Can private sector solve water woes?

By Kevin Tutani | 3h ago

SINCE the early 2000s, Zimbabwe has struggled with potable water supply, implying that new models of water provision are needed.

In Harare, 59% of treated water does not generate revenue for the municipality. It is lost through leakages, illegal connections, and non-payment by some users. This renders the municipal water service unviable. As a result, several neighbourhoods have not had access to municipal water for years.

Wastewater, including sewage, has been notorious for being either under-treated or completely untreated, such that when it is eventually discharged into the city’s river systems, it is toxic to human health and other ecosystems.

Inadequate and ageing infrastructure contributes to these challenges, as it is associated with breakdowns at water and wastewater treatment plants and leakages within the reticulation systems meant to supply municipal customers. Growing urbanisation and governance failures in municipalities will likely keep the country’s water systems in the same spectrum of poor and hazardous supply if nothing is done to address the decline.

Access to water supply, or the lack thereof, can impact the development of a society and economy. Scarce water resources result in people spending their time in search of water instead of being economically productive. It also leads to the proliferation of diseases resulting from poor hygiene standards.

These, too, cause financial wastage through higher medical expenses and, in the worst case, lead to shorter life expectancy. Several economic sectors, including SMEs, depend on water for their commercial operations. Without it, they spend more as they look for it elsewhere, or they fail to proceed with their activities altogether. Overall, some estimates suggest that US$260 billion is lost around the world each year due to a lack of basic water and sanitation. Therefore, water supply is a critical matter which covers human rights, along with social and economic development.

Considering the poor performance of several municipal water systems in the country, the issue of engaging the private sector to work alongside municipalities has been emerging and gaining momentum. Decisions on whether to keep municipal water in public custody, to completely privatise it, or to only outsource a portion of the value chain to private players will have a significant impact on the future of potable water resources in the country. What is evident, though, is that reform is now overdue.

Ring-fencing the water service function

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As a starting point, the ring-fencing of municipal water services is typically considered a foundational step towards improvement, whether or not it eventually leads to privatisation.

That means when ring-fencing is implemented, it usually improves services, whether they stay under municipal control or are transferred to the private sector. Ring-fencing entails the establishment of two departments responsible for water within a municipality.

One municipal department will be assigned responsibility for regulatory activities and policy formulation regarding the municipality’s goals in the area of water services. Regulation entails the regular monitoring of the operations side of water services to ensure that it is achieving consistent availability of supply for the residents; providing quality potable water which is not a threat to health; and adhering to governance best practices such as addressing all forms of corruption.

Policy formulation to be carried out by this regulatory branch would entail goals such as connecting all households within a municipality to tap water; providing free monthly water allocations to the poor; and achieving revenue and debt collection rates above 90%.

This regulatory and policy formulation department is usually called the Water Service Authority (WSA) branch of the municipality. Currently, most municipalities in Zimbabwe do not have a dedicated in-house department responsible for regulation and policy formulation.

That means local municipalities do not have enough internal checks and balances to ensure that they do not allow standards to drop to the lowest levels.

If municipalities fail dismally in terms of operations, citizens will therefore have to depend on non-municipal or external institutions such as the Zimbabwe National Water Authority, the ministry of Health, or the anti-corruption commission, depending on the nature of the breakdown.

The second department within the municipality, to be established through ring-fencing, wouldbe responsible for the actual operations, which include maintaining the various water infrastructure; procuring supplies; treating and purifying raw water; and distributing purified water to clients, among others.

This second department is typically referred to as a Water Service Provider (WSP). If the WSP begins to slack in its performance, the WSA will quickly reprimand it so that it keeps its standards up. If the WSA fails to hold the WSP to account, external institutions, including the residents, will hold the WSA to account themselves.

If ring-fencing is implemented, the only portion of the water service that can be privatised would be the WSP. That means the WSA stays in the hands of the local municipality, whether underprivatisation or under total municipal control.

With ring-fenced water supplies, the municipality will establish its water tariffs based on the revenue required to cover costs. Additionally, revenues collected from water operations will be strictly used for water resources within the municipality, instead of other non-water municipal responsibilities.

This is unlike what Zimbabwean municipalities currently practice. Local municipalities do not necessarily tie the tariff for water to the cost of providing the service.

Rather, they charge a tariff-based on what they estimate water can contribute towards achieving their overall municipal budget for all services combined. Revenues from water are also not strictly used for reinvesting in water infrastructure, as far as local municipalities are concerned. Rather, water revenues can sometimes end up cross-subsidising other municipal services which happen to be in financial deficit, such as municipal clinics and schools, for example. That means if excess revenue is made from water services, it can end up subsidising other faltering municipal activities which are not connected to water services in any way.

However, if there was ring-fencing of revenues from municipal water services, they would be strictly reinvested into the municipal water value chain, ensuring that it would continue to perform to excellent standards.

Ring-fencing is therefore designed to create accountability, financial viability, and efficiency in water services within a municipality.

International experience

The international experience of privatisation of municipal water is mixed. It is characterised by neither success or failure, implying that it cannot be easily and clearly predicted whether privatisation will be gainful or detrimental. In Bolivia, the introduction of the private sector increased investment in water infrastructure such as household connections, making the reliability of supply available to both high- and low-income households.

However, this was accompanied by sharp increases in water tariffs, since private players work with a profit motive, which in some cases boils down to the pursuit of “super profits”. Due to the high water tariffs, the Bolivian public were eventually outraged and protested against the privatisation. Ultimately, water resources in the country were renationalised.

In the capital city of Argentina, the same path as Bolivia was taken with similar technical improvements. However, challenges remained for poorer households until there was a renationalisation in 2006.

In Guyana and also in Trinidad and Tobago, privatisation was successful and led to a robust improvement in revenue collection rates. Unlike municipalities, which are tied to politics through their elected councillors, the private sector does not seek to pacify residents. Instead, if residents owe money, their connection can be cut off immediately, leaving them to rely on free water from communal access points such as boreholes or other public tap water installations.

The private sector can achieve debt collection rates of more than 95% in water services due to their strictly professional approach regarding outstanding payments. Obviously, this can quickly disadvantage the poor and might cause widespread discontent if applied in an economy that has failed to create ample economic opportunities for its populace.

In Ivory Coast, household water connections doubled within a decade of private sector involvement. In Guinea, availability and quality improved. There was also a modest growth in new connections to households that were previously excluded. Nevertheless, high connection costs, which include tariffs and other fixed monthly charges, limited access for low-income households.

In Mali, there were negative outcomes, which led to the cancellation of the concession to the private sector. That means water services were brought back under public management.

In South Africa, one private player, commissioned since 1999 and called “Siza Water”, charges lower tariffs than municipal averages, provides high-quality potable water, is highly reliable in terms of supply, shares profits above 15% with the municipality, requests approval for proposed tariff increases from the municipality, has reduced water losses to only 8% to 15%, has a revenue and debt collection rate of 97%, and has trained municipal staff to take over operations when needed, among other excellent achievements.

The same private entity, however, is accused of neglecting the expansion of infrastructure to poor areas.

That is because the poor are less profitable to the private sector, since they are charged lower tariffs and sometimes fail to pay for services, among other things. So, some of the poor who are resident within the concession area still use communal water points and pit latrines instead of flush toilets.

The local municipality does pay the private player for up to 10 000 litres of water for each household registered as indigent/poor.

However, not all poor households are registered, and the poor remain less profitable than the rich, as far as the private player is concerned. Expanding infrastructure and providing services to them can sometimes be done at a loss, as the private player has to recover both infrastructural and operational costs from tariffs and bills issued to residents.

These mixed results have been consistent around the world, implying that privatisation is not necessarily the solution, nor is public control. However, it appears that the model of private-sector participation chosen can have a bearing on its success or failure. A poorly- structured model is likely to fail, but one which considers and accounts for the strengths and weaknesses of the public and private sectors has a greater probability of success.

Conclusion

Local municipalities need to reform their water services. As a foundational move, the ring-fencing of water services would be ideal. Authorities could also attempt privatisation if theyhave the capacity to supervise private contractors. This implies monitoring financial andoperational activities.

Without sufficient capacity to establish sensible contracts and enforce discipline, however, the private player can produce disastrous consequences. Even if privatised, municipalities should ensure that their staff are trained by the private contractor so that they can take over operations in case of a fallout with the private player. If a private concession of all water services is not feasible, the municipalities may have to consider a piecemeal approach.

This entails privatising water treatment only, or privatising the reduction of water losses only, for example. Private players are usually highly- competent firms which have roots in “Western” or other significant economies, so they have what it takes to bring efficiency to water services, if selected appropriately.

However, if municipal capacity to negotiate suitable contracts or monitor them does not exist, privatisation can degenerate into regrettable tariffs and the capture of citizens by greedy private players.

Tutani is a political economy analyst. — [email protected].