assessed the willingness of the households to pay additional costs for improved services and for receiving new services, such as the wastewater treatment.

The data collected by the survey were statistically ana-lyzed, and the results are presented in the following sec-tions.

4. results and dIscussIonAffordability to pay for wastewater servicesOut of 536 respondents, about 90.5% gave an answer

to the question about the amount of a monthly water bill, whereas the remaining 9.5% didn’t know the answer or didn’t want to answer. Based on the obtained answers, it was calculated that an average monthly water bill of a household was 13.71 KM. This amount includes a 17% VAT, as well as special water fees for water abstraction (0.05 KM/m3) and water protection (0.04 KM/m3), which were charged in ac-cordance with the existing water legislation. The amount of the water bill assessed by the survey is slightly higher than the corresponding average bill calculated from the financial records of the PC “Vodovod” – 11.85 KM (Eptisa/HEIS, 2008).

About 62.7% of people interviewed (from total of 536

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Willingness to Pay for Wastewater Collection and Treatment Services in B&h

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people) think that the current prices of water and wastewa-ter services are not too high and that it is not a problem to pay (figure 1), whereas 24.2% think that the current prices represent a small problem to them. About 7.7% responded that current prices are a serious problem, 0.9% declared they are not paying the bill due to high prices, while 4.5% of people did not respond to the poll.

From 5 interviewed people who said that they are not paying, 2 said they cannot afford it, 2 said they don’t have cash when the collector arrives to their homes, and 1 per-son thinks that a lot of people do not pay their bills, so why should he/she.

Table 1 shows the financial situation of the households. About 42.7% of the people has evaluated their financial situation as average, 39.9% as good, 11.8% as bad, 3.4% as very bad, 0.7% as well-off, 1.5% didn’t give an answer.

According to the obtained results, in 536 households there are 837 employed persons, which is in average 1.56 employed persons per single household.

The highest percentage of people didn’t answer the ques-tion about their household income (38.6%). Income 400-600 KM is earned in 13.6% of households, whereas income 200-400 KM is earned in 9.7% of households. About 9.9% has income 600-800 KM, 10.8% 800-1,000 KM, 12.7% over 1,000 KM, and 4.7% under 200 KM.

Based on the World Bank (WB) standards, as well as standards of other international development banks and International Financial Institutions (IFIs), water and waste-

water bill must not exceed 3-5% of the average monthly household income (OECD, 2009). On the basis of the house-hold survey, average household income of the respondents is in amount of 730 KM.

Considering that we have calculated from the house-hold survey results that an average monthly water and wastewater bill is 13.71 KM, this means that the current bill amounts 1.88% of the average household income. This analysis shows it is possible to further increase water and wastewater bills, without jeopardizing the population’s af-fordability to pay. If 4% of the average monthly income is selected as the threshold value, it is possible to increase the surveyed water and wastewater bills by 15.5 KM monthly.

Willingness to pay for wastewater servicesThe above assessment of the population’s affordability

to pay was checked against the investigation of the willing-ness to pay for present and new wastewater collection and treatment services.

From the total of obtained answers, 74.8% of respon-dents think that prices of sewer/wastewater service are in accordance with the quality of service.

About 38.8% of the people think that JP „Vodovod“ should keep the current prices and the quality of wastewa-ter services, while 32.8% think that the quality of services

Question Answer No. of answers %

Classification of the financial situation of

the household

Very bad 18 3.36%

Bad/Weak 63 11.75%

Average 229 42.72%

Good 214 39.93%

Well-off 4 0.75%

Not responded 8 1.49%

Total 536 100.00%

No. of persons in the household with

source of income

Male 504 60.22%

Female 333 39.78%

Total 837 100.00%

Average per household

1.56

Average household income per month

< KM 50 0 0.00%

KM 50-100 5 0.93%

KM 100-200 20 3.73%

KM 200-400 52 9.70%

KM 400-600 73 13.62%

KM 600-800 53 9.89%

KM 800-900 31 5.78%

KM 900-1,000 27 5.04%

KM 1,000-1,200 24 4.48%

KM 1,200-1,500 27 5.04%

KM 1,500-2,000 10 1.87%

> KM 2000 7 1.31%

Not responded 207 38.62%

Total 536 100.00%

Table 1. Financial situations of the households

7

Figure 1: Users’ opinion on the level of prices and quality of services

From 5 interviewed people who said that they are not paying, 2 said they cannot afford

it, 2 said they don’t have cash when the collector arrives to their homes, and 1 person

thinks that a lot of people do not pay their bills, so why should he/she.

Table 1 shows the financial situation of the households. About 42.7% of the people has

evaluated their financial situation as average, 39.9% as good, 11.8% as bad, 3.4% as very

bad, 0.7% as well-off, 1.5% didn’t give an answer.

Table 1. Financial situations of the households

Question Answer No. of answers %

Classification of the finan-cial situation of the house-hold

Very bad 18 3.36%

Bad/Weak 63 11.75%

Average 229 42.72%

Good 214 39.93%

Well-off 4 0.75%

Not responded 8 1.49%

Total 536 100.00%

No. of per-sons in the household with source

Male 504 60.22%

Female 333 39.78%

Total 837 100.00%

Figure 1: Users’ opinion on the level of prices and quality of services

9

Considering that we have calculated from the household survey results that an average

monthly water and wastewater bill is 13.71 KM, this means that the current bill amounts

1.88% of the average household income. This analysis shows it is possible to further in-

crease water and wastewater bills, without jeopardizing the population’s affordability to

pay. If 4% of the average monthly income is selected as the threshold value, it is possible

to increase the surveyed water and wastewater bills by 15.5 KM monthly.

3.2 Willingness to pay for wastewater services

The above assessment of the population’s affordability to pay was checked against the

investigation of the willingness to pay for present and new wastewater collection and

treatment services.

From the total of obtained answers, 74.8% of respondents think that prices of sew-

er/wastewater service are in accordance with the quality of service.

About 38.8% of the people think that JP „Vodovod“ should keep the current prices and

the quality of wastewater services, while 32.8% think that the quality of services should be

improved even if it means increase of prices (Figure 2). Only 3.9% think that the prices

should be reduced as well as the quality of services, and even 24.5% could not give a spe-

cific answer.

Figure 2. Answers regarding the level of prices and services Figure 2. Answers regarding the level of prices and services

41Professional paper

Willingness to Pay for Wastewater Collection and Treatment Services in B&h

should be improved even if it means increase of prices (Fig-ure 2). Only 3.9% think that the prices should be reduced as well as the quality of services, and even 24.5% could not give a specific answer.

However, if sewer/wastewater services would actually improve, 68.6% of respondents are ready to pay more for those services than presently (Figure 3). About 30.6% are ready to pay additional 1-2 KM/month per household, whereas only 3.4% are ready to pay additionally more than 6 KM monthly (Figure 3). This indicates that there is a willingness to pay if the quality of wastewater collection services improves, however it is generally limited to 5 KM per household monthly.

If wastewaters would be treated before discharging into rivers, 21.5% of respondents didn’t not give any answer, whereas 75.5% are ready to pay additional price in amount of 1 to 5 KM per month for the treatment (Figure 4). Only 0.9% are ready to pay more than 10 KM monthly for the treatment services. This survey also indicates that the households are generally ready to pay up to 5 KM monthly for these services.

In order to find out how much are people familiar with the quality of services related to wastewater, they were asked how much they know about changes in quality of services in the last few years. About 55.9% didn’t know anything about any changes, 34.8% thinks that there haven’t been any changes in the last few years, 3.3% thinks that the quality of services improved, and 6.0% that the quality declined.

Regarding connection to the sewage system in those households which have septic tanks, 57.4% said they wanted the connection to the sewage system with paying the monthly costs of services if the connection is free of

charge. Only 22.8% of respondents are ready to pay both the connection fee and the monthly costs of services.

Of those respondents not having sewage connection, 62.6% said that they are ready to pay 1-5 KM/month in case they are connected (Figure 5). About 14.9% are ready to pay over 5 KM per month, and only 3.1% are not ready to pay for this service.

This study has shown there is a willingness to pay for additional wastewater collection and treatment services. This opinion expressed both the existing consumers and the households that are not connected to the sewage sys-tem. In monetary terns, the current consumers are ready to pay additional 1-10 KM monthly per household for new services, which is below the average affordability (additional 15.5 KM per month). Regardless of this inconsistency, it can be concluded that the consumers can afford and are will-ing to pay for additional sewage services. The households that are not connected to the sewage system have shown less willingness to pay the sewage services. This opinion may be of concern, because it can affect the bill collection rates once the households are connected and charged for the services provided.

5. conclusIonsContrary to general opinion, which is typically not sup-

ported by research data, that Bosnia and Herzegovina has not reached such level of development to be capable for more extensive development of wastewater services, this research has shown that the local residents in the study area are aware of the necessity to improve this type of public service.

This study shows there is a willingness to pay for ad-ditional wastewater collection and treatment services, if such raise in prices is accompanied by an improved qual-ity of services. It is possible to further increase water and wastewater bills, without jeopardizing the population’s affordability to pay.

The paper presents the research results that are the basis for the analysis of economic and financial feasibility of a project aimed at the extension of the wastewater networks and construction of a new WWTP in Bihać. The paper also emphasizes the need for scientific and research approach with regard to determining affordability and willingness of the public service consumers to pay tariffs, because of virtually nonexisting knowledge and experience on these issues in Bosnia and Herzegovina.

10

However, if sewer/wastewater services would actually improve, 68.6% of respondents

are ready to pay more for those services than presently (Figure 3). About 30.6% are ready

to pay additional 1-2 KM/month per household, whereas only 3.4% are ready to pay addi-

tionally more than 6 KM monthly (Figure 3). This indicates that there is a willingness to

pay if the quality of wastewater collection services improves, however it is generally lim-

ited to 5 KM per household monthly.

Figure 3. Willingness to pay for sewage services (in KM/monthly per household)

If wastewaters would be treated before discharging into rivers, 21.5% of respondents

didn’t not give any answer, whereas 75.5% are ready to pay additional price in amount of 1

to 5 KM per month for the treatment (Figure 4). Only 0.9% are ready to pay more than 10

KM monthly for the treatment services. This survey also indicates that the households are

generally ready to pay up to 5 KM monthly for these services.

Figure 4. Willingness to pay for wastewater treatment

Figure 3. Willingness to pay for sewage services (in KM/monthly per household)

10

However, if sewer/wastewater services would actually improve, 68.6% of respondents

are ready to pay more for those services than presently (Figure 3). About 30.6% are ready

to pay additional 1-2 KM/month per household, whereas only 3.4% are ready to pay addi-

tionally more than 6 KM monthly (Figure 3). This indicates that there is a willingness to

pay if the quality of wastewater collection services improves, however it is generally lim-

ited to 5 KM per household monthly.

Figure 3. Willingness to pay for sewage services (in KM/monthly per household)

If wastewaters would be treated before discharging into rivers, 21.5% of respondents

didn’t not give any answer, whereas 75.5% are ready to pay additional price in amount of 1

to 5 KM per month for the treatment (Figure 4). Only 0.9% are ready to pay more than 10

KM monthly for the treatment services. This survey also indicates that the households are

generally ready to pay up to 5 KM monthly for these services.

Figure 4. Willingness to pay for wastewater treatment Figure 4. Willingness to pay for wastewater treatment

11

In order to find out how much are people familiar with the quality of services related to

wastewater, they were asked how much they know about changes in quality of services in

the last few years. About 55.9% didn’t know anything about any changes, 34.8% thinks

that there haven’t been any changes in the last few years, 3.3% thinks that the quality of

services improved, and 6.0% that the quality declined.

Regarding connection to the sewage system in those households which have septic

tanks, 57.4% said they wanted the connection to the sewage system with paying the month-

ly costs of services if the connection is free of charge. Only 22.8% of respondents are

ready to pay both the connection fee and the monthly costs of services.

Of those respondents not having sewage connection, 62.6% said that they are ready to

pay 1-5 KM/month in case they are connected (Figure 5). About 14.9% are ready to pay

over 5 KM per month, and only 3.1% are not ready to pay for this service.

Figure 5. Willingness to pay for sewage services (those who are not connected on sew-

age system)

This study has shown there is a willingness to pay for additional wastewater collection

and treatment services. This opinion expressed both the existing consumers and the house-

holds that are not connected to the sewage system. In monetary terns, the current consum-

ers are ready to pay additional 1-10 KM monthly per household for new services, which is

below the average affordability (additional 15.5 KM per month). Regardless of this incon-

Figure 5. Willingness to pay for sewage services (those who are not connected on sewage system)

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Willingness to Pay for Wastewater Collection and Treatment Services in B&h

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references1. UNEP/WHO/HABITAT/WSSCC. Guidelines on Municipal

Wastewater Management. UNEP/GPA Coordination Office, The Hague, The Netherlands. 2004.

2. WHO. World Health Report. World Health Organization, Geneva. 2003.

3. Hall D, Lobina E. Public Investments in Sewers Save Lives. Unison–the public service union. 2008.

4. FB&H/RS. National Environmental Action Plan BiH. Fed-eration of Bosnia and Herzegovina, Republic of Srpska, Sarajevo, Banja Luka. 2003.

5. ZZVS/ZZVM. Strategija upravljanja vodama Federacije BiH, Nacrt. Zavod za vodoprivredu Sarajevo, Zavod za vodoprivredu Mostar. 2009.

6. OECD. Key Issues and Recommendations for Consumer Protection: Affordability, Social Protection, and Public Par-ticipation in Urban Water Sector Reform in Eastern Europe, Caucasus and Central Asia. Organisation For Economic Co-Operation And Development. 2003.

7. Eptisa/HEIS. Provision of Feasibility Study for Wastewa-ter Treatment Plant in Bihać, Wastewater Master Plan & Feasibility Study. Eptisa Servicios de Ingenieria S.A. Spain, Hydro-Engineering Institute Sarajevo. 2008.

8. OECD. Managing Water for All: An OECD Perspective on Pricing and Financing. OECD Publishing. 2009.

Corresponding author: Admir Ćerić, PhD. Hydro-Engineering Institute Sarajevo, Stjepana Tomića 1, Sarajevo, Bosnia and Herzegovina; tel. +387 33 212 467, fax. +387 33 207 949, e-

mail: admir.ceric@heis.com.ba