98. Increasing costs have driven increases in tariffs throughout the region, to the point where services might become unaffordable for lower-income customers in some countries; yet the region is still far from putting the Water Framework Directive’s (WFD’s) principle of cost recovery into reality. Countries in the region have adopted varied approaches to the financing of water and wastewater services; the cost structure and pricing approach also varies widely from country to country. However, common to most countries are above-inflation increases in both costs and tariffs, as well as significant levels of subsidies for investments and to a lesser extent operational costs.

The OECD Three Ts Framework
In 2009, in a contribution to the 5th World Water Forum, the OECD proposed an overall framework on how water services are financed ( OECD 2009). This framework, which is used in this report, as well, establishes that “Effective financial planning for the water sector requires finding the right mix of revenues from the so-called ‘3Ts’: tariffs, taxes and transfers (including official development assistance grants). These are the ultimate sources of revenue for the sector. […] Other sources of finance - such as loans (including ODA loans by bilateral donors and international financial institutions), bonds and private investors […] need to be repaid by some combination of the 3Ts.”

99. This chapter describes the main trends with regard to source of financing and expenditures, cost recovery, and affordability of water and wastewater services across the region. On the sources of financing, it adopts the OECD Three Ts framework (see box). Consistent information about those factors is, however, scarce, and comparisons are challenging; therefore, the figures presented in this chapter should be viewed as indicative of the overall trends rather than exact information about the financing of the sector in each country. In addition, the figures track only the public side of service provision. Private investments by households or communities, and the tariffs paid to local informal providers, are neither tracked nor incorporated into the overall sector financing overview.

100. Most of the information collected stems from a country-by-country effort conducted under this review to collect publicly available data about sector financing (mentioned as SoS data collection), which was then consolidated into a simplified sector financing model for each country. In addition, the affordability section draws from the household surveys used in Chapter IV to measure access. The methodology and assumptions necessary for this chapter are briefly described in Methodological Notes C (overall sector financing) and D (affordability calculations), at the end of the document.