JUNE2011 VOLUME6 ISSUE2 utility management€¦ · Design&print Layout: IPL Print & Design Ltd Printed by Hobbs the Printers, UK Advertising Christian Letessier-Fenodot T: +44 (0)20

waterutility managementI N T E R N A T I O N A L

Benchmarkingsewerage servicesin Abu Dhabi

Initiatives to improveMexican utility performance

Bulgaria’s progresswith reforms to

release EU funding

IDB’s water sector plansfor Latin America

and

Contract lessons from theGreater Paris area

PLUS ...

JUNE 2011VOLUME 6 � ISSUE 2

SECTOR REFORMS

PERFORMANCE

COMMUNICATIONS

Australia’s independent ProductivityCommission has produced a draft report

on the country’s urban water sector thatcondemns the rush for desalination, andthe cost of severe water restrictions.The report also confirms that there is a

‘compelling case for reform’, noting thatthere are ‘conflicting objectives and respon-sibilities of institutions contributing toinefficient allocation of water resources,inefficient investment, undue relianceon water restrictions and costly waterconservation programmes’.Dr Wendy Craik, Commissioner of the

Productivity Commission, commented:‘The draft PC report on urban water reformprovides suggestions for achieving signifi-cant efficiencies in Australia’s urban watersector, in particular in the area of augmen-

tation of urban water supplies, where largesavings seem possible. Public submissionsand hearings on the draft report will betaken into account in finalising the reportwhich will be presented to the Australiangovernment by the end of August andmade public by the government within atleast 25 Parliamentary sitting days.’According to the report, initial gains

are likely to come from improving theperformance of institutions in terms ofgovernance, regulation and procurementof supply and pricing rather than tryingto create a competitive market like theelectricity sector.Reforms are divided into two types –

universal (priority) reforms that needto be adopted across all jurisdictionsand regions, and structural reforms that

will be assessed and implemented on acase-by-case basis.The priority reforms involve:

• Clarifying that the sector’s overarchingpolicy objective is the provision ofwater, wastewater and stormwaterservices that maximize net benefits tothe community

• Ensuring that procurement, pricing andregulatory frameworks are aligned withthis overarching objective and assignedto the appropriate organization

• Putting in place best practicearrangements for policy making andregulatory agencies, and water utilities

• Performance monitoring of utilities andmonitoring of progress on reform

� LS See Analysis, p8

2 • WATER UTILITY MANAGEMENT INTERNATIONAL • JUNE 2011

NEWS

‘Compelling case for reform’ for Australia’s water sector

The Inter-American Development Bankhas launched a number of initiatives

with implications for the water sector inLatin America and the Caribbean, and isprogressing with the development of plansthat will shape its involvement with thesector in the region over the coming years.At its annual meeting in March the bank

announced a new Sustainable EmergingCities platform, through which it intends topartner with fast-growing cities with popula-tions of between 100,000 and two millionpeople. In facing climate change and fiscalissues in particular, the aim is to helpprepare comprehensive plans coveringareas including housing, transportation,water and energy use, and public services.The bank also announced that it is

joining with China’s Eximbank (the Export-Import Bank of China) to establish aninfrastructure facility and a public privateinvestment fund for region. Eximbank’srecent international water sector activityhas included providing RMB 900 millionworth of loans for sewer and sewage treat-ment work in Malabo, the capital ofEquatorial Guinea, for which ChinaGezhouba Group Corp. was the contractor.These developments come at a time

when the bank’s Board of Governors haveagreed to increase IDB’s capital from $100billion to $170 billion. Country commit-ments to fund this global capital increasewill be met over the coming years as eachcompletes its processes required to releasefunds. According to the bank, the increasewill allow it to lend on average a total ofaround $12 billion a year, said to be double

the level prior to the global financial crisis.The bank’s efforts in the water sector

over recent years have been focusedthrough a Water Initiative running from2007 to 2011. This saw bank expenditureon water rise from some $200-300 million ayear to around $1 billion. The bank hopesto maintain this level of commitment to thesector, and is currently drafting plans for itswater sector activities (see Analysis).According to IDB, the capital increase

will also allow it to expand its lending to theprivate sector in the region, and itannounced that officials from CalgaryBank released plans at the annualmeeting to double such financing to$3 billion annually by 2015.IDB has just completed public consulta-

tion on a new Private Sector DevelopmentStrategy. The strategy draws attention to thefact that inadequate infrastructure isinhibiting the region’s ability to grow, partic-ularly in relation to power and transport, butalso water. It therefore proposes thatinfrastructure is a priority area for thestrategy, and that in operational terms thisshould include promoting investment ininfrastructure, including water and sanita-tion, improving the legal and institutionalframework for public-private partnerships,and improving regulatory frameworks forutilities. Its proposed output measures forthe strategy include a figure of 2,770,000households with a new or upgraded watersupply for 2012-2015, compared to abaseline of 1,500,000 achieved during2005-2008. � Keith HaywardSee Analysis, p7

French water giant Saur has signed up toa partnership with Marafiq, the first

private water and electricity utility in SaudiArabia, to operate water services for thenew industrial city of Jubail.A common operations and management

structure will be created for the city’s water,wastewater and industrial cooling needs.Jubail, population 150,000, is in the east ofthe Kingdom.The joint venture is 51% owned by

Marafiq and 49% owned by Saur. In2009, Marafiq distributed 84M.m3 ofwater to its residential and industrialcustomers in the city.The jv will be responsible for three

desalination plants producing37,800m3/day each of potable water, twolarge water tanks, two major pumpingstations and 29 secondary ones, as well asan 885km network.On the wastewater side, the jv will

look after one 72,000m3/day wastewatertreatment works and a 60,000m3/dayindustrial wastewater treatment works thatis currently being extended.It will also operate and maintain a 586km

domestic wastewater network, 58 pumpingstations and 222 lift stations, as well as a35km industrial wastewater network with35 pumping stations.The seawater cooling operation will

provide water from the Arabian gulfthrough a canal to around 20 petrochemi-cal customers. In all, some eight billioncubic metres of seawater per year will beprovided. The jv’s turnover is set to be $60million per year. � LS See Analysis, p10

IDB gears up for Latin America support French-Saudi partnership torun Saudi city’s water services

WATER UTILITY MANAGEMENT INTERNATIONAL • JUNE 2011 • 3

NEWS

Malaysia has made further progress implementing water sectorreforms initiated in 2006 thanks to advances made in the

states of Selangor and Penang, with the developments in Selangorapparently overcoming longstanding concerns over the bond financ-ing of concessions already operating in the state, thanks to a dealworth RM5.8 billion ($1.9 billion).Reform of the water sector in Malaysia has been underway

under the provisions of the Water Services Industry Act (WSIA) of2006. A central component of this was the creation of PAAB(Pengurusan Aset Air Berhad), a state-owned company set up withthe aim of it owning all water services infrastructure.To progress the transfer of assets in Selangor, at the end of May a

special purpose vehicle Acqua SPV Berhad acquired 99.6% ofSelangor water-related bonds, with a nominal value of RM5.8billion ($1.9 billion). The bondholders include water supply anddistribution company SYABAS (Syarikat Bekalan Air Selangor SndBhd) and the build-own-operate Sungai Selangor Water SupplyScheme concessionaire SPLASH (Syarikat Pengeluar Air SungarSelangor Snd Bhd), along with Puncak Niaga Snd Bhd), TitisanModal Sdn Bhd and Viable Chip Sdn Bhd. According to PAAB, itanticipated achieving a 100% target within a week of announcingthe acquisition.According to an Acqua / PAAB statement, protracted

negotiations between the federal and state governmentsabout restructuring of the sector had jeopardised the ability ofconcessionaires to service their bonds and had resulted in theirbonds being downrated. It stated: ‘If the situation remainsunresolved, the risk of imminent default is high.’The move was however criticised by the Association of Water and

Energy Research Malaysia, which has also recently issued a reporton the problems with the sector reforms called ‘National waterservices industry restructuring – the truth’. Commenting on thebond deal, AWER’s president, Subramaniam Piarapakaran,commented that while the move ‘was seen as a step to preventdeterioration of financial market confidence towards Malaysia,the solution is still not in line with WSIA’.Meanwhile, the state of Penang became the fifth state to sign a

restructuring deal with PAAB. Under this, some RM655 million($215 million) of water-related assets has been transferred toPAAB. In exchange for this, PAAB takes over the state’s liability tothe federal government for the same amount. PAAB will lease theassets to PBA, the Penang Water Supply Corporation, and it isreported that the effect of the arrangement is that the state’s loanwill be interest free, rather than attracting interest at the rate of 3%,as was previously the case.The country’s reforms aim to create an ‘asset light’ approach to

delivery of services. The intention is that PAAB will take on assetliabilities and secure investment on better terms than individualoperators can achieve. The ‘asset light’ operators will then be ableto focus on delivery of service.AWER’s recent report set out recommendations to address what

it described as the ‘chaos’ in the Selangor water restructuringprocess. In particular, it recommended that the state should not beable to transfer pipelines to PAAB, said to be valued at aroundRM8 billion ($2.6 billion), because of the ultimate burden thiswould place on tariffs.AWER also recommended that the states of Sabah and Sarawak

be brought under the WSIA, and that a task force be formed toprepare a detailed NRW reduction plan for the country. � KH

Malaysia makes progresson reform implementation

REGULARS7 ANALYSIS

Prospects for IDB’s water sector support in Latin America

The case for reform of Australia’s urban water sector

Saur’s expansion in Saudi Arabia

43 PRODUCTS & SERVICES

44 READING & RESOURCES

44 DIARY

FEATURES11 REGULATION

Implementing new regulatory mechanisms in CzechRepublic contracts to meet EU requirementBy Pavel Válek, Katerina Kohusová, Martin Salaj,Martin Kelbl, Timothy Young and Miroslav Vykydal

17 PERFORMANCEInformation database developmentkey to Mexico’s utility improvementBy Ramón Piña and Víctor Bourguett

21 UTILITY PERFORMANCEImproving Mexico’s utility serviceswith performance indicator-focused investmentByMaria Eugenia de la Peñaand Alberto Esteban

23 REGULATIONDelivering direction in Abu Dhabi: the role of theRegulation & Supervision BureauBy Keith Hayward

25 BENCHMARKINGProcess benchmarking a Balanced-Scorecard system:developing best practices for Abu Dhabi sewer expansionBy Zillay Ahmed, David Main, Kathy Davis Murphyand Linda Petelka

30 PUBLIC-PRIVATE PARTNERSHIPThe rise of hybrid delegated management contracts:emerging lessons from FranceBy Jan Janssens, Didier Carron andVivian Castro-Wooldridge

34 UTILITY MANAGEMENTTrends, challenges and opportunities for water utilitiesin AfricaBy Dennis Mwanza

37 GOVERNANCEBeyond the privatisation debate: understanding goodgovernance in water services provisionBy Keith Hayward

39 IT & COMMUNICATIONSFaster in the field - mobile technology managementsolution for Scottish WaterBy Lis Stedman

41 INTERVIEWA role in reforms: representing Bulgaria’s water industryin a time of changeBy Keith Hayward

CONTENTS


NEWS

EDITORIAL

Editor / Associate PublisherKeith Hayward ([email protected])

Publishing AssistantCatherine Fitzpatrick

Water Utility Management Internationalfocuses on the interests of utility executives,policy makers and advisors around the worldengaged with the key management issuesfaced by water and wastewater utilities. Aswell as senior utility managers, WUMI willbe of interest to regulators, consultants,contractors, academics, and financial,technical and legal professionals.Utility reform and achieving efficiency are

central themes of the publication, encompass-ing topics such as benchmarking, investment

planning, consolidation, public / private sectorroles, leadership, IT, and human resources.Other regular themes include financing,regulation, charging policies, procurement,corporate governance and customer issues.

Editorial Advisory Panel

Dr Richard Franceys, Centre for WaterScience, Cranfield University, UKDr Bernhard Hoersgen, Executive BoardMember, Gelsenwasser AG, GermanyDr David Johnstone, Oxford Centre for WaterResearch, University of Oxford, UKProf Hamanth Kasan, General Manager -Scientific Services, Rand Water, South AfricaMr Khoo Teng Chye, Chief Executive, PUB,SingaporeMr Alejo Molinari, Quality of ServicesManager, ETOSS / ERAS, ArgentinaDr Renato Parena, Chief Financial Officer,Societa Metropolitana Acque Torino SpA, ItalyMr Eric Rothstein, Principal, Galardi RothsteinGroup, USAMs Meike Van Ginneken, Senior Water andSanitation Specialist, World Bank, USA

PUBLISHING

PublisherMichael Dunn

Water Utility Management International ispublished four times a year by IWAPublishing. Statements made do notrepresent the views of the InternationalWater Association or its Governing Board.

IWA PublishingAlliance House,12, Caxton Street,London SW1H 0QS, UKT: +44 (0)20 7654 5500F: +44 (0)20 7654 5555E: [email protected]: www.iwapublishing.com

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The Dubai government is creating aregulatory body for the utilities sector to

enable private sector participation, accord-ing to Najeeb Zaafrani, the secretary generaland chief executive of the Dubai SupremeCouncil of Energy.He told local press: ‘It is going to be an

independent body and will control andlicense the establishments related to thepower and water sector. The authority willdevelop the economic, technical, environ-mental and safety standards that all estab-lishments that work in power generationand water desalination will have to

adhere to.’ The regulator will be anindependent entity under the country’sHigher Committee for Energy andEnvironment. Currently power andwater are provided by the monopolystate-owned Dubai Electricity andWater Authority (DEWA).Mr Zaafrani added: ‘The regulator is

expected to encourage private sectorparticipation in this field and will create acompetitive atmosphere among them aswell as protecting the rights of the investorsand enhancing their confidence.’The regulator will create a legislative and

monitoring agency that will foster aclimate to encourage public-private sectorpartnerships. It will also develop rules andregulations for a new investment modelbased on international best practice for thelicensing of new power generation anddesalination companies.There is a strong focus on energy

efficiency driving the move, with thecountry having a stated aim of achieving30% savings in power use by 2030. TheDubai Global Energy Forum 2011 in Aprilserved as a springboard for early discus-sions about public-private partnerships. �

Dubai to form regulator for private sector participation

An Arab region financing facility forinfrastructure (AFFI) has been launched

by a number of key international financeinstitutions and Middle Eastern govern-ments, with the aim of mobilising support forinfrastructure development to drive econom-ic growth and meet the needs of a young andgrowing population.The anchor investors involved are the

World Bank, the International FinanceCorporation and the Islamic DevelopmentBank (IDB). The investment vehicle willsupport both conventional and Shariah-compliant investments in infrastructureas well as grant financing for technicalassistance and policy coordination.The launch statement says the financing

facility ‘will specifically target projects with aregional dimension, linking countries witheach other and with the wider world to buildpathways of economic integration’.World Bank group vice president for the

MENA region, Shamshad Akhtar, speaking

at the start of a two-day meeting of the AFFIgroup, said: ‘The Arab spring has demon-strated that people want better publicservices and a cleaner urban environment,and that means more efficient, better-designed infrastructure services.’Data suggests the MENA region needs

to invest between $75 and $100 billion ayear to sustain recent growth rates andincrease economic competitiveness.Estimates claim half of the region’spopulation do not have adequate accessto water and per capita water availability isless than 20% of the global access levelsand is expected to fall further.The first day of the meeting focused on

discussions between governments and thefinanciers about the challenges of infra-structure financing and the role the AFFIcould play in addressing them.The second day was devoted to a public-

private partnership (PPP) conference thatallowed governments to promote key

infrastructure projects and policies, andshare their strategic vision of the role of theprivate sector in infrastructure PPPs.Dr Jafar Hassan, minister of planning

and international cooperation for Jordan,told the conference: ‘Infrastructure will be astrong driver for growth in the region andindispensable for the increasingly-criticalwater and energy deficit in many of itscountries. Restructuring the risk-sharingmechanisms for the provision of privatesector and development funding for suchcritical development and regional infra-structure programmes is a key priority inenabling governments and the privatesector to jointly advance such projects.’The conference also saw the launch of a

technical assistance facility for projectdevelopment. The meeting also agreed on aneed to create a regional policy forum tocoordinate infrastructure policies andpromote a regionally-coordinated approachto common problems. �

Financing facility launched for Arab region support

waterutilitymanagementI N T E R N A T I O N A L


NEWS

Plans for direct domestic water chargesto be introduced in the Republic of

Ireland have prompted a campaign that aimsto prevent this going ahead.The Republic of Ireland’s latest budget,

released at the end of last year, reintro-duced domestic water charging in line withthe country’s National Recovery Plan.Under the terms of its bail-out from theEuropean Union, Ireland had to pledge inDecember to fundamentally reform waterservices provision and introduce chargingby 2012 / 2013. Plans to progress this wentbefore government in the latter part of April.In response, a campaign has

been started on the internet (www.nowatercharges.ie) with Sinn Fein TD(equivalent to a Member of Parliament)Aengus Ó Snodaigh as spokesperson.According to a government spokesman,

the government would also ‘shortly beinitiating an independent assessment ofthe transfer of responsibility for waterservices provision from the 34 county andcity councils to a national water utility’.The country also plans to create a

regulator to oversee the new utility and

to introduce universal metering followedby water charges.Water in Ireland has been provided free

of charge since 1977, with only non-domestic users billed for water and waste-water services. The majority of the costs aremet from tax revenues transferred from thenational government to local authorities,which are responsible for service provision.The budget’s measures included signifi-

cant cuts in state welfare benefits, as wellas introducing prescription charges. Watercharges will be introduced, the budgetdocument says, and ‘like the charge onsecond homes, will finance the provision oflocal services by local authorities’.Mr Ó Snodaigh toldWater Utility

Management International: ‘Sinn Féin andthe No Water Charges Campaign areopposed to the introduction of domesticwater charges because it is our firm beliefthat the only fair way to fund this vitalresource is through central taxation.‘Water charges, whether via a flat charge

or a metered flat rate charge, have noregard to a person’s ability to pay, whereascentral taxation can. The charges being

proposed by the government here are littlemore than a new and regressive revenue-raising mechanism; the charges havenothing to do with water conservation.‘The available evidence demonstrates

that the majority of wasted treated water isactually lost by the state’s antiquateddistribution network before it even reachesthe household level. It is our position thatrather than spending €1 billion ($1.5billion) on household meters; thegovernment should spend this moneyupgrading the network. This sort ofstrategic investment would more thanpay for itself in a relatively short time.‘It is also the case that low and middle-

income families simply cannot affordanother utility bill. Thousands of familiesare in mortgage arrears and in arrears ontheir energy bills. Repossessions anddisconnections are increasing all the time.A household water bill will push manythousands more into poverty and by reduc-ing the money in ordinary people’s pocketsit will further dampen consumer demand,compounding the recession in localeconomies.’ � Lis Stedman

Republic of Ireland plans for water charges prompt campaign

PPP report finds local playerstaking a leadBuilding Partnerships forDevelopment in Water andSanitation has published a paperpresenting an overview of emergingshifts in approaches to water andsanitation sector public-privatepartnerships (PPPs). According tothe report, emphasis has shiftedrecently from longer-term conces-sion and lease contracts to shorter,more targeted performance-basedand service contracts.

ISO publishes energymanagement standardThe ISO International Standard ISO50001 on energy managementsystems has been published. Thestandard will provide public andprivate sector organizations withmanagement strategies to increaseenergy efficiency, reduce costs andimprove energy performance.

Armenian investmentrequirementPatrick Lorin, the director generalof the Armenian Water andSewerage Company (AWSC), hastold local press that a $1 billion

investment is required to improvethe country’s potable water supplysystem. The government hasinvested $100 million in thecompany, which is state owned, headded, and expects to take out aloan for a similar amount for thenext five years. This will enablefulfilment of a goal to have a 17hour per day water supply in thecountry by 2017. He added thatmany projects are under way toimprove water treatment, and thata contract with France’s Saur –whichmanages the AWSC – is innegotiations to be extended to 2013.

World Economic Forum notesinfrastructure needsParticipants in the World EconomicForum on East Asia in Jakartarecently heard that the cost ofbuilding power plants, transporta-tion hubs, telecom facilities, watersystems and other infrastructureacross Asia will exceed $8 trillionover the next ten years. The regionhas enough money in various typesof funds to fund the infrastructureupgrades, but bottlenecks threatento hold back the projects, theForum was told. These obstacles

include regulatory complexity, landuse and the failure to funnel thosefunds into long-duration financialinstruments. Some countries havenot done as well because they donot know how to tender big pro-jects, according to one speaker,John Rice, the vice-chairman ofGE, Hong Kong SAR. ‘There’s a lotof money around the world interest-ed in investing in infrastructure,’ hesaid. ‘Governments have theresponsibility to create a levelplaying field and establish rulesthat are consistent and allow you tolook forward a couple of decades.’

EC refers Spanish directivebreaches to Court of JusticeThe European Commission (EC) isreferring Spain to the EU Court ofJustice for breaching two pieces ofEU environmental legislation. In thefirst case, Spain is charged withfailing to ensure that wastewaterfrom agglomerations with morethan 10,000 inhabitants thatdischarge into sensitive areas isproperly treated under the UrbanWastewater Treatment Directive. Inthe second case, Spain has failedto submit its plans for managing

river basins to the Commission,which were due to be adopted by22 December 2009 at the latest.Spain still has at least 39 towns of10,000 inhabitants failing theUWWTD, and the EC notes that 13years after the deadline its ‘overallcompliance is still poor’. In addi-tion, the country has only adoptedone out of 25 management plansfor its river districts as required bythe Water Framework Directive, ayear and a half after the deadline.

African Development Bankgrant for ZimbabweThe African Development Bankand the Zimbabwean governmenthave signed a $30 million grantagreement to support the country’surgent water supply and sanitationrehabilitation project (UWSSRP).The project is financed from theZimbabwe multi-donor trust fund(known as the Zim-Fund). Onceimplemented, the project willimprove the state of water andsanitation infrastructure in Harare,Masvingo, Mutare, Chegutu,Kwekwe and Chitungwiza, andbenefit over 4.2 million people inthese cities.


With the Greek government’s latest roundof reforms due to be voted on as WUMI

went to press, evidence is emerging of theextent to which the country’s budget crisis ishitting smaller water operators that togetherserve more than five million people – almosthalf the country’s population.Attention is focused in particular on

EYDAP and EYATH, the water companiesof Athens and Thessaloniki, and the futureof these under the Greek government’sprogramme of privatisations. In the mean-time, other water operators across thecountry have seen government supportcut just as customer bill payment timeshave increased markedly, according to asector expert.Water and wastewater services to much

of the Greek population are provided bymunicipality-owned companies – DEYA.According to Dr Nikolaos Safarikas, aneconomist and General Director of DEYASerras, plans announced last year toreform DEYA (seeWUMI, June 2010, p6-7)have been carried through. Implementationof the Kallikrates plan for local governmenthas led to a reduction of the numberof DEYA from 227, serving around 4.3million people, to 142, serving around5.2 million people.Government grants to water supply

enterprises were cut by 37% in 2010, saysSafarikas, and he believes that under thecurrent economic situation there will not befurther grants. ‘As far as the grants given bythe state are concerned, we estimate thatthey are not going to be given again andDEYA will have to assure the necessaryfunds through the shrinking of [operating]expenses and also through the restructur-ing of the way the enterprises function,’he comments.Safarikas is just completing an assess-

ment of customer bill payment times for aselection of DEYA. According to Safarikas,this work reveals an increase in the averagecollection time from around 189 days in2008, to around 240 days in 2009, toaround 258 days in 2010. ‘The problemsare the same for the two large companieswhich are quoted on the stock market,’he comments.Safarikas continues: ‘As a result of the

above, there is now a lack of cash fluidityfor the water supply companies, whichbecomes obvious in most DEYA andparticularly in small enterprises, which nowface cash fluidity issues.’

Given these concerns, Safarikas saysthat the advice to DEYA is that they needto reduce their costs and address theirpricing. ‘DEYA should keep on reducingthe functional (operating) cost and tryto rationalise their pricing policy,’ hecomments.According to Safarikas, wage costs

represented around 54% of total operatingcosts in 2009, with data from around 70DEYA indicating this was around 49% in2010. ‘Despite the reduction of salariesduring 2010, which came to approximately15%, costs continue to remain high due tothe great number of personnel that stillworks today for DEYA,’ he says. He explainsthat the 2010 data show a ratio of oneworker per 660 residents.According to Safarikas, the reorganisa-

tion of the DEYA has been hindered in partby the fact that in some cases DEYA havehad to take on an expanded area and thatthis process was not fully supported bythe legislation that has been put in place.‘Many DEYA haven’t yet completed theprocedure of the expansion of theiradministrative boundaries because notime limits were put for that matter,’ hesays. He adds that there were also delaysin mergers because of a lack of clarityon the procedures to be followed.‘Nevertheless, we [anticipate] that the largeenterprises will complete the expansionprocedure by the end of this year, and nextyear they will function as expanded DEYA,’says Safarikas.Safarikas believes that the larger DEYA

are best placed to be able to cope with thedecline in central government support, butthat even for these there must be a willing-ness to deal with costs and pricing and tooffer high quality services. Regarding smallmunicipalities and small DEYA in particular,he comments: ‘We believe that the conse-quences for the enterprises that won’t reactwill be the suspension of their function overtime and the incorporation of the activity ofthe water supply field in the municipalities.’Ultimately Safarikas sees a need for

rationalisation in the sector: ‘In our opinion,a new institutional frame is necessary inwhich the enlargement of the enterpriseswill be prioritized, at first at the level ofprefecture, and in a second stage at thelevel of one enterprise in every region, sothat they will be capable of coping with thedemands of the time.’Keith Hayward

Greek budget crisis reformsimpact smaller water operators

NEWS

Go-ahead for Dushanbe projectThe World Bank has approved $16 millionin funding for the second Dushanbe watersupply project in Tajikistan. The project aimsto support the government of Tajikistan’sefforts to improve water utility performanceand water supply services in selected areasof the country’s capital, Dushanbe.

Ghana announces public intentionGhana announced that management of itsurban sector water systems is to revert tothe publicly-owned Ghana Water Company,as a five-year contract with Aqua Vitens Randdraws to its conclusion.

KBR wins Adelaide water contractKBR has announced that it has beenawarded a five-year project managementand procurement (PMP) contract by SAWater to jointly manage the delivery ofthe metropolitan capital works programmefor Adelaide, South Australia. The contractis one of the largest government watercontracts for project management servicesto the water industry awarded in SouthAustralia, and the final value will dependon the size of the SA Water capital plan.KBR will provide project planning, projectmanagement, procurement and constructionmanagement for projects ranging from$500,000 to $11 million. SA Water iswholly owned by the government of SouthAustralia and delivers water and wastewaterservices to almost 1.5 million people acrossthe state.

Water recommendations forNew ZealandNew Zealand’s Land and Water Forumhas made recommendations to thecountry’s government about standardsand limits for water quality and quantity,water allocation, new infrastructure andurban water service issues. Almost $265million of funding has been earmarked forcleaning up waterways and $35 million setaside over five years to support irrigationinfrastructure.

Niger cities supply boostThe World Bank is lending $90 million toNiger, enabling 500,000 people in Niameyand 23 other cities and secondary urbancentres to gain direct access to piped waterthrough the expansion of water production,storage and distribution capacities, and theinstallation of household water connectionsand public standpipes. The construction ofthousands of wastewater facilities will alsoprovide improved sanitation services to295,000 people, including 60,000 studentsin schools.


The Inter-American Development Bank currently supports the water sector in Latin America and theCaribbean to the tune of around a billion dollars a year. The bank is getting a substantial increase inits capital, at a time when a major five-year initiative focused on the water sector has reached itsscheduled end. KEITH HAYWARD spoke with JORGE DUCCI, senior economist with the bank’s Water andSanitation Division, about plans being drawn up for the next five years.

Prospects for IDB’s watersector support in Latin America

The last five years have seen something ofa transformation in the involvement of

the Inter-American Development Bank in thewater sector of Latin America. Thanks to thebank’s Water Initiative, which was launchedin 2007 and ran to this year, there has beena marked increase in activity in the sector.‘Through that we were able to expand verysignificantly the lending we were doing tothe sector in Latin America,’ comments JorgeDucci, senior economist with the bank’sWater and Sanitation Division. ‘We wentfrom say $200-300 million a year to levelsaround a billion dollars.’This progress was made through four

programmes that formed the initiative, andthe headline figures associated with theseprovide evidence of success. The 100Cities Program aimed to catalyse invest-ment financing and technical assistance tocities of more than 50,000 people, andsucceeded in reaching 146 cities. TheWater Defenders programme aimed toprovide technical assistance and financingto protect 20 priority micro-watersheds,but covered 31 watersheds. Alongsidethis, the Efficient and Transparent Utilitiesprogramme aimed to finance the strength-ening of management of water utilities andreached 90 utilities, and the 3000 RuralCommunities programme provided supportto 2600 communities.This said, there remains a great deal to

do in the region. Many countries havereached the basic UNMillenniumDevelopment Goal for access to safe watersupplies, while generally they are wellbehind regarding sanitation. Part of thechallenge, says Ducci, is to make surespecific targets are in place that can act asa focus for securing action and investment.‘The definitions that the United Nations putfor the Millennium Development Goalsregarding service quality are very low,’ saysDucci, giving the example that havingaccess to a safe water supply can meanwalking up to 500m to obtain water. ‘Ofcourse, in Latin America that is not thestandard – the standard is much higher. So

we are currently moving into the idea ofgoing to universal service provision, in thesense that we don’t only look at connec-tions or people connected to the systems,but rather making sure that the systemsactually work, that they are providing thewater, the water is of good quality, and thatthese systems are sustainable. We need tothink in those terms in preparing what thenew targets will be.’

Problems with progressIn looking at how further progress can bemade in the region, Ducci sees three keyproblems. ‘The first key area is politicalpriority. In spite of what is being said, or theagreements that have been written, orwhatever else the politicians say, in many,many countries there is really no priority forthe water sector,’ he says. This can meanthat no-one is really in charge or, if they arein charge on paper, they do not or cannottake responsibility.The second problem is governance.

‘Even if you have the relative interest indealing with these problems, the institu-

tions are not really set up in the right way tobe able to make good decisions and pro-ceed in this area,’ says Ducci, while thethird problem area is, he says, the waterand sanitation companies themselves.Having said this, Ducci does see positive

examples in the region. In terms of country-wide approaches, he points unsurprisinglyto the private sector-based example ofChile, but notes that this is often dismissedas a particular case that does not provide amodel for other settings. But he also pointsto Colombia. ‘They also made majorreforms in the mid-90s and they have beensteadily pushing in having good regulations,and improving the law and giving financialsupport to the sector,’ he says. Alongsidethis, he refers to a number of individualcompanies in the region, such as those inMedellin and Bogota in Colombia,Monterrey in Mexico, and Sao Paulo andMinas Gerais in Brazil.As IDB looks to continue its water sector

activity in Latin America, Ducci explains theshift in approach that has taken place. ‘Wehad a very bad experience in the 90s, trying

ANALYSIS

IDB-supported work on the water andwastewater system in Managua, the capital

of Nicaragua, in 2008. Credit: IDB.


Australia’s Productivity Commission has produced a draft report that lays out a series ofrecommendations for the restructuring of Australia’s urban water sector, to tackle inefficienciesand what it sees as an ‘undue reliance on water restrictions’. LIS STEDMAN provides an overview ofthe options suggested for the sector’s structural rearrangement.

The case for reform of Australia’s urban water sector

The Productivity Commission’s reporton Australia’s urban water sector

looks at a number of basic options forreorganising the industry.Option 1 essentially represents the

traditional vertically-integrated urbanwater provider model, but incorporatinggovernance improvements. The utilitywould be a corporatised entity, withgovernment giving clear guidance onprioritising objectives, transparencyregarding ministerial directions, boardsappointed on merit, and compensationfor requirements to undertake non-commercial activities.Option 2 would involve vertically

separating the bulk water supply function,and horizontally disaggregating it so that

individual sources are owned by separatelegal entities. All available sources andclasses of bulk water would compete onmerit to fulfil existing and new demand.This option would also promote greater

innovation by bulk water service providersby including the development of innovativeproposals for supply augmentation ordemand management. This would alsorequire the establishment of a single,government-owned ‘retailer-distributor’responsible for a variety of tasks, includingpotable water distribution and transmis-sion, meeting security of supply obligations,non-potable water supply distributionservices, wastewater network services,wastewater treatment and dischargeservices and similarly stormwater services.

The commercial bulk water serviceproviders would provide one or more bulkwater services, such as harvesting andcollection of bulk water, production ofbulk water via desalination, production ofrecycled water products, and bulk watertreatment, storage and transfer.Local councils would be responsible for

collecting stormwater and transporting it toa stormwater transmission network. Thereport notes with regard to this option:‘By making bulk water service providerscompete on their merits to satisfy existingand new demand for bulk water, the truecost-competitiveness of alternative bulkwater supply sources will be made explicit.’Option 3 extends option 2 by establishing

competition for wastewater treatment and

to push for private sector models through-out the region. Then, if they didn’t go withthe private sector, we wouldn’t get into thecountry, and that simply didn’t work.’Now, though, he says the bank basically

has to deal with public state-owned watercompanies and do the best possible to tryto improve efficiency. ‘If they want toimprove, say, non-revenue water, orimprove their commercial systems, andthat’s it, we will go with that; we won’t pushfor anything else,’ says Ducci.‘The implicit policy is in those countries

where we see an opportunity, a sort of awindow, because of political reasons orbecause there is some person there incharge who understands the subject, wewill go and provide all the support we can,’Ducci continues. This may then provide anopportunity to deal with wider issues, forexample, good governance in the decisionmaking process. He cites the Bahamas,Trinidad, Panama and Peru as examples ofwhere the bank is working or hopes to workin this way. But he also notes the limitationsthere can be. ‘We recognise that unlessthere is a real interest, political interest,behind this in the countries, there is notmuch we can do.’

Planning IDB’s water sector supportAgainst this backdrop, Ducci anticipatesthe bank will continue its current level ofsupport for the water sector, but outside of

the focused activity that the Water Initiativehas provided. ‘There is not a specific focuson water any more,’ he comments. ‘Thisinitiative that was approved in 2007probably will not go forward as such.’The task now is to prepare a new

programme of support for the comingyears to build on the targets of the WaterInitiative. ‘It clearly is still a very relevantsector to the bank and we are in theprocess of starting to set up a, say, five yearplan or programme which will review these

physical targets and propose new targetson the basis that we might be lending at thelevel of a billion dollars a year,’ says Ducci.‘If we can manage to keep that billiondollars per year, then I think we moreor less [will be] able to maintain theimportance of the sector.’Ducci explains that preparing this

programme involves looking at how thewater sector targets can be dealt with aspart of the wider bank targets that havebeen set. As examples, he says that thebank’s latest capital replenishment aims for

a certain percentage of support to go to lowincome countries, or to be committed toenvironmental and sustainability issuesand climate change.With a water sector donor meeting in

mid-July, the pressure has been on toprepare what Ducci describes as a ‘firstdraft’ perspective for the water sector overthe coming five years in time for that.Speaking at the end of May, he comment-ed: ‘Probably we will keep working on thatfrom here to the end of the year.’But despite the scheduled end to the

Water Initiative, Ducci remains confidentabout the prospects for the water sectoras far as the bank is concerned. This isboth because of the budget and staffinglevels that are now supported, and becauseof the level of contact that has been built upin the countries of the region to pursueopportunities which, he says, are ‘more orless demand driven’. ‘In the bank it is stillvery easy to defend these kinds of projects,and the Board likes this kind of waterproject,’ Ducci adds.So is it the case that the Water Initiative

has helped achieve this position of relativestrength for the sector? ‘Certainly, certainly.Very much so,’ says Ducci. ‘The watersector was more or less, I won’t say aban-doned, but if you see the statistics, they tella very low profile in the 90s. We are clearlymoved away from that, and I hope it willstay like that.’ �

ANALYSIS

‘In the bank it is still very easyto defend these kinds of projects,

and the Board likes this kindof water project.’Jorge Ducci, IDB

discharge services, though the reportobserves that the opportunity for achievingfurther competition-related efficiency gainsis balanced by additional transaction costsand scale and scope impacts.Wastewater treatment services would be

purchased via bilateral contracts withservice providers. Existing wastewatertreatment assets would be horizontallydisaggregated and individual treatmentplants would be owned by separate,independent legal entities. Investors wouldalso be able to build new facilities andcompete with incumbents. Wastewaternetwork services would continue to beprovided by the integrated utility.Option 4 would involve horizontal

separation of retail-distribution, addedto the arrangements for supply of bulkwater services, wastewater treatmentservices and stormwater collectionservices envisaged in option 3.This option would horizontally separate

the monopoly retailer-distributor to createmultiple geographic monopolies, similar toexisting reforms in Melbourne and south-east Queensland. This option, the reportsays, would further increase contestabilityand introduce yardstick competition at theretail-distribution level.Option 5 would create full, decentralised

competition as already exists in the nation’selectricity and gas industries. However,this appears to be the least favoured andlikely approach, with the report warningthat ‘the success of competitive, decen-tralised markets in other infrastructureindustries does not imply that the sameoutcomes can or would be achieved inthe urban water context’.‘In addition, there might be additional

costs or risks associated with establishingthese arrangements that are unique to theurban water sector. The absence of anyprecedent of urban water markets any-where in the world compounds the risk anduncertainty associated with this option.’Overall, the report stresses that the

Commission ‘does not assume that there isa case for pursuing structural reform in oneor all of Australia’s large urban cities’, andwarns that ‘although structural reformprovides greater scope for efficiency gains,it might also impose costs’. As existingstructural arrangements for the supplyof water and wastewater services varysignificantly across and within jurisdictions,the Commission notes that ‘the preferredapproach to structural reform in Australia’slarge urban cities is expected to differ’.However, in general, where there is acase for reform, the report adds that it is

anticipated that ‘the preferred structuralarrangements will loosely resemble eitheroption 2,3 or 4’.

Utility aggregationSkills shortages, inability to ensure full costrecovery, poor performance against publichealth and environmental obligations,inadequate infrastructure, asset mainte-nance and operating processes are allidentified as issues at the regional level.Regional reform options include a strong

recommendation for aggregation, which thereport says is expected to provide utilitieswith ‘greater financial capacity to undertakeefficient investment, and better access toskilled staff, which in turn should improveutility performance against [public healthand environmental] standards’.The existing regulatory and legislative

framework is described by respondentsto the inquiry as ‘excessive, cumbersomeand inconsistent’ and in some cases animpediment to efficient service provision.The report observes: ‘Submitting partiescommented on the non-trivial burden thatperformance reporting to governmentagencies imposes, and the overlapping andfragmented roles and responsibilities ofgovernment agencies involved in urbanwater matters.’The concerns include the upward

trend of required levels of performance,increased reporting requirements (bothin frequency and scope), and an ‘ad hocand inconsistent’ legislative and regulatoryframework in which the roles of governmentagencies are not clearly defined andoften overlap.Aggregated utilities are already found in

Victoria and Tasmania, though the reportwarns against a presumption that ‘bigger isbetter’, providing a number of criteria thathave already been used to determineviability such as a comprehensive cost-benefit analysis.Specifically, the report endorses the work

done by New South Wales in determiningrecommendations for aggregation andnotes that it urges the New South Walesgovernment ‘to progress this work as soonas possible’.As an aggregated utility would no

longer be directly the responsibility ofone local government council, structuraloptions explored in the New South Walesreport that are highlighted include acouncil-owned regional water corporationand an asset-owning county council.The report notes: ‘The common,defining feature of these two models isthe transfer of ownership of all water supply

and wastewater assets (and related staff),and responsibility for all water and waste-water service provision, from local councilsto the aggregated utility.’Each option’s risks, impacts and benefits

for both the large urban and regionalsectors are extensively discussed within thebody of the report. Whatever options maybe chosen, the report makes clear that theexisting situation has had major impacts onthe costs to consumers and the community.It notes that ‘nationally, evidence from a

number of sources suggests that waterrestrictions are likely to have cost in excessof a billion dollars per year from the lostvalue of consumption alone’.Based on modelling for Melbourne

and Perth, inefficient supply augmentation(basically interpreted as deciding onexpensive options such as desalinationwhile less-expensive alternatives still exist)could cost consumers and the communityof these cities between AUD$3.1 billion($3.3 billion) and AUD$4.2 billion ($4.5billion) over 20 years, depending onmodelling assumptions.

Draft report recommendations include:• Urban water sector regulators shouldrigorously apply the six principles of goodregulatory practice spelt out by theRegulation Task Force in 2006

• Price regulation is not an appropriatemechanism to deal with affordabilityconcerns or full cost recovery

• State and Territory governments shouldadopt policy settings that allow the costsand benefits of all supply augmentationoptions to be considered

• Bans on particular augmentation optionsshould be removed including on rural-urban trade and planned potable reuse

• Developer charges should better reflectthe costs of service provision for newdevelopments

• Metering should be introduced in all newsingle and multi-unit dwellings and thecase for retrofitting should be assessed

• Utilities should charge tenants directly forall water charges

• Inclining block tariffs lead toinefficiencies and inequalities and shouldbe removed in favour of a flat volumetricretail pricing structure

• There is scope for efficiency by moving tolocation-specific pricing

• Consumers should be given more choicein urban water tariff offerings

• The use of water restrictions should belimited to times of emergency or whererestrictions are needed to avoid runningout of water. �

ANALYSIS



French water and wastewater group Saur has extended its presence in Saudi Arabia, winning thecontract to manage water and wastewater activities in the new industrial city of Jubail. LIS STEDMAN

speaks to CHRISTOPHE GUILLET about the project’s requirements and Saur’s expansion in the region.

Saur’s success in Saudi Arabia

French water group Saur has signed anagreement with Saudi Arabian water and

electricity utility Marafiq for the operation ofwater services for the new city of Jubail.Saur’s Head of International

Development, Christophe Guillet, whois in charge of the Jubail contract, notesthat the client is Saudi Arabia’s NationalWater Company (NWC), which is a publicentity owned by the Ministry of Waterand Electricity.‘During the past few years, the water

sector, particularly in the big towns,transferred facilities to the National WaterCompany, and afterwards it contractedinternational utilities to operate the bus-iness units, for example, of Riyadh, Jeddahand Makkah-Taif,’ Mr Guillet explains.In 2010, Saur won one of these manage-

ment contracts – the prestigious Makkah-Taif contract. However, the new project issomething completely different, and indeedfor a different client – Marafiq is in chargeof the concession for services to the coun-try’s two new industrial cities, Jubail andYanbu, delivered by the Royal Commission.Saur’s involvement is with the Jubail

contract – the joint venture created is aspecialized business catering for theoperational requirements of JubailIndustrial City. The comprehensivecontract covers all of the operationalactivities for both water and wastewater,and seawater cooling.Mr Guillet notes that in the Makkah-Taif

contract the company is ‘more in a supervi-sory role – there is the National WaterCompany and subcontractors who are incharge of operational amendments. We areinside the business unit of the NWC andour job essentially is to undertake thesupervision of the subcontractors. Therewill be a different objective with Marafiq; forthe joint venture all of the operationalamendments will be inside the jv and theywill be done directly by us.’Initially, a permanent staff of Saur

employees, including the general manager,will be transferred to the jv. Eventually therewill be a team of eight managers, Mr Guilletexplains – a mix of Marafiq and Sauremployees. ‘The target for us is to train theemployees of the jv and transfer knowhow,operational tools and procedures throughthe creation of a training centre.’One objective of the programme is to

improve the number of local staff involvedin the contract. Saudi Arabia’s unemploy-ment rate is high, Mr Guillet explains, andthe country is extremely concerned aboutincreasing the percentage of Saudi employ-ees. ‘“Saudisation” (the national policy ofSaudi Arabia to encourage employment ofSaudi nationals in the private sector) isclearly a concern for the public and privatecompanies in the country, and Marafiqasked us to take this into account whencreating the training procedures,’ he says.The company has been involved in the

Kingdom for five to six years, and hasundertaken some ‘quick win’ contractsauditing for the Ministry of Water andElectricity. These were followed by the firstmajor win, the Makkah-Taif managementcontract, and now the Jubail operationsand management (O&M) contract and its

knowledge transfer imperative.‘The knowledge transfer and training

elements of the contract are a majorchallenge for the future, especially withthe new aim of Saudisation,’ Mr Guilletnotes. ‘It is clear that there are problemsregarding unemployment and that allcompanies will have to try to train andgive a good level of knowledge to Saudiemployees. It is a challenging task.’

Future developmentIn terms of the company’s strategy inthe country and region, Mr Guillet notes:‘Over the past few years we have investeda great deal in developing the businessin Saudi Arabia, which is our priority inthe region.’The company has a significant number of

employees in the country, now including alarge number of managers for the Makkah-Taif contract and 30 overall with Marafiq,including eight dedicated to the Jubailproject. ‘It is clear that the objective at themoment is to manage this project in Saudi

Arabia, and we will probably tryto expand our activities. We are looking atprojects in Abu Dhabi and Qatar at themoment, though we don’t have concreteplans. Saudi Arabia is our priority and thesecond stage will be to expand.’He notes that the GCC (Gulf Cooperation

Council) countries are interesting marketsfor the water business. ‘We hope we willhave opportunities in these countries,’ headds. ‘The region’s opportunities generallyfocus round O&M or all-managementcontracts, and I think the future opportuni-ties will focus round these types of projectsrather than BOTs (build-own-operate).’Mr Guillet observes: ‘In the past, Saur

was present in every part of the world –Asia, Africa, Latin America. We changedour shareholders twice – we have been soldtwice – and now we have a very sustainablestructure of shareholders and we are ableto expand our activities abroad.’The group’s activities are now focused on

three regions, he explains: ‘Spain is a veryimportant market for us, as is Poland,where the first private utility is a subsidiaryof Saur, SNG in Gdansk. We are trying todevelop some projects in the area aroundPoland as well. The third developmentregion is Saudi Arabia. In terms of businessdevelopment we want to focus our effortson these three markets.’One other aim is to re-establish the group

in Africa, where Saur was the first privateutility with subsidiaries in Senegal, IvoryCoast, Mali, Central Africa, Mozambique,Zambia, and Conakry, Guinea. Mr Guilletnotes: ‘It is clear we want to develop ouractivities abroad and we have some targets.We try to be reasonable – we think it is moreefficient to have sustainable developmentand not respond to all the opportunitiesaround the world.’ �

ANALYSIS

‘It is clear that there are problemsregarding unemployment and thatall companies will have to try totrain and give a good level of

knowledge to Saudi employees.’Christophe Guillet, Saur

ChristopheGuillet

The Czech Republic has morethan 2000 registered water

supply and sewerage (W+S)operators, the 50 largest of whichcover 95% of the market.Nearly 75%of drinking water and wastewateris provided under the so-called‘separate’ operating model.Thismodel is based on an operatingcontract concluded with anoperator,where the infrastructure isowned by the public sector and theoperator is usually a company witha private sector involvement.The existing operating contracts have

been criticized by the EuropeanCommission (EC) since 2004 in thecontext of grant applications forW+Sprojects.The EC’s concerns began withW+S projects financed from theCohesion Fund in the years 2004-6 (CF2004-6),where grant funding was firstlinked to changes in the operating con-tracts.The EC required that contracts bere-tendered or modified ‘in order betterto reflect international best practice’,because of concerns about non-transpar-ent awarding of operating contracts,their excessively long duration (15-30years), and the absence of performancemonitoring and any incentives to improvestandards.The EC also required that watertariffs provide for the generation ofadequate funds for asset replacement andpromote efficiency of operations, in placeof the existing ‘cost plus’ approach.Experience with implementation of theserequirements resulted in the search for amore universal approach to avoid theneed for negotiations on each individualcontract with the EC.Operational Programme Environment

(OPE) is a €5.8 billion ($8.4 billion)programme mostly funded by theEuropean Regional DevelopmentFund (ERDF) and the Cohesion Fund(CF),which has the aims of supportingsustainable development, long-termcompetitiveness and employment in the

Czech regions.OPE provides substantial grant support

especially to meet the requirementsof Council Directive 91/271/EEC(concerning urban wastewater treatment)in the period 2007-13, covering bothconstruction and renovation ofW+Sinfrastructure.The ProgrammeDocument for OPE was approved inDecember 2007, following arduousnegotiations between the EC and CzechRepublic concerning grant conditions forW+S projects.Basic principles from bestinternational practice in the field of PPPs(public-private partnerships) forW+S arelaid down inAnnex 7 of the OPEProgramme Document, together with thesupporting ‘Conditions ofAcceptability’.The experience with modifications ofcontracts for CF 2004-6 projects was

taken into account in draftingAnnex 7,which represents a tougher approach tothe regulation of contracts so as to meetthe EC’s concerns.The so-called ‘separate’operational

model (where an operator with privatecapital operates the assets of the municipalowner under contract) represents themajority (51%) of projects submitted forgrant funding from OPE.The otheroperational models are:‘municipalityowner-operator’– where the municipali-ty takes full responsibility for operating itsownW+S assets;‘in-house’– where thecompany that operates the assets (undercontract) is established by the municipali-ty that is also the 100% owner of thecompany; and ‘asset-owning company’–where the operator of the assets is alsotheir owner,but the owner is a company


REGULATION

In the Czech Republic regulatory mechanisms were created for water supply and sewerage operatingcontracts in order to fulfil the conditions for grants from the Operational Programme Environment, run byEuropean Regional Development Fund (ERDF) and the Cohesion Fund (CF). In this article, PAVEL VÁLEK,KATERINA KOHUSOVÁ, MARTIN SALAJ, MARTIN KELBL, TIMOTHY YOUNG andMIROSLAV VYKYDAL outline the aims behind thecreation of these mechanisms, and summarise the practical experience of implementing them.

Implementing new regulatory mechanisms inCzech Republic contracts to meet EU requirements

Executive summaryThe Operational Programme Environment in the Czech Republic, funded by the EuropeanRegional Development Fund (ERDF) and the Cohesion Fund (CF), aims to support environmentalprotection, long-term competitiveness and increase of employment in the Czech regions as abasic principle of sustainable development, including the improvement of water and wastewaterinfrastructure and services.

The European Commission criticized existing water and sewerage operating contracts in theCzech Republic, most of which follow a ‘separate’ model, where the infrastructure is owned by thepublic sector and the operator is a company with private sector involvement. Problems highlightedwere a lack of transparency in the awarding of contacts, the long duration of the contacts (15-30years), and a lack of performance monitoring to improve standards of service. Therefore, beforefunding was given, regulatory mechanisms for water supply and sewerage contracts have had to beput in place, for both existing and new contracts.

This article looks at the main requirements of Operational Programme Environment, as well asthe experience of implementing these regulations. Approved in 2007, the Programme Documentlays out a tougher approach to the regulation of contracts, which brings in best practice principlesfrom international practice in the field of public-private partnerships. The duration of contracts hasbeen shortened, and all contracts now have to include a standardised system for monitoringoperator performance, using performance indicators and minimum performance standards.Information relating to all aspects of the operation and maintenance of assets and other contractualobligations have to be defined, and penalties are included in the contract for non-compliancewith each performance standard and other contractual obligations. Tariff prices are set usingfinancial tools created to support the Programme Document, the overall aim of which is to capoperator revenue.

The experiences of the implementation of these regulations show that overall, operationalexpenditures decreased and rental income from the operating companies increased, allowingmore funds to be made available for asset management. However, there is a reluctance from assetowners to change their relationship with operators due to fears of increased costs or administrativeburden, and this approach does not cover the whole of the water and wastewater sector in theCzech Republic. So one of the challenges for the future is to incorporate the best practices andregulatory tools from the programme into regulation of the sector as a whole.

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rather than a municipality.The share ofprojects in different operational modelssubmitted under OPE is shown in Figure2.The main requirements in OPE arefocused on projects under the ‘separate’operational model and the ‘Conditions ofAcceptability’ address the other opera-tional models only marginally.Annex 7 of OPE states that the dura-

tion of existing contracts must not extendbeyond 2022, and if the duration extendsbeyond 2015, the rate of grant support isdecreased.Existing contracts must bereviewed to determine whether theywere awarded in accordance with thelegislative requirements of the EU andCzech Republic.New contracts that donot involve any infrastructure investmentby the operator may be concluded for amaximum of ten years.All contracts must contain a standard-

ised system for monitoring operatorperformance based on performanceindicators (PIs) and minimum perfor-mance standards.The system enablesmonitoring of whether a minimumquality of service is achieved. If not,then a system of contractual penaltiesmust be in place to incentivise operatorsto perform.The contract also provides theclear option to terminate the contract (bythe asset owner) in the event that thestandards are not met in the longer-term.PIs also inform the owner about theoperation of their assets and facilitate thedialogue between owner and operator.The system must also ensure provision ofinformation by the operator on hisperformance in a way that allows forenforcement, together with data for assetmanagement by the owner.The contract must also include clear

definitions relating to asset renewal,investments, repairs,maintenance of

assets and the resolution of emergencysituations and accidents, together withunequivocal contractual obligationsdetailing who is responsible for thefinancing of each requirement and underwhat conditions.Furthermore, the con-tract must properly identify the relevantassets and define the wider rights andobligations of owner and operator,including liability, insurance and perfor-mance bonds, the settlement of disputes,termination of the contract, and theprocess for hand-over of assets.The tariff setting process is also subject

to rules underAnnex 7 of OPE.One ofthe key principles applied is that of a capon operator revenue.To simplify, thismeans that the cost items that form muchof the operators’ allowed revenue isindexed during the price control periodusing a set of publicly available price

indices.Other pass-through of costs intotariffs is acceptable only where the opera-tor cannot influence these, such as in thecase of the unit cost of water bought inbulk from another operator.Tariffs thatare ‘fixed’ in this way are applied in cycleslasting at least five years,with a process ofperiodic review between price controlperiods leading to the revision of tariffsfollowing predefined rules.Ex-ante tariffs must be calculated using

a standard financial model that incorpo-rates all elements making up the opera-tor’s revenue.The completed financialmodel (in the form of a spreadsheet) is acompulsory annex to the contract.Theprofit included in the financial modelis calculated strictly as the return oninvested capital.The minimum rentis determined based on the rule thattariffs must rise in line with the financialanalysis of the project that also forms partof the grant application.Often thisrequirement in practice means thattariffs must rise by at least 5% aboveinflation each year (until an adequatelevel of revenue is generated).Thisresults in increasing net revenues thatmust be used exclusively for the renewalor extension of the asset base.Anotherrequirement is to share any savingsbetween the operator and customers –if actual profit is higher than thecalculated profit, this difference issplit. Finally the ‘Conditions ofAcceptability’provide that theoperator has to bear the risk of bad debts.These requirements find their expres-

sion in a number of OPE guidance


REGULATION

Figure 1: W+S operating models in the Czech Republic (agglomerations above2000 PE) (data source: Mott MacDonald)

Wastewater treatment plant (Lednice, Czech Republic). Credit: Mott MacDonald, Czech Republic.


documents for applicants, and theirimplementation in tender documents andcontracts is systematically controlled bythe State Environmental Fund (SEF) ofthe Czech Republic.

Performance standardsA so-called Practical Performance Manual(PPM) was prepared to set the OPErequirements on performance standards(Kohusová and Salaj 2010).The approachwas designed to enable even those assetowners who do not have a professionalknowledge of the industry to monitortheir operator’s performance on the basisof clear PIs.The PIs and some of theassociated standards set out in the currentversion of the PPM are mainly basedupon established professional practice asset out in international literature (Alegreet al. 2006;Matos et al. 2003),national andEuropean standards (including CSN ISO24510,24511 and 24512),professionalpublications of the Czech industry associ-ation (SOVAK CR) and legislativerequirements.The PPM is regularlyupdated taking on board comments fromstakeholders and is approved by theMinistry of the Environment of theCzech Republic (MoE) as a guidancedocument (the original version wasapproved also by the EC).

Performance indicatorsThe PPM sets out a number of requiredand recommended PIs (16 for watersupply,15 for sewerage).The PIs arefocused in three areas that the operatorcan influence and be responsible for.ThePIs also monitor activities that have adirect impact on operations or customers.The first area covers the quality of basicservices,drinking water supply andwastewater collection and treatment.PIsmonitor the quality of drinking watersupplied and compliance with dischargepermit conditions for treated wastewater.PIs also monitor the failure of service,whether due to planned or unplannedinterruptions.One PI monitors trends indrinking water losses.

The second area of PIs is basicpreventive maintenance and is focused onensuring compliance with minimumstandards.These PIs are based on setting acertain standard to be met on a yearlybasis as part of the preventive mainte-nance programme, against which actualperformance is evaluated.The standard,i.e. the reference value, is set either as aspecific minimum value in the PPM or byagreement between the owner and theoperator as part of maintenance, cleaningand inspection plans, etc.PIs are focusedon regular maintenance, inspections andcleaning of pipes or particular buildingsand equipment.The last area concerns customer

service.These services include dealingwith customer complaints and requests,issuing statements or opinions on plan-ning applications, as well as the dutyto inform customers about plannedservice interruptions.A number of mandatory PIs are

required in all contracts for OPEprojects.These PIs are suitable formost operating contracts, includingthe smallest ones.Non-mandatory PIsmay be used to extend or refine the setof PIs for larger contracts.All the PIs aredefined in the PPM in contractual aswell as informative versions.The informative presentation of the PI

is for the monitoring the operator’sgeneral performance and is useful insetting the reference values (the perfor-mance standards), as it usually defines theaverage duration of a particular situationor a ratio between the operator’s perfor-mance (e.g. the length of sewer systeminspected each year) to the overallcondition (e.g. the total length ofsewerage).The contractual forms are

used to determine penalties when theperformance standards are not met.

MonitoringA monitoring system is essential to verifythe operator’s performance against itscontractual obligations.The PPM presentsrequirements for monitoring consistingof: continuous performance monitoring;provision of information in exceptionalsituations; and inspections by the owner.Continuous monitoring takes the form

of self-monitoring by the operator withregular monitoring reports that must besubmitted to the asset owner (a modelreport is included in the PPM).Theycontain various information about theoperation of the assets: descriptive, techni-cal and economic data; further detailsabout PIs, in particular their annualevaluation; and the related quantificationof contractual penalties.Penalties forfailure to comply with the performancestandards do not arise primarily from theinitiative of the owner or customers butfrom the operator’s self-monitoring.Theoperator must pay these annually to theowner (without being asked).The operator is obliged to provide

information in exceptional situations(breakdowns or emergencies causedby e.g.flooding),not only to theowner but also to customers, residents,affected municipalities and theemergency services.A second element of monitoring is the

owner’s right to inspect the operator’sactivities,which includes the right ofaccess to documents and facilities, thedatabase of unplanned interruptions, aswell as the contractual duty of the opera-tor to communicate with the ownerwhen requested to do so.These rights are

Figure 3: Distribution of projects (in separate operating model) submitted to OPE with modification ofexisting contract or tender for new operator (new contract) (data to February 2011, data source: SEF).

Figure 2: Distribution of projects submitted underOPE by different operational models (data toFebruary 2011, data source: SEF)

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REGULATION

also vital to ensure that the owner hasaccess to the necessary operational datawhen the current contract is terminatedor comes to an end.These rights are alsoneeded so that the owner can check thecorrectness and completeness of themonitoring system.The whole approach to monitoring

builds on the compulsory data thatmust be provided as part of the ‘selectedoperational data’ that all operators mustprovide under theWater Supply andSewage SystemsAct.The system thereforedoes not introduce any wholly new dutiesfor the operator, although it certainlyexpands their scope.

Contractual penaltiesThe PPM sets the minimum value ofcontractual penalty for non-compliancewith each performance standard, as well asother contractual obligations and require-ments related to these penalties.Thesystem of penalties is based on contractualpenalty points (CPPs).One CPP corre-sponds to a certain monetary value (inCZK) which depends on the operator’sexpected annual (ex-ante) profit.Tocalculate the value of the contractualpenalty, the number of CPPs is multipliedby the monetary value for one CPP.Thissystem of penalties based on CPPs has theadvantage that the weight attached tonon-compliance is independent of thesize of the operated area.For newly-awarded contracts it is recommendedthat the monetary value of one CPPshould be one of the evaluation criteria inthe tendering procedure for the newoperator.The minimum value of one CPPwas originally determined to be theequivalent of€400 ($567).But afterexperience with extremely smallcontracts where the expected annual (ex-ante) profit is less than €10,000 ($14,500)– e.g. sewerage for 60 inhabitants – the

value of one CPP had to be revised.For these smallest contracts the value of

one CPP corresponds to 2-4% of annualprofits.Contractual penalties shouldincentivise the operator but not bankruptit.The risk of excessive penalties is great-est during the initial implementation ofthe system set out in the PPM,when thedata available for setting the relevantperformance standards is limited.As atemporary measure it may be necessary tointroduce a financial cap on the maxi-mum contractual penalties to be paid in agiven year (minimum 10% of expectedannual profit for existing contracts; fornew contracts a financial cap should notgenerally be needed).It should be noted that contractual

penalties are not seen as liquidated dam-ages and in no way affect the rights of theowner to seek damages.The owner mustalso have the right to terminate thecontract prematurely if the performancestandards are not met in the longer-term.This is indicated when the sum of con-tractual penalties is more than 0.5 to 1.5times the expected annual profit of theoperator over 36 months.The PPM also includes contractual

penalties for failure of the monitoringsystem.These take the form of both alump sum and increases for each day ofdelay in submitting the annual report.Forthe most serious failure, e.g.deliberatedistortion of the monitoring system, inaddition to a contractual penalty theowner has the right to early terminationof the contract.The minimum values ofthese contractual penalties are set in PPMin the range 5% to 50% of expectedannual profits.Operational risks should be borne by

the operator even in those areas wheremeeting the relevant standard alsodepends on third parties.This approach isbased on the principle of PPP projectsthat ‘any particular risk should be borneby the party best able to manage it’.The

only exception from this rule are forcemajeure events (e.g.war,meteoriteimpact) and so-called ‘liberating events’(e.g.power blackout),when the operatormay be relieved from payment of contrac-tual penalties and collection of CPPs.

Financial toolsFinancial modelThe MoE commissioned and published anumber of financial tools in support ofthe requirements ofAnnex 7 to OPE.These take the form of a paymentmechanism,which consists of contractualtext (describing the mathematicalrelationships between elements of thetariff calculation) and spreadsheets(financial models) in Microsoft Excelthat make the calculations in practice.These models operate by first making

forecasts (ex-ante) of the all items of theprice calculation and comparing thesewith reality (ex-post).When the costitems that the operator can influenceexceed the original forecast it means a lossfor the operator,whilst the oppositeimplies savings for him,which must beshared with customers. Items that theoperator cannot influence are passedthrough into tariffs, i.e. any loss to theoperator is compensated in the followingyear by increasing his revenue (i.e. increas-ing the tariff) and savings are completely‘returned’by reducing his revenue in thefollowing year (i.e. a tariff reduction).The Financial Model forWater Sector

Owners and Operators (FM) is usedto determine all elements of the tariffcalculation ex-ante.This calculation isbased on the required revenue of theoperator and delivered volumes,wherethe ratio of these elements (together withthe collection rate) determines the price.The operator’s required revenue consistsof operating costs, rent and reasonableprofit.To make a complete forecast notonly costs are required,but also thedevelopment of demand,price indicesand invested capital.The quantitative calculation of reason-

able profit, as required by the ‘ConditionsofAcceptability’, is achieved in the FM bythe clear definition of the terms ‘investedcapital’ and ‘return on capital’. So-called‘regulatory capital’, invested by the opera-tor, consists of up of five elements:opera-tional assets; infrastructure assets (financedand depreciated by the operator);workingcapital; prepaid rent and loans provided tothe owner; and expectations.Expectationsrepresent a special element that takes intoaccount transactions realised prior to


REGULATION

Figure 5: Distribution of projects submitted to OPEby stage of tender for new operator (data toFebruary 2011, data source: SEF)

Figure 4: Distribution of projects submitted toOPE by the stage of their approval by the SEF(data to February 2011, data source: SEF)


introduction of the FM,when an investorcould put significant capital into anoperating company in anticipationof future profits until the end of thecontract. In the absence of an exactmethodology for the calculation of profitin the past, expectations can be seen as alegitimate form of invested capital onwhich return must be allowed.The returnon capital in the FM is expressed basedon the CapitalAsset Pricing Model bythe weighted average cost of capital(currently set at 7% in real terms, aftertax) calculated for the relevant and mar-ket (water in the Czech Republic).Theidentification and apportionment of riskis also very important.The most signifi-cant change to existing practice is theelimination of demand risk for operators.If sales are not the same in reality as in theoriginal forecasts, then this difference isreconciled – either the loss to the opera-tor is compensated or the operator‘returns’ excess revenue to customers.

Reconciliation toolAfter the FM has been set up with ex-ante values,next comes the step-by-steprecording of reality ex-post.This is donein the reconciliation tool for setting waterand wastewater tariffs (RT).The RT is asecond application that builds on theinitial forecasts in the FM.The RT repro-duces the original ex-ante forecast andcompares it with the actual valuesobserved over time.Not all deviations from the original

forecast will affect tariffs in future years.Items that are under the operator’s con-trol (e.g.overheads) are distinguishedfrom those that are only partly so (e.g.wastewater discharge fees or the costs ofemergency repairs) and those that he canhardly influence (e.g. invoiced volumes orthe general inflation rate). In principle,deviations of ‘controllable’ items are nottaken into account, i.e. the operatorsuffers a loss or keeps part of the savings asa contribution to his reasonable profit.On the other hand, the effect of ‘uncon-trollable’ items on the operator’s netrevenue is eliminated by increasing ordecreasing future revenue.Partly control-lable items are treated using mechanismsthat allocate risk between the operator,owner and customers.The process of comparing plan and

reality as described above continues forthe price control period, after whichfollows the periodic review,which ‘resets’the FM in the middle of the contract.Theperiodic review offers an important

opportunity for the asset owner andcustomers. If the incentive mechanisms ofthe payment mechanism have resulted incost savings,much of these will be trans-ferred to the customer in the periodicreview as a reduction in the cap on theoperator’s revenue.On the other hand the periodic review

mitigates the risk for the operator associ-ated with an absolute cap on revenues.The operator may argue that some costitems grew faster than expected forobjective reasons outside his control

within the price control period. Ifthe owner recognises these argumentsthen the revenue cap may be moderatedappropriately.

Model contract documentationA set of model contract documentationthat complies with OPE requirementswas also gradually assembled,building onexperience gained during the process ofchecking contracts.This contains a modelcontract and annexes,notably the PIs,their associated reports and the paymentmechanism.The model contract allowsowners in small municipalities who havelittle professional knowledge of the waterindustry to prepare a contract meetingthe OPE requirements without unduecosts for external advisory services.Although this documentation ispublicly available from the SEF it isnot mandatory for OPE.

The requirements in practiceSince 2009 these requirements havebeen implemented in existing and newcontracts.The total number of projectssubmitted to OPE in the ‘separate’operational model (260) is dominated byprojects with a tender for a new operatorand hence a new contract (77%),withmodification of the existing contract in23% of cases (Figure 3).Tens of contracts in small municipali-

ties and in the largest cities are currentlybeing modified.For example, the con-tracts for Brno and Pilsen (the second andfourth largest cities in the country) havebeen modified successfully.During the

checking process for modification ofcontracts there is a dialogue between theSEF and beneficiaries,usually withseveral rounds until the contract is finallyapproved.There are also numerous ongo-ing tenders for the operation of newwater infrastructure in towns in the rangeof 2000-10,000 inhabitants that havebeen checked and approved (Figure 4).For six projects a new operator hasalready been chosen and other tendersare ongoing (Figure 5).There have also been two significant

tenders for regions with approximately40,000 inhabitants each and for both ofthese bids from the largest operators inthe country were submitted.

Experience with implementation of regulatoryrequirements into operating contractsTable 1 presents a summary of threetenders for a new operator as casestudies that were tendered accordingto OPE requirements.For the case study ‘Municipality’ there

was a significant reduction in operationalexpenditure (opex) (from €180,000($260,000) before the tender to€176,000 ($254,000) after) in the win-ning bid.Rental income for the munici-pality has increased (from €48,000($69,000) before to €64,000 ($92,000)after, and in 2013 – when the contractexpires – the value will be €90,000($130,000)), so the funds available forasset management have been significantlyincreased.This experience demonstratesthat operating companies are interested inbidding for the operation of assets forsuch a small contract despite the fact thatthe OPE regulatory tools are applied.For the case study ‘Conurbation’ the

asset owner experienced a considerablestrengthening in its contractual position,as well a reduction in opex and a saving of€720,000 ($1 million) over the contractlifetime. In addition, the owner has thebenefit of a ‘contractual’ investment bythe operator in infrastructure assets.For the case study ‘Small part of town’

(where wastewater is delivered to a smalllocal wastewater treatment plant) therewas a significant increase in tariffs forsewerage compared with the tariff in therest of the town (€1.39/m3 ($2/m3))despite the fact that requirements of OPEwere kept to a minimum.In general, use of the OPE financial

regulatory tools leads to a reduction inex-ante profit as a share of opex, rent anddepreciation from approximately 10%to 5-6%.On the other hand, it entails

REGULATION

An appropriate approach proved tobe the setting of binding norms and

subsequent consideration ofdeviations from these in specific

cases, based on detailed justification

a redistribution in the current riskallocation.Furthermore ex-postprofitability will in general differ fromthe ex-ante forecast. It is thereforeimpossible to judge the impact onprofits unambiguously.There is however aclear benefit in terms of reduced opex,which delivers better value for money toowners.Furthermore, the OPE require-ments lead to regular increases in rent, thekey source of funds for asset renewal.These increases are essential if assets areto be self-financing.

ConclusionsThe modification of contracts for the CF2004-6 projects took a number of yearsdue to the absence of guidance and thelack of any consolidated requirements atfirst.The first draft contract modificationsshowed widely differing (but mostlypoor) quality.Especially given the numberof projects submitted to OPE, it was clearthat nonbinding general recommenda-tions were not feasible.This approachwould have led to an extreme increase inthe time and cost needed for small assetowners to comply,with a real possibilityof failure.An appropriate approach provedto be the setting of binding norms andsubsequent consideration of deviationsfrom these in specific cases, based on adetailed justification.As a result of the gradual creation and

updating of guidance documents the timeneeded to prepare tender documentationhas been shortened from several monthsto weeks (excluding the so-called ‘conces-sion project’ that is required by law forlarger contracts,whose preparation takeslonger).Thus although many projects donot have their tender documentation orcontract prepared,on current trends it isrealistic to assume early tenders or modi-fication of existing contracts according tothe OPE requirements,with subsequent

grant funding provided for the vastmajority of projects submitted.Although the OPE requirements led to

fears of increased tariffs, the experiencefrom completed tenders demonstrates thatis possible to reduce these.The exceptionto this trend are very small contractswhere the final tariffs can be significantlyhigher than is common,despite applyingthe latest guidance.This is mainly due tothe real economic costs of services inthese small,marginal areas.The onlysolution is to have larger areas as the basisfor tariff calculations,by consolidation ofoperations and ownership (in line withnational policy).Although the changes driven by the

OPE requirements predominantlyimprove the contractual status of theowner, in many cases asset owners havenot seen these changes in a positive light.There is a reluctance to change the exist-ing relationships with operators, forinstance because of fears of increased costsor administrative burden.Asset ownerstherefore sometimes try to modify eventhe minimum requirements of OPE tothe operator’s benefit, including duringthe tender itself.These effects can beeliminated by well-established controlmechanisms within OPE,unfortunatelyhowever sometimes at the price of alengthy checking process for draft tenderdocumentation.The main disadvantage of the system

presented here is that it is a regulatoryapproach that is only applied in thecontext of OPE.The approach is notapplied to the whole water and waste-water sector in the Czech Republic andso can at best be called ‘quasi-regulation’.It is therefore a challenge to incorporatebest practices and regulatory tools fromOPE into the regulation of the sector as awhole.Some asset owners are alreadypreparing tenders in accordance with the

OPE principles using the OPE guidancedocuments, although they are not them-selves applicants for grant funding.�

ReferencesAct No.137/2006 Coll. on Public Procurement

Act No.139/2006 Coll. on Concession Contracts and

Tenders (the ConcessionAct)

Act No.274/2001 Coll. onWater Supply and

Sewerage Systems for Public Use (Water Supply and

Sewerage SystemsAct)

Alegre H.,Baptista J.M.,Cabrera, Jr.E.,Cubilo F.,

Duarte P.,HirnerW.,MerkemW.,Parena R. (2006).

Performance indicators forWater Supply Services (Manual

of Best Practice Series). InternationalWaterAssociation,2.

edition.London.

Annex 7 to the OPE Programme Document

Czech Standard CSN ISO 24510 -Activities relating

to drinking water and wastewater services – Guidelines for

the assessment and for the improvement of the service to

users.



the management of wastewater utilities and for assessment

of wastewater services.



the management of drinking water utilities.

Kohusová K.and Salaj M. (2010).Performance

indicators underpin Czech regulation of operating contracts.

Water Utility Management International,5(1),12-15.

Matos R.,CardovoA.,Ashley R.,Duarte P.,Molinari

A.,SchulzA. (2003).Performance Indicators for

Wastewater Services (Manual of Best Practice Series).

InternationalWaterAssociation,1. edition.London.

Ministry of Environment of the Czech Republic

(2007).Conditions ofAcceptability

Article based on a paper presented at Pi2011, the 4thIWA International Conference on Benchmarking andPerformance Assessment of Water Services, whichtook place 14-16 March 2011 in Valencia, Spain.


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Table 1: Summary of case studies

Municipality Small part of town ConurbationPopulation 3500 208 46200Infrastructure W+S, including Sewerage, including W+S, including

wastewater treatment wastewater wastewater treatmenttreatment and drinking water

treatment plantLength of contract Three years Ten years Ten years

Number of bids 5 1 2Expected revenue of the €800,000 €100,000 €104.4 millionconcessionaire for the ($1.2 million) ($144,000) ($150.5 million)duration of the contract

New tariff €2.05/m3 €5.4/m3 €2.57/m3

($3/m3) ($7.8m3) ($3.7m3)Change in tariff + 5% + 288% - 3.6%

About the authors:Pavel Válek is Head of Department – Water,Environment and EU Funds, MottMacDonald, Czech Republic. Email:[email protected]

Katerina Kohusová is a Technical Expert atMott MacDonald.

Martin Salaj is a Technical Expert at MottMacDonald.

Martin Kelbl is a Financial Expert at MottMacDonald.

Timothy JL Young is a Senior Financial Expertat Mott MacDonald.

Miroslav Vykydal is a Senior Technical Expertat Mott MacDonald.

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Although several government andprivate institutions related to the

water sector in Mexico regularlypublish performance indicatorsof water supply and wastewaterutilities, one of the main problems inutilising these indicators has beenthe lack of an inter-agency processfor the planning and developmentof an information system, andprincipally for the billing andpayment of water services,which hasthe participation of water users.Mexico’s NationalWater Commission

(CONAGUA) has since the early 1990spublished a yearly document,‘The cur-rent situation of the drinking water andsewerage subsector’,which includes astatistical annex of performance indicatorsof a sample of national utilities.This hasallowed for the partial assessment of theirefficiencies.However, this still presentsinconsistencies and deficiencies thathinder the consolidation of an indicatorssystem that could guide and encourageutilities showing improved performances,and encourage the stragglers to achievebetter management.Likewise, the Mexican Institute of

WaterTechnology (IMTA) in the mid1990s developed theWater UtilitiesEfficiencyAssessment System.However,although it contributed ideas for dataprocessing and for calculation ofperformance indicators,which served asbasis for developing similar systems inother countries (e.g.‘Sigma’,promotedby the InternationalWaterAssociation(IWA)) (Cabrera,2001),nationally itdid not achieve consolidation andimprovement.Similarly, in 2005 theInstitute began developing anothersystem, the Performance IndicatorsMonitoring Program ofWater SupplyUtilities (PIGOO),which publishessome results on its website,but also hasomissions and inconsistencies, just like

CONAGUA’s publication.Recently, the National Statistics,

Geography and Informatics Institute(INEGI), as well as the NationalAssociation ofWater and SanitationCompanies (ANEAS) and the StateWaterCommissions of Guanajuato,Coahuilaand Sonora, and other public and privateinstitutions interested in successfully

fulfilling their particular mission ofimproving water and sanitation services,have started,by their own means, theintegration and publication of this typeof information.The Gonzalo RíoArronte Foundation

(FGRA) is a private assistance institutionthat, through itsWater Committee,hastaken the initiative to support and


PERFORMANCE

Executive summaryDespite a range of attempts to use performance indicators to show the performance of waterand wastewater services in Mexico, problems around co-operation between different agenciesand a lack of a thorough performance overview have limited their use in encouraging serviceimprovement.

In an effort to improve water and sanitation services in Mexico, a range of public and privateinstitutions have begun to collate and publish relevant information. The Gonzalo Río ArronteFoundation (FGRA) is one of those aiming to encourage the sustainable development of water andwastewater utilities through developing the use of performance indicators. This article outlines aproposal made to FGRA by the Mexican Institute of Water Technology (IMTA) for the planning,organizing and development of a performance indicators system.

The proposed method for service improvement has four stages. First is the defining of the majorstakeholders and the current situation of data management within a selected range of utilities.Principal performance indicators can then be identified, and processes and procedures forinformation collection and management established. Second is the design and development of theinformation system, where initial information for the proposed indicators is gathered and used todevelop an online database system. Third is the implementation of this system, training of stake-holders, and the publication of the project’s results after a six month pilot period. The fourth stage isthe ongoing development of the project, with rewards for the best results and incentives for contin-ued contribution.

It is expected that the participation of key stakeholders and the information collected from thesample of utilities will then encourage participation from other utilities, which will create an infor-mation system of reliable data that can then be used for billing and payment processes, andevaluation of performance. It is thought that this will allow utilities to realize an efficiency costrecovery plan, improving services to users.

There have been ongoing attempts to utilise performance indicators in the improvement of drinking waterand sanitation services in Mexico, but a lack of co-operation between various agencies means acomprehensive database of information, which can be then used to improve performance, is still lacking.In this article, RAMÓN PIÑA and VÍCTOR BOURGUETT outline a proposed method for the collection, analysis andpublication of information relating to billing and revenue of services, which can be used as abenchmarking approach to incentivise service improvement in the country.

Information database developmentkey to Mexico’s utility improvement

Ramón Piña Víctor Bourguett


promote actions to encourage sustainabledevelopment of the water supply andwastewater utilities (known as OOAPAS)and other large consumers of thisresource in the country.Therefore,FGRA is interested in promoting thedevelopment of an organized processfor the integration, evaluation anddissemination of performance indicatorsfor billing and revenues of Mexicanwater services, seeking to avoid pastmistakes by only creating anotherset of disjointed indicators withoutinter-institutional planning.This article outlines the proposal

that has been made to FGRA for thedevelopment and implementation of aninformation system to systematize theprocess of gathering,processing,comparing and disseminatingperformance indicators in themanagement of billing revenues of waterservices in the country, establish themechanisms for its maintenance andsteady updating, and provide incentives toOOAPAS to improve their performance.

General contextSince the 1980s in Mexico,with waterbeing a scarce resource,CONAGUAproposed rates each year established byFederal Law onWater Rights (LFD),which are differentiated by water use andavailability by region.For wastewaterdischarge into receiving water bodies,rates depend on the nature ofcontaminants.Also, for the revenue ofdrinking water and sewerage services, theConstitution of the United MexicanStates (Art. 115) establishes the legal basisto fully recover all costs of providingthese services and allocate all income tothe municipal providers, but muchremains to be done to improve theexisting bill payment systems (e.g.looking at the recovery of direct costsof operation and maintenance ofthese services).Determining rates for the recovery

of water services contains a strongsocio-political component,whichsometimes causes a vicious circle wherethe service provider does not meet the

quality standards that users require, sothey are reluctant to pay for a deficientservice,which means the provider runs adeficit, and hence delivers a bad service.This is compounded when the rates arekept low as a political strategy to gainvotes,which represents one of the mainproblems for OOAPAS,causing them toget into debt.CONAGUA has established the Public

Registry ofWater Rights (REPDA) tosupport the adjustment of the charges forwater use and wastewater discharges,butas this is a fiscal instrument, the access toinformation is subject to the constraintsof fiscal secrecy.Similarly, the recovery of drinking

water and sanitation service costs derivefrom a contractual obligation betweenthe service provider and its customers, sothat each utility sets its user registry, theirbilling and payment processes, and themeans for collecting the debts of its users.In this context the value of water and

its legal, socio-economic,political andinstitutional frameworks strengthen andsupport the information managementprocesses,which, along with transparency,is necessary for the accountability ofmanagement of the billing and revenue ofwater services, in which performanceindicator benchmarking has a veryimportant role.

The proposed method forservice improvementThe applied method is proposed in fourstages (Figure 1).Firstly: identify the mainactors or stakeholders involved in thedevelopment and implementation of thesystem; integrate and review informationfrom major national and internationalsources to define the current managementsituation of this information; conductparticipatory meetings with keystakeholders and jointly refine theperception of the current situation andidentify principal performance indicatorsfor the billing and revenue of waterservices, and the establishment ofprocesses and procedures for managinginformation; and develop a conceptualmodel of the information system.Second:undertake the first data

collection for the proposed indicators(review,validate and analyze); beginsystem design, including a website;develop system programming,manualsand processes.Third: formalize at a national meeting

the system implementation and presentthe main achievements and results of the

A 1400m3 water tower supplying the city ofVillahermosa, Tabasco, Mexico.Credit: Ramón Piña.

PERFORMANCE


PERFORMANCE

first indicators evaluation,giving the firstincentives; implement mechanisms formonitoring, evaluation andcontinuous improvement.Fourth:design and implement

mechanisms and strategies forcommunication and dissemination of theresults achieved, in the written press,radio and television, as well as nationaland international events; continuouslyupdate the information system.

Stage 1: Framework analysis anddefinition of indicatorsIdentifying key stakeholders and thecurrent situationKey stakeholders involved have to beidentified, as well as the most importantnational and international sources ofinformation (OOAPAS,CONAGUA,IMTA,ANEAS, INEGI, IWA,ADERASA (Association ofWater andSanitation Regulatory Entities of theAmericas),OFWAT (UK water andwastewater regulator), etc.), in orderto analyze the indicators currentlyused, and make a proper classificationof the different OOAPAS according totype of organization, size, structure,socio-economic status, legal andpolitical aspects, etc.Five or six regions should be defined to

group the different utilities taking part.There then should be a review andanalysis of the legal and regulatoryframework at the federal, state andmunicipal level, as well as the institutionallevel, to define the current factors thatfavour or limit the management of therequired information.Results of theabove can then be taken to form a base

document,which is then presented to ameeting of the participants.

Determining indicators to be used and theinformation system conceptual modelAt participatory meetings conductedwith key stakeholders, past experienceand knowledge is used to determine themain and final management indicators forbilling and payment of water services(with which a matrix can be developed tofacilitate understanding and analysis).These meetings will also serve to adjustthe issues to be faced and assure that theinformation system design meets theexpected requirements.Based on the above, a consensus will be

sought on the procedures and mecha-nisms to be applied for collecting andprocessing the basic information forindicators evaluation and comparison.Thus, the information system conceptualmodel can be defined,with support ofexperts in information technology andtelecommunications.Another important outcome of the

participatory meetings are theagreements established with thestakeholders, to ensure ongoing andcontinued commitment in theimplementation,maintenance andcontinuous improvement of the system(processes will be defined and establishedconsidering the different actors’ visions).

Stage II: design and development of theinformation systemFirst data collectionIn accordance with the mechanisms andprocedures agreed and established at theparticipatory meetings in Stage I, the

gathering of the first delivery ofinformation (from the years 2005 to2010) from selected OOAPAS canbegin.This is done over the internet orwhichever is the most feasible method ineach case, then it is analyzed,validatedand integrated into a database.This willallow for the determination of the basicindicators for managing the billing andpayment of water, as well as the processesof evaluation and comparison of these.

Design and developing the systemBased on the system conceptual modeland the flow charts that clearly describeeach of the integrated processes forcapturing,processing and generatingqueries (statistical reports, graphs,maps,etc.), entity relationship diagrams can bedeveloped for a flexible and efficientdatabase, as well as variables andalgorithms for determining eachparticular indicator.The interfacesrequired for the web-based informationsystem are also defined at this point.Programming should be developed for

each module of the system,according tothe technology that is considered mostsuitable, and the preparation of manuals(technical and user),which describes themain features and instructions forproper use.

Testing and validating the systemThe necessary tests should be developedfor the operation of the system,withany faults documented, as well as theprocedures for resolving them.Throughout this stage,working

A 64km pipeline carrying water to, amongstothers, the cities of Tijuana and Playas deRosarito in the state Baja California Norte.Credit: Víctor Bourguett.

Figure 1: Diagram of organisational processes (POM-based. Checkland, 1998)

meetings should be conducted withstakeholders when necessary, for aneffective interaction that facilitates thedevelopment of the project activities.

Stage III: implementation of thesystem, and evaluation and monitoringmechanismsSystem implementationImplementation of the system takes placeat a national meeting with all actorsinvolved,where the main achievementsand problems of the different informationsystem stages will be presented.At the meeting, all stakeholders are

trained to operate the system and areprovided with a document with themechanisms for monitoring, evaluatingand implementing continuousimprovement.The results of the initialassessment of indicators generated fromthe information provided by OOAPAS,is also presented in order to developawards and incentives for improvedperformance, according to themethodology implemented.

Mechanisms for monitoring, evaluation andcontinuous improvementThe system,once implemented,willapply the mechanisms for monitoring,evaluation and continuous improvementestablished with key stakeholders.Thiswill be used to keep a record of alloperations and activities carried outduring a six month probationary period,and users will have the opportunity to getfeedback (through the website) on theoperation of each system component,including preventive, corrective andimprovement steps.At the end of thisperiod, results are published on the samewebsite, as well as improvements to bemade to the system over thefollowing months.

Stage IV: Publication of resultsDesign of a communication strategyBased on the available budget,mechanisms for the communication anddissemination of the project’s results aredesigned.Strategies should be supportedby an interdisciplinary group of expertsfor the dissemination of information tothe press, radio and television, as well innational and international events relatedto the costs and payment of water services.

Recognition and encouragementSchemes of granting awards should bedefined for the best results, as well asincentives for other participants to

contribute to the continuousimprovement of the system and thegradual incorporation of new waterusers as part of the information system.

System updatesThe design of the information systemupdating procedures should be adjusted tobe implemented by IMTA,consideringthe procedures for adding new users withthe respective agreements, and imple-menting all the mechanisms for maintain-ing and updating performance indicators.

Expected results of the system’simplementationThe application of this methodology,particularly through the participation ofkey stakeholders,will enable them to gaina better understanding of the roles of eachin the processes and procedures to beagreed as part of the information systemfor the generation and dissemination ofperformance indicators for billing andpayment of water.Moreover, the information available

from the sample of OOAPAS will allowother utilities to determine and compare:the amount of revenues derived from ratescharged for different water users; the keyfactors for financial sustainability(revenues and expenses) of OOAPASinvolved; implicit subsidy schemes inrights, tariffs or quotas (direct or cross);and the performance indicators used forthe billing and payment of water services(particularly the efficiency andeffectiveness in these processes).

ConclusionsGiven the significant changes requiredin the field of water policy in Mexico,it is necessary to take into account thebilling and revenue processes established,and the idea that water rates shouldserve as incentive to improve efficiencyin water use and increase environmentalsustainability.Transparency in the management of

information on billing and revenue isessential to support economic growthand the provision of water services. It isessential to know what is paid and whopays in relation to their economiccapacity, then make better assessments andtake steps to improve the situation usingthis knowledge.All water users have the right to know

what services actually cost and what theyreally pay for them,and the governmenthas a duty to disclose such information.Therefore, there is an urgent need to

integrate and analyze information onwhat it costs to provide water services,onpayments made by users, and the use ofsubsidies and social considerations in thedetermination of rates and how theyencourage more efficient use of water.The information system proposed is a

feasible and viable method to create asource of reliable information to assist inthese billing and payment processes, andto support utilities in decision making andevaluation of their performance in orderto facilitate design of financingalternatives that allow utilities to realizean efficient cost recovery plan and itsapplication in improving services towater users. �

ReferencesComision Nacional delAgua (1991-2010) Situación del

SubsectorAgua Potable,Alcantarillado y Saneamiento

(The current Situation of the DrinkingWater and

Sewerage Subsector).México.

Sandoval,R (2008) Regulación, participación social y

gobernabilidad delAgua Potable en México – elementos

para un análisis de su evolución institucional (Regulation,

social participation and governability of DrinkingWater in

Mexico – elements for its institutional evolution analysis).

Asociación Nacional de Empresas deAgua y Saneamiento

de México.

Maestu, J et al (2007) Precios y costes de los Servicios

delAgua en España (Prices and costs of water services in

Spain).Artículo 5 y anejo III de la Directiva Marco de

Agua.Ministerio de MedioAmbiente,España.

Cabrera,E (2001) Diseño de un sistema para la

evaluación de la gestión de abastecimientos urbanos’

(Designing an evaluation system of urban water supplies

management).Tesis Doctoral.Universidad Politécnica de

Valencia,España.

Checkland,P and Holwell,S (1998) Information,

Systems and Information Systems.Lancaster University,

UK. JohnWiley & Sons.



PERFORMANCE

About the authors:Ramón Piña is a planning and systemsspecialist, collaborating in the area of plan-ning, economy and finance in water at theInstituto Mexicano de Tecnología del Agua(IMTA), Jiutepec, Morelos, México. Email:[email protected].

Víctor Bourguett is responsible for thecoordination of professional and institutionaldevelopment at the Instituto Mexicano deTecnología del Agua (IMTA), Jiutepec,Morelos, México. Email:[email protected].

Since 1989, the NationalWaterCommission of Mexico

(CONAGUA) has been responsiblefor regulating water services andproviding financial support to waterutilities and municipalities to investin new infrastructure and improvetheir efficiency.This represents morethan $2 billion invested each yearthrough federal financialprogrammes,which are conveyedthrough the state or local govern-ments, or directly to water utilities.In parallel to these activities, efforts

have been made since 1993 to integratedata and indicators from water utilitiesthrough questionnaires which aredistributed and integrated by theregional representations of CONAGUAeach year.These indicators are publishedin an annual report,which comprisesinformation on more than 800 watersuppliers serving almost half of thepopulation of the country.Unfortunately, the quality of the data

collected has not been adequate to verifythe real impact of the investments that areexecuted each year using the federalbudget, and to better focus the financialresources.Additionally, a reliable bench-marking process,which can monitor thedevelopment of water utilities and theprogress of the water and sanitationsector,has not been achieved.This

is a constant requirement of auditors,researchers, technical and socialorganizations.Therefore, a new strategy is under

development by the federal government.This will allow water utilities to organizeand systematize their daily processes andgenerate necessary data for decisionmaking within the utility, and at the sametime comply with all the informationrequirements from authorities and thepopulation,giving more transparency totheir administration.

Main obstaclesThe obstacles that have been detected forthe consolidation of a reliable informa-tion system for benchmarking processesand evaluation of the performance ofwater utilities are:• Inconsistency of the data provided dueto the lack of metering systems in watersources and water connections,whichresult in estimations of data with incon-sistent and undefined criteria.

• The voluntary delivery of informationby water utilities gives rise to reportsthat are not delivered at all or notdelivered in a timely fashion.

• The constant changes in the leadershipof water utilities (less than three years)generates a lack of continuity in theinformation reported, the loss of dataregisters, and a lack of support of the

information provided by formeradministrations to the new ones.

• The non-existence of reliableregisters of information or systemswhich can automatically generatedata and indicators for the quickreporting of information.

• The lack of use of indicators insidethe same utilities for decision makingand monitoring achievements andthe lack of knowledge of the benefitsof using them.

• The lack of capacity of those incharge of reporting information,along with the lack of suitable planningareas able to consolidate informationfrom different processes.

• The information requirements differbetween different associations, govern-mental institutions and other organiza-tions, and even different areas ofCONAGUA.

New strategyNew software is being developed, inwhich water utilities will be able to reporttheir data and generate performanceindicators.This software will allow themto make analyses of their own indicatorsfor decision making.At the same time thesystem will generate reports,which willbe sent to CONAGUA.The indicatorsgenerated are based on common indica-tors already used in Mexico and are

UTILITY PERFORMANCE

For many years, the National Water Commission of Mexico (CONAGUA) has faced the problem of nothaving adequate information regarding the performance of the country’s water utilities. CONAGUA’sMARIA EUGENIA DE LA PEÑA and ALBERTO ESTEBAN give details of a new strategy being developed by the federalgovernment, and the tools planned to support its implementation.

Improving Mexico’s utility services withperformance indicator-focused investment


Figure 2: Structure of the platform ‘SI CONAGUA’Figure 1: Structure of the Integrated Management System for Water Utilities(SIGOO)

complemented by the guidelines estab-lished by three Mexican Norms publishedin 2008.These are related to the perfor-mance of water utilities and are based onISO Standard 24510 on activities relatingto drinking water and wastewater ser-vices.The software will have a manual,which will explain each indicator, thecriteria to calculate it, and the goalexpected for each.The Integrated Management

System forWater Utilities (SIGOO)(see Figure 1) will be compatible withoperating modules,which will not onlyhelp utilities to generate information,butalso to undertake their processes in asystematic way.The modules will beflexible enough to be adopted by allutilities of any size, considering theparticularities of their legal and regulatoryframework, as well as their special poli-cies, but establishing a general standardwhich can be adopted by all of them.The information generated in SIGOO

will be incorporated to the platform‘SICONAGUA’ (Figure 2),which willintegrate not only the performanceindicators but also the information gener-ated by the different systems operated inCONAGUA,especially the financingprogrammes, in order to better analyseinformation and for better decisionmaking at the national level.

ImplementationImplementation of the new system willinclude a capacity-building componentfor water utilities.Technical assistancewill be provided by telephone and email,and there will be visits from the projectconsultant when required.Manuals andtutorials will also be developed.From 2011, the guidelines accompany-

ing the federal financial programmesestablished that the use of an adequatemanagement system is compulsory inorder to access to the financial resourcesof the programmes.Therefore, it isexpected there will be a good responsewhen the implementation phase begins.The contract with the consultant

considers a permanent service ofassistance and support. It is expectedthat this will guarantee the continuityand sustainability of the project.

Benefits expectedThe new strategy being implementedwill generate a tool to allow waterutilities to better understand the useof performance indicators and tostandardize calculation criteria within

the water and sanitation sector.It is expected that the operating

modules that will complementSIGOOwill allow better registers, andtherefore more reliable information, to begenerated.This will permit not onlyCONAGUA,but also other institutionsand organizations in the water andsanitation sector, to have better data fortheir own activities, reducing the infor-mation demands on water utilities.The ‘SI CONAGUA’platform will

allow the performance of water utilities tobe monitored and evaluated and theimpact of the investments made on theindicators to be identified.This tool willalso allow CONAGUA to better focusthe financing programmes it operatesin order to increase the quality of thewater and sanitation services providedto the population.

ConclusionThe implementation of the strategy willnot be easy, especially considering thelarge number of water utilities, the bigdifference in their level of developmentand their capability of installing,operatingand maintaining a system,but all thenecessary precautions are been taken toguarantee the success of this project.Complementary tools are being

developed,which consider the publica-tion of additional standards related tothe certification of the personnelworking in water utilities and thecorresponding capacity-buildingprogramme,which is being developedjointly with Mexican universities.TheWater and Sanitation Handbook

(MAPAS),published by CONAGUAfor the first time in 1994, is beingupdated in order to provide waterutilities with a worthy technicalguide for their activities and projects.The complementary investments

needed to correctly operate the software,such as computers or electronic watermeters,will be financed through therespective federal financing programmes.The project presented will be

implemented at the national level,contemplating the eventual participationof all water and wastewater operators inMexico,which amount to more than2500.This will not only allow thegeneration of reliable and general datafor evaluation of the water and sanitationsituation in the whole country,but willalso motivate the improvement of thequality of the services provided to thepopulation through transparency and

reporting of information.�

ReferencesAlegre,H.,Wolfram H., Jamie M.B.and Renato P.

(2000).Performance Indicators forWater Supply Services.

IWAManual of Best Practices.London: IWA Publishing.

Baietti,A.Kingdom,W.and van Ginneken,M.

(2006).Characteristics ofWell-Peforming PublicWater

Utilites,Water Supply and SanitationWorking Notes;

Note No.9,World Bank.

Benavides,H.: Indicadores de gestión internacional para

la eficiencia en la gestión urbana.El benchmarking en el

Ecuador, International Performance Indicators for the

Efficiency in UrbanWater Management.

www.utpl.edu.ec/ucg/images/stories/Investigaciones/ben

avides.pdf (accessed 25 November 2010)

BenchmarkingWater & Sanitation Utilities:A Start-

Up Kit (1999)Transportation,Water and Urban

Development Department:Water & Sanitation Division,

TheWorld Bank,Washington D.C.

Berg,S (2003)TheArt and Science of Benchmarking.

Paper presented on conference on Global Developments in

Water Industry Performance Benchmarking September

29,2003, in Perth,Australia.Public Utilities Research

Center (PURC).

Bourguett,V (2007) Indicadores de gestión para la

evaluación del desempeño de prestadores de servicio a través

de un ente regulador,Performance indicators for the

evaluation of water utilities through a regulator,

International Seminar,The Reguation ofWater and

Sanitation Services,25-27 July 2007,Mexico City.

Kingdom,B. and Jagannathan,V. (2001):Utility

Benchmarking.Viewpoint,Note Number 229,

TheWorld Bank.

Kingdom,N.andWashington,B. (2002).AWater

Scorecard.Setting PerformanceTargets forWater Utilities,

TheWorld Bank.

Molinari,A (2007) Manual de Indicadores de Gestión

paraAgua Potable yAlcantarillado Sanitario,Manual of

Performance Indicators forWater Supply and Sanitation,

Asociación Nacional de Entes Reguladores deAgua

Potable y Saneamiento (ADERASA).

Situación del SubsectorAgua Potable,Alcantarillado y

Saneamiento (2010)Water supply and Sanitation

Situation,NationalWater Commission,Mexico City,

2010.



UTILITY PERFORMANCE

About the authors:Maria Eugenia de la Peña is Deputy Managerof Strategic Projects at National WaterCommission, Mexico City, Mexico. Email:[email protected].

Alberto Esteban is Manager of TransboundaryBasins at National Water Commission, MexicoCity, Mexico. Email:[email protected].


REGULATION

Primarily some direction’ is whatNick Carter, director general of

Abu Dhabi’s Regulation &Supervision Bureau (RSB), says theregulator tries to bring to the waterand power sector in the emirate,combined as they are because of thedependence on desalination forpotable quality water.Abu Dhabi is the largest of the seven

emirates of the UnitedArab Emirates interms of land mass. It has around 1.6million inhabitants, a figure that increasesby around 5% a year.Most water used inthe emirate – 79% according to 2003figures – is groundwater,but this is usedfor irrigation.A small amount of treatedsewage effluent is used.Other than this,domestic, commercial, government andschool customers rely on desalinationfor their water,with a significantproportion of this also being useddirectly in agriculture.RSB’s role therecurrently includes regulating 11 compa-nies. ‘There is something like US$24billion worth of investment in this sectorin regulated companies,’ commentsCarter. So the level of investment and theprospects regarding future demand meansthe need for direction is clear.RSB brings this direction to bear

on a sector structure that was basicallyestablished in 1999, although it hasevolved since.Most potable water andpower production is carried out byindependent water and power producers.All the water and power output is pur-chased by theAbu DhabiWater andElectricity Company (ADWEC).Bulktransmission of all water and power iscarried out by theTransco transmissioncompany,while distribution and sale ofwater and power to customers is carriedout by two regional distribution compa-nies, theAlAin Distribution Companyand theAbu Dhabi DistributionCompany.Wastewater collection andtreatment is mainly carried out by theAbu Dhabi Sewerage Services Company,although there are now independentsewerage treatment plants operating also.

Within this structure,RSB provides anindependent regulatory function.‘Wederive our income from licence fees.Weare not paid by the government, so that isone stem of independence,’ commentsCarter.‘Another is that we have very goodlaws in place which have been in place forthe last 12 years [and] which set up orunbundled the sector and provide a greatdeal of security and surety,particularly toforeign investors here,’he continues.‘Thatgives us a high degree of stability.That isimportant, and because of that we alsoreport into the government through ourchairman,but we don’t really report tothe government.We are not an extensionof government.We are a separate entitywith its own legal identity.’The focus of RSB’s role is to provide

technical and economic regulation of theactivities of licence holders. In terms ofproviding direction, this role is very muchshaped around RSB’s oversight of thelong-term plans of the various entitiesoperating in the sector. Seven-year for-ward-looking plans have to be submittedto RSB for approval.‘We have the powerto approve or reject, and sometimes wehave rejected,’ comments Carter.Companies then use these strategic

plans as the basis for preparing capitalplans that are submitted to RSB as part ofits four-yearly pricing cycle.Carterexplains that RSB does not approve thecapital plan as such at this stage,but doeslook at the pricing proposed to supportthe capital plan.‘We would look at thecapital plan within the price controlbecause that is part of the fundingmechanism and we generally mark thatdown. I don’t mean to be cynical here,but we generally mark it down because itis often talked up.’RSB can exert further influence on

companies, by looking retrospectively attheir expenditure.With the fourth pricecontrol period since 1999 currentlyunderway, the expenditure of the secondperiod was reviewed during the thirdperiod.This approach means looking, forexample, at whether plant required tosupport extra future capacity was installedearlier than was necessary.‘We decide ifthey have spent the capital wisely. If theyhaven’t,we mark it down,’ commentsCarter,meaning that the value of theassets is marked down.‘We marked downall network companies’ capital under thePC2 review,which we carried out duringPC3 period, and we marked it down by

With the Emirate of Abu Dhabi dependent on desalination for its potable water supply, water and powerprovision form what is in effect a combined sector regulated by the Regulation & Supervision Bureau.KEITH HAYWARD spoke with its director general, NICK CARTER, about the role and contribution of the regulator.

Delivering direction in Abu Dhabi:the role of the Regulation & Supervision Bureau

‘

‘Ten years ago we couldn’teven talk about subsidy really.

It was considered quitesensitive. Now

we are publishing oneveryone’s bill just how muchthe government is paying

towards their bill...’Nick Carter


REGULATION

about 10%,’he adds.‘So that does have along-term impact for them.’Overall, then,Carter sees that RSB is

able to shape the direction of the sector:‘So we do have a lot of sway and a lot ofinfluences at different pressure pointsthroughout the whole planning,design,installation and operational parts of thetypical lifecycle of any plant.’

Customer connectionRSB’s role extends wider than this focuson the price control process, and includesin particular looking at issues aroundcustomer billing and demand.‘One of thethings that we are looking to do is awhole range of promotional activitieshere,particularly with respect to peoplevisualising what they use,’ says Carter.As a small example,he explains that the

units used on customer bills have justbeen changed from gallons to cubicmetres.‘We know through talking topeople and various focus groups thatgenerally people can visualise a litrebottle of water and they can visualise athousand of them,or a cubic metre ofwater, rather than 1000 gallons,whichreally no one can visualise,’ he says.‘So wehave done that really not necessarily tobecome metrified as such,but just tomake sure that they visualise that.’More radical though is an overhaul of

Abu Dhabi’s approach to billing,whichwill see electricity,water and wastewatercharges split and make clear to customersthe extent to which government coversthe true cost of these services.Accordingto Carter,RSB has been working withthe two distribution companies with theaim of introducing a ‘new major billingupgrade’ in the middle of this year.‘We are looking now to raise separate

bills, because at the moment they arecombined,’ says Carter.‘We feel that is abit foggy because it doesn’t focus on thecosts or the messaging.’He explains thatthere will be a separate electricity andwater bill, and that RSB has given thedistribution companies permission tolook at billing for wastewater services.‘Sothe new billing system will have threebills, three different colours, and in eachcase they will tell customers what thetrue cost of those services is,’ he adds.‘That is quite a leap forward,’ says

Carter.‘It may not sound a great leapforward,but this is not Europe here, andten years ago we couldn’t even talk aboutsubsidy really. It was considered quitesensitive.Now we are publishing oneveryone’s bill just how much thegovernment is paying towards theirbill, and we recently put some bill stuffersinto bills showing that national peoplehave an average saving on their units ofsomething like 86%… and foreignershave a saving of about 50%.These arequite significant figures and it has madepeople sit up and think, and a lot ofpeople have said“I hadn’t realised howmuch the government was paying.” Interms of wastewater services, 100% ispaid by the government.’Alongside this RSB has set up aWater

Wise initiative with a dedicated manager.Linking with wider public relationswork, the initial focus of this will beto provide customers with advice onsaving water,but will in time look tooffer services to companies about howto save water.‘So there is a whole package of differ-

ent initiatives, all aimed at seeking toreduce demand,which is massive here,’says Carter.

Reuse reformsSuch efforts to shift the course thesector is taking can also be seen inrelation to wastewater.This is focusedon the statistic that less than 20% of thewater entering the transmission systemis returned to sewer.The ‘Trade Effluent Control and

RecycledWater and BiosolidsRegulations’were introduced in June oflast year, setting standards that the sewageservices companies must meet for waterrecycled for use by irrigation companies.‘In the strictest sense it doesn’t quitemeet the recycled water internationalunderstanding of what recycled water is,but we feel that for this market it is fine,’says Carter.Carter sees the potential for two long-

term developments, the first being tomake greater use of recycled water ratherthan potable water for landscaping use.He says RSB is highlighting to govern-ment that population growth in theemirate is seen mainly in flats,wherealmost all water used is captured andreturned to sewer.‘The demographicdrivers will potentially provide anincrease in water return to sewer, andwhat we are then saying is start to relyonly on that water for beautificationpurposes, rather than potable water,’ saysCarter.‘That is a long-term strategy – 10-15 years maybe – but it is where we aretrying to take the sector.’Alongside this is the role of irrigation

companies.‘We do not regulate irrigationcompanies, but we may do one day,’ saysCarter.‘We are promoting the concept ofone irrigation company in the emirate.We genuinely feel that if we had a com-pany that was completely responsible forall recycled water,with the ability to taketop-up from the sector,but with limitsimposed on how much top-up theycould take, and it were regulated,we feelthat would be a huge leap forward.’Overall then Carter can believes

progress is being made.‘It does take awhile to get these things through,but Ithink [the position] we have reached isthat everyone understands where we arecoming from,and we understand wherethe government and where the environ-mental agencies are coming from... Soone of our strategies is to keep bangingthe drum, if you like.We have somestrategies, and we are pursuing them,butwe don’t pursue them aggressively – wemove with the times in a pragmatic way,and we are getting there.’�For more information, visit: www.rsb.gov.ae

DesalinationCompletion of S2 at ShuweihatExpansion of Fujairah F1Retrofit expansion of MirfaEvaluation of two new plants

Transmission and distributionFujairah / Al Ain transmission improvementsShuweihat transmission upgradeAbu Dhabi transmission improvementsFull pressurisation of Al Ain distributionnetworkTransmission work at Taweelah Unit IIIpumping stationFujairah and Taweelah transmission upgrades,dependent on desalination upgrades

WastewaterICAD (Industrial City of Abu Dhabi) IndustrialEffluent Treatment Plant entering operationEthiad Biwater Al Wathba and Al Saad phase 1plants into operationVeolia Besix Al Wathba phase 2 plantDecommissioning of plants, including Mafraq(proposed) and ZakherNew plants for Reem, Saadiyat and YasStrategic Tunnel Enhancement Programme(STEP)

Source: RSB Annual Work Plan and Five-YearSector Timeline 2011-2015, 2011. (Informationtherein based on documents from ADWEC, TRANSCOand ADSSC.)

Overseeing infrastructure expansionKey anticipated water and wastewater projects by companies regulated by RSB, 2011-2015


BENCHMARKING

TheAbu Dhabi Sewerage ServicesCompany (ADSSC) was estab-

lished in 2005 to take responsibilityfor the wastewater collection andtreatment requirements for theEmirate of Abu Dhabi (including thecities of Abu Dhabi andAl Ain).TheADSSC’s strategic plan is directlytied to the strategic plan of theEmirate of Abu Dhabi,which has setan ambitious long range vision forthe region in a plan called ‘AbuDhabi 2030’.The long range planincludes the provision for substantialgrowth over the next 20 years as thepopulation more than doubles in thistimeframe.This will create a signifi-cant demand for new sewerageinfrastructure.CurrentlyADSSC owns,operates and

maintains two large sewage treatmentplants (STPs), 24 packaged STPs,236pumping stations (80% in the city ofAbuDhabi) and over 7400km of sewer mains(66% in the city ofAbu Dhabi).ADSSC isalso responsible for planning and imple-menting system expansion required tosupport future growth.To meet theseextraordinary growth demands,ADSSChas embarked on a major sewer trunktunnel programme,which includes a41km trunk tunnel that is up to 5.5m indiameter.When completed in 2014, thisgravity trunk system will enable thedecommissioning of 34 existing pumpingstations in a new system that will besimple to operate, energy efficient, andeliminate odours and overflow risks.CurrentADSSC management

challenges include:• Meeting the Emirate ofAbu Dhabi’sprojected rapid population growth

• Ensuring that the infrastructureexpansion and capital projects aredelivered on time and to budget

• Managing cost in a relatively highinflation environment

• Operating and maintaining the utilityfor the benefit of customers with anacceptable level of service

• Attracting and developing askilled workforce

ADSSC is also faced with the growingneed to renew and replace aging infra-structure, as well as ensuring that all levelsof service can be maintained through theaggressive construction phases.This willrequire that the ten divisions withinADSSC operate in close association withone another to ensure that all organiza-tional objectives set out in theADSSCstrategic plan are met.TheADSSC is committed to continu-

ous improvement and has participated inbenchmarking some of its core processeswith a broad range of leading utilityagencies.Based on past success with

benchmarking,ADSSC approached theconsultancyAECOM (due toAECOM’slong-term experience in designing andimplementing benchmarking within thewater and wastewater sector) to develop acooperative approach to benchmark its

As part of the long-term vision of the Emirate of Abu Dhabi to meet future demands on sewerageinfrastructure and treatment there, the Abu Dhabi Sewerage Services Company (ADSSC) hasundertaken benchmarking of its core processes to facilitate the expansion of its network and operationof service. ZILLAY AHMED, DAVID MAIN, KATHY DAVIES MURPHY and LINDA PETELKA discuss how ADSSC commenced aprogramme with two Canadian utilities in order to process benchmark the development of bestpractices in the establishment of a Balanced Scorecard-based performance measurement system.

Process benchmarking a Balanced Scorecard system:developing best practices for Abu Dhabi’s sewerage expansion

Executive summaryThe Emirate of Abu Dhabi has set a long-term plan for the region, called Abu Dhabi 2030, whichincludes substantial growth of infrastructure to meet the demands of a rapidly increasing popula-tion. Part of this demand will be the need for new sewerage infrastructure, and Abu DhabiSewerage Services Company (ADSSC), which is responsible for wastewater services across theEmirate, has created its own strategic plan for expansion in line with the Emirate’s overall vision.

ADSSC’s plan includes a major new trunk tunnel to be completed in 2014, and the renewal andreplacement of current aging infrastructure. With the aim of continuously improving its service,ADSSC has implemented a Balanced Scorecard-based Organizational Performance ManagementSystem. The Balanced Scorecard system is used to align business activities to the companystrategy, and ADSSC as well as over 45 other organizations reporting to Abu Dhabi’s ExecutiveCouncil have implemented this framework.

In order to guide the implementation of ADSSC’s strategic plan, around 150 key performanceindicators were defined for all departmental objectives, some of which were set by the ExecutiveCouncil and some by the divisions of ADSSC. These are being tracked using an automation andreporting project software application. As ADSSC did not have long-term experience in the use ofwastewater-utility based performance indicators, it decided to commence, through the consultancyAECOM, a programme to benchmark the implementation of the performance managementsystem, coordinating with the City of Calgary and Region of Peel in Canada, who are both involvedwith the Canadian National Water and Wastewater Benchmarking Initiative and have been usingperformance management systems for over ten years.

The process benchmarking exercise allowed the assessment of best practices throughanalysing a wide range of effective utility processes and comparing the experiences of all threeutilities in the tracking of their various performance indicators. ADSSC can now use the bestpractices identified through this benchmarking process to continue its Balance Scorecardimplementation in a gradual and sustained manner.

Zillay Ahmed

Balanced Scorecard-based OrganizationalPerformance Management System with arange of similar wastewater utilities, forthe purpose of assisting in the optimiza-tion of the performance managementsystem to its full potential.Abu Dhabi Executive Council opted

for the implementation of the BalancedScorecard framework, created by Harvardprofessors Robert Kaplan and DavidNorton, to facilitate achievement ofits ambitious vision.ADSSC and morethan 45 other organizations reportingto the Executive Council implementedthis prescribed framework,which iscentred around:• Agreeing on the organizationalchange agenda

• Translating strategy intoeveryday actions

• Aligning all divisional / departmentalplans withADSSC strategy

• Ensuring that strategy is integrated withallADSSC employees work

• Making strategy management acontinuous process

The need for a precise and welldocumented strategic planTheADSSC’s directives from theAbuDhabi Executive Council are precise andcritical. Sewerage infrastructure must bein place to support the high growthdemands ofAbu Dhabi, and currentoperations and maintenance must beconducted to ensure a high rate ofcustomer service. In addition to thischallenging environment, theADSSCorganization is relatively small,withapproximately 500 staff.All of the capitalproject and operations and maintenance(O&M) work is outsourced to a range ofconsultants and contractors. In order toensure that work proceeds as required,

ADSSC has an advanced,detailed andcomprehensive strategic planning process(Figure 1).

Use of performance indicators to guidethe implementation of the strategic planADSSC planning process is two-tiered.Atthe corporate level, the company developsa structured five-year strategic plan, inaccordance with theAbu DhabiExecutive Council’s prescribed frame-work.At the divisional level, detailedtwo-year business plans are developed inalignment with the corporate five-yearstrategic plan,by all ten divisions withinADSSC.Since the plan can only beattained if all ten divisions work togetheras a team, the need for a performancemanagement system that included mean-ingful key performance indicators (KPIs)was defined. In 2009,ADSSC begandevelopment of a Balanced Scorecardperformance measurement system to

ensure that all vital initiatives and utilitylevels of service can be tracked and moni-tored.The performance managementsystem aims to translateADSSC’s strategyinto operational objectives that will driveboth behaviour and performance at alllevels of the organization.ADSSC adopted a very comprehensive

and interactive approach in developing itsperformance management system.Sincethe issuance of its five-year strategic planin December 2008,within which theExecutive Management team wasengaged, the most recent 2011-2015strategic plan and the 2011-2012divisional plans were developed in collab-oration with over 80ADSSC employees.InApril 2010,ADSSC selected QPR,a

Finnish software application, for automat-ing its process, risk, integrated manage-ment system, strategic plan and businessplans,with the objective of integrating itsinternal / external reporting and deploy-ment of an effective and efficient perfor-mance management system,via theARP(automation and reporting project).Since its pilot launch in June 2010,

ARP has undergone modifications after asix-month trial run,based upon userfeedback.Today,with its enhanced look,feel,maximum three-click functionality,voice guided assistance and single-win-dow interrogation feature,ARP hasreceived both local and internationalrecognition as a best-practice feature.Performance indicators were selected

for use for each departmental objective.Atleast one performance measure for eachobjective is required,but complex objec-tives would likely require a range ofindicators.There are two important types


BENCHMARKING

Figure 1: ADSSC strategic planning process

Figure 2: ADSSC performance management system structure

Inputs to StrategicBusiness Planning

2 Year Business Planning5 Year Strategic Planning

Govt. Directives• Abu Dhabi Policy Agenda• Plan Abu Dhabi 2030• ADAEP Framework• Performance Contract with ADWEA/EC• Economic Vision 2030• Surface Transport Master Plan

Div/Dept MissionStatements & Objectives• Minimum 3 objectivesADSSC Vision, Mission,

Values and SWOT

EC/ADWEA Weightings

Priority Area Weightings

Target Statements &Weightings

Key Performance Indicators(KPIs), Weightings & RACI

Corporate Initiatives/programsCAPEX/OPEXandRACI

Milestones forInitiatives/programs

Consolidated Stategic Planof ADSSC

Regulations• RSB licence conditions, PIS and PCRrequirements• EAD requirements for EHSMS

Objectives Weightings

ADSSC Existing Inputs• Improvement Projects (WSAA

Benchmarks)• Wastewater collection Benchmarks

from Canadian Consortium• Others bench,arks (OWSC, PA)• Corporate & ProcessesRisks• Improvement initiatives prioritization• ADSSC Master Plan• Executive feedback & consultation• ADSSC FSD Business Processes• Interated Management System of ADSSC• Annual Budget• Existing 5 Year Strategic Plan• Existing 2 Year Business Plan

Div/Dept Plans• Multiple plans for each objective• Weightings for plans of each objectives• MPP+IT+CAPEX/OPEX+RACI+PI

Business Plan ReviewMeetings (BPRMs)

Consolidated BusinessPlan of ADSSC

ADSSC PerformanceUpdates

Divisions & DepartmentsPMS• Pls linked to corporate KPIs• Monthly management reporting

through BI• Defined data source(s), datat

reporting tempate & frequency

Performance Contract• Complete quarterly performance

report as per performance contract• Determine data source(s), data

reporting template & frequency

Qua

rter

lyFe

edba

ck

Mon

thly

Feed

back

)

of objectives.Firstly there are theAbu Dhabi

Executive Council-mandatedperformance indicators.ADSSC andall the other 45+ organizations areobliged to measure and report on theseto theAbu Dhabi Executive Councilon a quarterly basis.These mandatorymeasures relate to human capital,financialefficiency, technology, corporate socialresponsibility,health, safety, environmentand other aspects deemed critical by theAbu Dhabi government in attainment ofits vision. Internally,withinADSSC,strategic priorities and divisionalobjectives are aligned to these mandatoryperformance indicators.Secondly there are divisionally-owned

KPIs.These are developed and selectedto monitor and track initiatives and levelsof service within the respective division.They differ from division to divisionand reflect the specific nature of eachdivisional business plan.As of late 2010,ADSSC was tracking

about 150 KPIs via its computerizedARP Balanced Scorecard system.Eachmeasure is updated quarterly by staffwithin each division,with variouslevels of management and executivereporting.Success with the systemwill be based on many factors, but thefollowing attributes will be important ifthe system is to meets its objectives:• The KPIs result in a meaningfulmeasure of progress in businessplan attainment

• KPI results (especially where anunexpected variance occurs) triggerspecific and timely action

• ADSSC staff use the KPI reports asuseful information to prioritize theirwork in the coming period

• ADSSC management and Executivesare confident that KPI results are accu-rate and reflect the complete picture ofprogress on theASDDC strategic plan

• The Scorecard enhancesADSSCstaff work satisfaction as opposed tobeing used as a tool to offer negativereinforcement.

Purpose of process benchmarkingSinceADSSC did not have long-termexperience with wastewater utility-based

performance indicators,ADSSCcommenced a programme to processbenchmark the implementation of theBalanced Scorecard performance man-agement system with two leading utilitiesfrom the well-established CanadianNationalWater andWastewaterBenchmarking Initiative (CNWWBI).The CNWWBI has been successfullybenchmarking water and wastewaterutilities for over ten years and hasunmatched experience in the productiveuse of performance indicators1.Both theCity of Calgary and the Region of Peelhave been using performance manage-ment systems such as Balanced Scorecardduring part of this time as well.The City of Calgary and the Region

of Peel represent leading Canadianwastewater utilities that exhibit manysimilar attributes asADSSC, includinghigh rates of urban growth,growinginventories of aging infrastructure, and astrong commitment to the environmentand customer service.Both of thesemunicipal wastewater utilities areextremely conversant in the use ofPIs,having engaged in extensivebenchmarking for over ten years.Interestingly,while Calgary and Peelboth operate at a very high level ofservice, there is a gap regarding usefulperformance indicators to guide keypriority strategies. In some cases, tacticalPIs are being used out of context.By benchmarking the use of PIs andperformance measurement dashboardssuch as the Balanced Scorecard for thepurpose of achieving strategic goals, arange of implementation best practiceshave now been identified and document-ed to aid each of the subject utilitiesin enhancing their corporate levelperformance management systems.It is interesting to note that even

though the Canadian wastewater utilitiesoperate in vastly different geographies andclimates, the basic goals of a utilityremains similar.With a generally commonset of goals and objectives, good manage-ment practices in an arid and hot climateare equally effective in a temperate cli-mate where wet weather is a significantlocal factor, and that benchmarking is aneffective way to agree on and share best

practices.At the tactical level of a utility,many of the same PIs can be used,but atthe utility’s strategic level PIs must becarefully considered and developed toreflect the overall attainment of keystrategic priorities.This process benchmarking exercise

was not meant as a replacement method-ology for current utility performancemanagement efforts, but rather to learnfrom the experiences of a range of leadingwastewater utilities as to how to deal withunanticipated issues and challenges associ-ated with implementing a complexprocess for monitoring and managingcontinuous improvement.

Process benchmarking procedureThe benchmarking methodologyinvolved a detailed review of each utility’sperformance measurement programmeby theAECOM facilitator, including thesystems and efforts that are required tooperate the programme and an assessmentof each programme in terms of it meetingits desired objectives.Following thereview of the individual performancemanagement programmes, a series ofworkshops were convened as a forum tohave an open discussion and to facilitateinformation sharing. In all cases, eachworkshop featured a range of presenta-tions and discussions that included adiverse range of managers and staff whoare responsible for conducting individualutility functional processes.As a process benchmarking exercise, it is

not the intention or objective to rank orgrade each of the performance manage-ment programmes,but rather to create anenvironment whereby each utility canlearn from one another.As individual bestpractices or successful outcomes areobserved,utilities have an opportunity toshare the practice to everyone’s benefit.

Figure 3: Performance indicators and their link to utility functions

Figure 4: Relationship of tactics to a goal


BENCHMARKING


BENCHMARKING

Observations from the processbenchmarking exerciseThe ability to match performancemeasures with the process for conductingthe utility function, and then examine thedetailed elements of the function,was apowerful tool to not only evaluate perfor-mance indicators, but also to conductassessments into best practices.All of theparticipants agreed that this methodologyenabled a very thorough analysis of a largerange of effective utility processes.Figure3 shows the PI to function relationshipthat was effective in this exercise.The relationship of the strategic plan to

utility actions was of particular interest inthis exercise, and was the focus of consid-erable analysis. It was quickly observedthrough the workshop sessions thatADSSC’s strong and well articulatedstrategic planning process has made thephysical implementation of the BalancedScorecard mechanisms possible in a fairlyshort period.The process benchmarkingproject team (made up of participantsfrom each of the three cooperating utili-ties and theAECOM facilitator) agreedthat an ambiguous strategic planningprocess would make organizationalperformance management very difficult,and a Balanced Scorecard-based pro-gramme would become a frustratingexperience due to lack of strategic

planning clarity. It was agreed thatorganizational goals and objectivesneed to be actionable and tangible tosupport true measurement.ADSSC has successfully incorporated

most of its non-wastewater utility specificsuccess factors into its BalancedScorecard.These factors were document-ed through the fairly significant numberofAbu Dhabi Executive Councilmandatory KPIs that measured broadorganizational objectives such as:• To ensure the prudent managementof theADSSC by eliminatingunnecessary costs and followingpolicies and procedures

• To continuously develop and improvethe skills and capabilities of all staff,thereby ensuring thatADSSC is anattractive place to work

• To improveADSSC’s internal andexternal communication capabilities(e.g. via regular meetings / newsletters/ emails, etc.)

• Achieve organizational excellence viathe introduction of best practiceswithinADSSC

Since both the City of Calgary and the

Region of Peel wastewater utilities weresubsets of their larger municipal opera-tions, these objectives,while vital tooverall utility success,were managed andtracked by teams outside of the directutility functions.There is a separationbetween wastewater utility performanceindicators that are used for utility bench-marking and indicators that could be usedto measure the efficiency of supportservice functions.Both the City of Calgary and the

Region of Peel featured extremelydetailed management and tracking ofperformance indicators, and conductedannual comparative benchmarking withinutility functions,most particularly withinthe operations and maintenance func-tions. Both utilities tracked and managedperformance measures around a commonutility management goal model thatincludes seven core utility goals:• Provide service reliability• Provide sufficient service capacity• Meet service requirements witheconomic efficiency

• Protect public health and safety• Provide a safe and productive workplace• Have satisfied and informed customers• Protect the environment (water, land,and air)

Calgary and Peel track and manage about70 performance indicators on an annualbasis that directly connect to the aboveseven goals to measure the attainment ofoverall utility success and conformance tostated levels of service.These measureswere also enabling a broad range ofdetailed process benchmarking withinthe utility.In contrast,ADSSC is presently

Table 1: Some examples of ADSSC’s current mix of KPIs% operational budget variance% plans expenditure variance% plans executed on timeQuality of treated wastewaterAverage response time for emergency incidentsNumber of public network blockagesNumber of odour complaints% completion of planned preventive maintenance tasksNumber of public complaints resolvedNumber of non-public (private) complaints resolved% compliance in O&M health and safety inspection reportsNumber of top leadership communication sessions

Figure 5: Example tactics regarding a strategic goal

ADSSC wastewater treatment plant at Mafraq, Abu Dhabi.Credit: ADSSC.


BENCHMARKING

tracking a mix of KPIs (Table 1) thatpertain directly to the wastewater utilityservices,financial and customer out-comes.The current suite limits theinformation that O&M staff has access tofor the purposes of optimizing O&Mservices, though some high level trackingof overall customer service can besuccessfully tracked over time.

Challenges common to eachparticipant: tactical vs strategicperformance indicatorsNot surprisingly,ADSSC,Calgary andPeel all have greater comfort with tacticalperformance measures as opposed tostrategic indicators.Tactical performanceindicators are those that measure afocused and narrow aspect of aprogramme,project,or function.They areassociated with measuring a tactic withina strategy.For example, the number ofsewer blockages is a tactical measurewithin the strategic goal of providing areliable service.Since blockages are onlyone cause of service interruptions,weneed other tactical measures to determineif the overall service is truly reliable. If wedo not fully understand the tacticsrequired to provide service reliability,weare at risk of measuring the strategyincorrectly or inaccurately.Figure 4illustrates this example.Industry-wide, almost all of the

individual performance indicators that arecommonly used within water and waste-water benchmarking activities are tactical

measures.This includes indicators in usewithAWWAQualServe, the IWAPerformance Indicators forWater SupplyServices Handbook, and CNWWBI.Attempting to use an individual tacticalmeasure to assess the progress of a strategyis at risk of being incomplete or incorrect.Since a range of tactics are used to achievea strategy, strategic measurement is a morecomplicated process.

The challenge of measuring attainmentof strategiesAdvanced wastewater utilities suchasADSSC,Calgary and Peel are allfacing strategic environmental,financialand organizational challenges as wellas routine technical challenges in theprovision of wastewater services.For example, a common strategicneed in each utility concerns theattraction and retention of skilledstaff.Without dedicated and skilledstaff, utilities have no chance of success.This is a good example of where amore rigorous approach to developingstrategic KPIs is required.Figure 5illustrates some of the possible tacticalrequirements that might be requiredto ensure that the strategic goal ofattracting and retaining skilledemployees can be achieved.It is simply not possible to isolate a

single KPI to measure this strategy.Thefinal measure of this strategy wouldinclude multiple tactical measures inassociation with subjective commentary.

Conclusion and final observationsADSSC’s strong vision and the strategicplan around this vision has enabled theutility to begin a Balanced Scorecard-based performance measurement systemthat is well positioned to succeed.Through this process benchmarkingproject,ADSSC has now identified arange of best practices that can beimplemented to enhance its BalancedScorecard implementation in a gradualand sustained manner.Beyond a plan forcontinued enhancements to the BalancedScorecard process however,ADSSC hassuccessfully identified a selection of utilitymanagement and operational bestpractices that are currently in use withinCalgary and / or Peel that can be export-ed toADSSC.These practices include:• Integrating GIS into risk-basedasset management

• Employee recognition programmes• Implementing sewerage tariffs• Customer care management• O&M performance managementand benchmarking

As the Balanced Scorecard programmebegins generating reports, actions can beprioritized and implemented to furtheradvanceADSSC in its mission of organi-zational excellence.�

Note1 Main et al (2008)The Canadian NationalWater and

Wastewater Benchmarking Initiative:Using Process to

Drive Improvement.PerformanceAssessment of Urban

Infrastructure, IWA (pg 243).


About the authors:Zillay Ahmed is Specialist OrganizationalExcellence & Quality Advisor at Abu DhabiSewerage Services Company, Abu Dhabi, UAE.Email: [email protected].

David Main is NWWBI Project Manager atAECOM Canada Ltd., Burnaby, BC, Canada.Email: [email protected]

Kathy Davies Murphy is a SeniorBusiness Strategist at the City of Calgary,Alberta, Canada.Email: [email protected]

Linda Petelka is a Manager, WastewaterProgram Planning, at the Region of Peel,Ontario, Canada.Email: [email protected]

Process benchmarking methodology

The general methodology for the process benchmarking exercise is presented below:

Part 1: Understand system design and implementation• Compare and contrast each utility’s objectives for their performance management system: were

these systems developed for the same or similar purposes?• Compare and contrast each utility’s general implementation approach• Document issues and challenges that arose during implementation and the strategies used to

deal with overcoming issues and challenges

Part 2: Understand the physical nature of the current systems• Comparison of the physical nature of the Balanced Scorecard• Use of metrics within the dashboard• Collecting, storing and managing KPI data to assist decision making

Part 3: Attainment of the desired objectives: to what extent have the performance managementsystems met the anticipated objectives?

Part 4: Proposed programme evolution / enhancements for system: recognizing that the systemsare still in the early stages, what are the recommended steps to further the overall implementation ofthe Balanced Scorecard system?

Part 5: Utility best practice identification: examine individual best practices that are resulting insuperior results within each utility and breaking down these practices into components forevaluation. Highlight best practices that are exportable to ADSSC for consideration.

Delegated management contractstoday have more of a mixed,

hybrid nature than in the past.Theyborrow elements from differentmodels to create a new, tailoredmodel.The result is that manydelegated management contractscan no longer be easily classified intoa single category on the public-private partnership (PPP) spectrum.

The basics of the affermage contractAn affermage is one type of delegatedmanagement contract in the PPPspectrum.Under this type of a contract,the operator is responsible for operationsand maintenance (O&M).The operatorcollects the tariff directly from consumerson behalf of the contracting authority(CA).The CA is usually responsible formajor rehabilitation and new capitalworks.However, each contract definesthe exact terms and responsibilitiesfor financing and implementingmaintenance, rehabilitation andnew works (Table 1).The operator earns an operator’s

price based on an agreed-uponproportion of the water tariff (per m3) thatis produced and sold.The differencebetween the tariff and this price is paid tothe CA,which may be either an assetholding company,or the government,depending on the sector’s institutionalframework.The CA uses these funds topay its expenses, including debt service oncapital investments.The affermage combines public financ-

ing with attracting private efficiency. Itmay be attractive in situations whereprivate equity and commercial debt forthe water supply and sanitation sector arenot readily available.CAs may also preferan affermage to just a management con-tract because the affermage transfers the

commercial risk to the operator,believedto create greater performance incentives.

Differences and similarities betweenthe affermage and the leaseThe commonly used English translationof affermage into lease contract may bemisleading.The words affermage andlease are often used interchangeably,although they are technically different. Inthe affermage contract, applied in civillaw contexts, the operator has an intangi-ble personal right to the infrastructure(similar to a patent or a copyright), but

not the real property right of a leasehold(bail or rental).The lease contract,origi-nally designed within a common lawcontext,may however be constructed as asynthetic equivalent to the affermage.Table 2 describes a few of the key differ-ences and similarities between the affer-mage and the lease models.An affermage / lease contractual frame-

work may feature five contracts: thedelegated management or affermage /lease contract with, in parallel, theperformance contract; the concessioncontract with, in parallel, the development


PRIVATE SECTOR PARTICIPATION

Delegated management contracts are becoming increasingly diverse and can no longer be easilyclassified into a single category in the spectrum of public-private participation options that exist.Variants include the basic affermage delegated management contract, in which the operatorundertakes operation and maintenance, and collects tariffs for the contracting authority. JAN JANSSENS,DIDIER CARRON and VIVIAN CASTRO-WOOLDRIDGE share their perspectives of this trend, and look at thecharacteristics and benefits of a particularly innovative approach, the performance-based affermage,applied in the case of France’s largest water utility, SEDIF - Syndicat des Eaux d’Ile-de-France, whichsupplies water to areas across the Greater Paris region.

The rise of hybrid delegated managementcontracts: emerging lessons from France

Table 1: The affermage model – roles and responsibilities

Role FunctionsGovernment Define the water Define the sector’s policy

sector policy Define the institutional frameworkand strategy Manage water resources

Establish the regulatory frameworkReview and approve tariffs and subsidies

Asset holding Manage resources Manage assets (development, amortization,company (on behalf debt service)

of the Develop and implement master plan andgovernment) investment plan

Secure financeActs as the contracting authority for new worksLiaise with the public / implement awareness campaignsMonitor the quality of operations and maintenance(maintenance audit)Monitor / oversee the operator’s performance basedon contractual targets

Operator Deliver services Operate and maintain infrastructure (fixed assets(technical and operations materials)operations Renew operations materialsand commercial Purchasemeters andmaterials for connectionsmanagement) Renew and extend the distribution network (based on

contractual obligations)Project management of extension works of distributionnetwork, financed by donorsStudies to justify necessity of renewal and extensionworksBilling and bill collectionCustomers public relations, and customer accountability

contract; and the end-user contract withthe consumer (see Figures 1 and 2). Inaddition there may be a technical assis-tance contract beween the operator andits majority professional shareholder.

The flow of fundsThere are various possible scenarios forthe flow of funds. In a simplified affer-mage context, the operator collects tariffsdirectly from its customers and depositsthis revenue into its own account (i.e. thetariff account).The total revenue, thevolume of water billed,multiplied by thetariff, is collected by the operator andgoes into its own tariff account.Theoperator retains part of the total revenueat a certain fee per cubic metre (which isthe bid criterion).The CA (either thegovernment or the asset holding company(AHC)) then receives the balance,whichis the volume billed multiplied by thedifference between the average tariff andthe operator’s fee.This balance is used forinvestments and debt service.Also in the lease arrangement, the

operator collects tariffs directly from itscustomers (Figures 3 and 4 illustrate theflow of funds).Either the operator or the CA may hold

the tariff account. In case the operatorholds the tariff account, it remits to theAHC the operational surplus – the differ-ence between collected tariff revenuesand O&M expenditure. If the difference isnegative, then theAHCmust subsidizethe operational deficit and / or can opt toincrease tariffs, subject to prevailing tariffreview regulations.In cases where the CA holds the tariff

account, it reimburses the operator’sO&M costs out of the tariff revenue. Inthe lease model, the operator always pays alease fee for infrastructure to the CA –and the bid award criterion is the highestlease fee offered.It is clear that in both cases there is a

need for theAHC (or the regulator) toclosely monitor the costs of O&M (pricecap regulation) as the operator will havethe tendency to inflate these.

Emerging hybrid contractsToday’s emerging options for delegatedmanagement are increasingly hybridcontracts.One example of a hybrid is theenhanced lease (or affermage amelioré),whereby the operator may not be giventhe immediate responsibility for imple-menting capital investments, but isresponsible for implementing certainrenewal investments.Examples of the

affermage amelioré may be found inSenegal and Cameroon.A subsidized concession is another

example of a hybrid contract,wherebythe operator is responsible for contribut-ing financially to capital investments thatare also receiving public subsidies.These emerging hybrids are less con-

strictive than traditional models andprovide more options for transferringcommercial risks and for attracting privatefinance.However, they work best incontexts where a certain level of reform

has already taken place and there is astrong and capable CA.

The performance-basedaffermage modelAnother emerging, innovative modelis a more sophisticated affermage model –what we call the performance-basedaffermage (PBA) model,which isbased on an incentive-driven and moreequitable distribution of the surplusbetween the operator and the CA.The PBA is also innovative for its



Figure 1: Affermage / lease contractualframework – government is signatory

Figure 2: Affermage / lease contractualframework – asset holding company

is signatory


combination of both operational andfinancial parameters for calculating theoperator’s revenue and bonus.

Why is this innovative?In a conventional affermage contract,the operator pays for operations andmaintenance costs, remits the differencebetween average tariff and operator’sprice to the CA,but retains the entireoperational profit. In the PBA, theoperational profit is shared betweencontracting parties according to anincentive structure that combines bothoperational and financial performanceindicators – and which are explicitlydefined in the contractual agreement.Figure 5 illustrates the differences in

the distribution of revenue between theconventional and the PBA models.The most obvious benefits of thePBA include:

• Efficiency gains – reduced operationalexpenditure

• More equitable distribution ofoperational profit – a reducedoperator’s income

• More equitable revenue distribution –an increase in the operator’s paymentto the CA

• Introduction of a performance-basedbonus – according to the operators’financial and technical performance

In some PBAs, the operator’s surplus istransferred to an escrow (third party-managed) account in order to createcomfort for the operator.The operatorcan only access these funds when itachieves both the financial and technicalperformance targets.In case of poor performance vis-à-vis

the contractual targets, the operator mayonly earn a reduced part of the surplus,oreven no surplus. In case of high perfor-

mance, vis-à-vis the contractual targets,the operator may earn a large part ofthe surplus,up to 100 percent,dependingon the contractually agreed equation fordistributing the surplus betweenthe parties.

How are the operator’s finalearnings calculated?The operator’s surplus is calculated as afunction of his technical and financialperformance.The equation may vary,butin the context of the Syndicat des Eauxd’Ile de France’s (SEDIF) performance-based affermage, serving more than fourmillion people, the operator’s surplus wascalculated as follows:Operational performance• 25% on water quality,wastewater andasset management

• 25% on quality of customer service

Financial performance• 25% on profitability• 25% on cost controls (i.e. productivityefficiency)

The application of these operational andfinancial indicators requires reliablebaseline data, and the contract shoulddefine both target and minimum valuesfor each indicator. In the case of SEDIF,the baseline data was audited and validat-ed by an accredited independent thirdparty prior to the tendering process.

Incentivizing increased efficiencyThe PBA is a performance-based con-tract, with the operator’s profit varying asa function of a combination of both its


Figure 3: Lease – flow of funds(operator holds the tariffaccount)

Figure 4: Lease – flow of funds (CAholds the tariff account)

SEDIF’s Massy Palaiseau reservoir.Credit: Pöyry.

technical and financial performance. Insituations where the operator’s profit canbe clearly quantified through a dedicatedaccounting system, the performanceincentive mechanism may be applied onthe total operational surplus,or on agiven proportion (e.g.50 percent).In cases where the operator’s opera-

tional profit cannot be easily quantifiedor ring-fenced due to combinedaccounting for many interrelatedactivities (or other reasons), theincentive mechanism can instead beapplied on a predetermined,fixed partof the operator’s revenue.

What are the advantages of the PBA?The operational surplus or profit – thefinancial gains – of the operation is sharedbetween contracting parties on the basisof an incentive structure combiningoperational and financial performanceindicators (PIs).The contractual arrange-ment may be more politically attractive topublic authorities, particularly in contextswhere officials and civil society may feelthat private operators benefit dispropor-tionately from PPP arrangements.Thecontract design also helps strengthen thebargaining power of the public authorityto demand improved service deliveryfrom the operator.In the case of SEDIF, the PBA

contract was designed so that two tothree years before the end of the contract,SEDIF would be in a position to freelyexplore and choose another – perhapsdifferent – PPP option,or return topublicly managed operations.This flexi-bility in decision-making is helped by thefact that the contract ensured publicownership and access to data and openbook operations, including most of theinformation systems developed duringthe contract period.

Key preconditions for the successfulimplementation of this type of affermageinclude an incentive mechanism based onan audited and validated baseline, and acapable contracting authority, leading to abalance of power and mutual respectbetween partners.Experience shows that in low

and middle-income countries,mostoften a sequential approach is thepreferred way forward, starting witha technical assistance or an input-based,professional support partner-ship, and moving towards a deeperpartnership, such as the present output-based PBA contract.

ConclusionDelegated management contracts, and inparticular the affermage-based option,today have more of a mixed,hybrid

About the authors:Jan G Janssens is Managing Director of JJCAdvisory Services, Switzerland. Email:[email protected].

Didier Carron is President of PöyryEnvironment S.A and a Project Director ofadvisory services to water utilities, France.Email: [email protected].

Vivian Castro-Wooldridge is a Socioeconomicand Institutional Specialist in the InternationalDepartment at Pöyry Environment S.A.,France. Email: [email protected].



Table 2: Key features of the affermage and lease modelsFeatures Affermage LeaseOperator’s price based on €/m3 produced Annual monetary, non-volumetric,

and sold (volumetric) based on cost-plusCompetitive Lowest bid (operator’s price) Highest bid (lease fee) winsbidding process wins The lease fee is paid to the CA by the operator

The operator’s price coversO&M costs, including somerenewal costs

Performance linked to water production Linked to water salesincentives (m3)Bulk metering Mandatory Optional, is not a prerequisiteDomestic metering Mandatory Optional, is not a prerequisiteRegulation By contract (contract Cost-plus or price-cap

compliance in achievingtarget performance)

Figure 5: Revenue distribution – conventional affermage vs. performance-based affermage (PBA)

Operator’s payment to contracting Authority

Conventional affermage Innovative model

OperationalSurplus

Operator’s ProfitOperator’s Profit Part Operator

Part CA

Operator’s ExpenditureOperator’s Expenditure

}}{

nature than in the past.These newhybrids borrow elements from differentmodels to create new,more tailoredarrangements for incentivizing efficiencygains and equitable distribution ofrevenue gains amongst partners,which makes these arrangements quiteattractive for the water supply andsanitation sector.�

ReferenceBrocklehurst,C and Janssens, JG (2004) Innovative

Contracts,Sound Relationships:UrbanWater Sector

Reform in Senegal.World Bank,Water Supply and

Sanitation Sector Board Discussion Paper Series,Paper

No 1, Jan.2004,pp51.

Carron,D, Janssens, JG and CastroV (2011)The

Affermage-Lease Contract inWater Supply and

Sanitation – the NRW incentive structure and new

developments.Paper submitted for presentation at the 2nd

IWA Development Congress,Kuala Lumpur,Malaysia,

Nov.2011.


Although access to water inAfrica’s urban areas is estimated

at 81% (UNICEF /WHO, 2008), just35% of the urban population haveconnections and are therefore directcustomers of utilities.The problemof low connectivity to water utilitynetworks in Africa is made worse bythe ever-increasing demand generat-ed by high urban population growth.Africa is urbanising at a higher rate

(over 5% in some countries) than anyother region in the world. It is estimatedthat around 45% of the continent’s popu-lation will live in urban areas by 2025,upfrom 36% in 2007 (UN-DESA,2007).Most cities inAfrica have an averageannual population growth rate of at least4%,compared to the European cities’annual average of less than 2% (UN-DESA,2009).This high rate of urbanisation has

placed ever-growing pressure on alreadyoverstretched water infrastructure.Theworst affected are the urban poor, themajority of whom live in informal settle-ments. InAfrica, as many as 60% of theurban population, approximately 274million out of a total of 456 million, livein low income or informal settlements(UN-DESA,2009).Often unplanned andsometimes illegal, these settlements sharea common problem of inadequate accessto basic services such as safe water andadequate sanitation.Water services aremainly from unregulated alternativeservice providers, at higher prices and attimes at lower quality.The UNMillennium Development

Goals (MDGs) will not be achievedthrough increased investment alone,butwill require institutional reforms, includ-ing the establishment of commerciallyviable, autonomous institutions thatoperate on clear good governance princi-ples and under transparent regulatoryframeworks.The United NationsMillenniumTask Force onWater Services(UN-MillenniumTask Force onWaterServices, 2004) identified the absence of asound regulatory system as one of the

constraints to expanding water services.Adequate regulation of utilities should

result in more accountability, transparencyand efficient provision of services. It isalso necessary to ensure that roles ofthe different key players in the urbanwater services sector are clearly defined.These include separation of policymaking from regulation and alsoseparation of service provision frompolicy making and regulation.In spite of decades of government

and donor-supported investments inthe urban water services sub-sector, state-owned utilities in manyAfrican countrieshave been unable to fully meet thedemand for water services (Water UtilityPartnership,2001;Mwanza,2005).Barriers to improved provision of waterand sanitation are not so much technicalor financial, but institutional and political(UN Habitat, 2003).On the other hand,governments in

over 30 sub-SaharanAfrican countrieshave in the last 15 years embraced

water reforms that have resulted in anumber of policy documents.Onpaper, government policies generallylean towards sustainability andcommercialization, the latter beingachieved through cost-reflective tariffpolicies.The policies also show a desire bygovernments to provide as much manage-ment, financial and technical autonomyto the water utilities as possible.

The challenge of autonomyHowever, in reality most utilitiesoperate under considerable challenges,and there is a great deal of concessionon the policies that governments haveadopted.For instance, their autonomy isextremely compromised, so they arevulnerable to political interference. Inaddition, sometimes they do not evenhave the incentives or means to provideadequate services to their existingcustomer base, let alone to expand theirservices to those who are not connected.This concession is often due to the

Water utilities in sub-Saharan Africa face a wide range of challenges, but progress is being madein meeting these and taking advantage of the opportunities that are developing. DENNIS MWANZA providesa perspective on the main areas that need attention if water supply and sanitation are to improve inthis region.

Trends, challenges and opportunitiesfor water utilities in Africa

UTILITY MANAGEMENT

Yellow – countries with state or municipally-owned utilities

White – countries with autonomousregulatory bodies1 – Senegal2 – Niger3 – Cote d’Ivoire4 – Ghana5 – Cameroon6 – Gabon

1

3 4

5

6

2

7

Figure 1: Ownershipof utilities in sub-Saharan Africa


current institutional arrangements forurban water service providers – at least75% of the service providers inAfrica arestate-owned.Many state-owned waterutilities are inefficient,with some losingat least 40% of the treated water theyproduce, for technical reasons and / ormanagement issues such as poor billcollection.Often government depart-ments such as schools, police camps,hospitals and military establishmentsowe the largest debts.Figure 1 showsthe general situation in terms of theownership and management of theutilities in sub-SaharanAfrica.There are a number of examples that

prove water and sanitation services aremore likely to be financially sustainable ifthey are delivered by service providerswith sufficient autonomy to makemanagement and budgeting decisionsbased on customer demand andoperational needs,without unduepolitical interference from central,local or regional governmental bodies.While there may be a general issue of

lack of autonomy amongAfrican utilities,there are examples within the continentof utilities that enjoy a higher level of

autonomy,which has enabled increasedefficiency in their operations.Examplesof state-owned companies that enjoy ahigh level of autonomy and are showinghigher levels of sustainability includethe NationalWater and SewerageCorporation (NWSC) in Uganda,the SwazilandWater and SewerageCorporation (SWSC),National OfficeforWater (ONEA) in Burkina Faso, andtheWater and SewerageAuthority(WASA) in Lesotho.The first step in obtaining autonomy is

to create legislation that establish thewater utilities.Examples of legislation thatprovide for autonomy include StatecorporationActs (for example in Uganda,Lesotho and Swaziland,where the utilitiesare national state owned entities), andwater and sanitation legislation – forinstance, in Zambia.Another challenge relates to utility

governance and accountability.Manystate-owned utilities inAfrica do notrespect good governance principles, soboth autonomy and accountabilityremain a distant reality.This problem isusually exemplified by the composition oftheir boards of directors,who are usually

appointed as a way of achievingsome kind of allegiance rather thanfor their competence.Autonomy is further compromised by

Government interference (sometimesindirectly) in the appointment of ChiefExecutives and senior management staff.Often this leads to a high turnover ofCEOs (few utilities in sub-SaharanAfricahave CEOs that have served for ten yearsor more, such as NWSC and SWSC).

Autonomy and regulationThe level of autonomy can also beincreased when a government establishesa clear regulatory framework.While theframework may not necessarily be anindependent body, current research showsthat the benefits of a regulatory frame-work are more likely to be achieved if anautonomous regulatory institution iscreated.Of course, success is subject to aconducive and appropriate political andsocio-economic environment.The autonomy of the regulatory

agency will be enhanced if it has its ownlegal status and is able to develop,manageand control its own budget,which isfinanced through a regulatory fee charged

UTILITY MANAGEMENT

Due to insufficient network coverage, residents are forced by circumstances to purchase water from water vendors such as these. The price of this water is unregulatedand quality is also not assured. Credit: Emily Mutai, SUWASA.


UTILITY MANAGEMENT

to the regulated water providers.Governments should be willing

to relinquish regulatory decision-making powers to such a non-politicaland non-governmental body.Thereporting and appointing mechanismsfor the board of the regulatory bodycould also have an influence on theautonomy of the regulator.So far,only ten out of the 47 sub-

SaharanAfrican countries have estab-lished autonomous regulatory bodies (seeFigure 1).The ten are Mali,Niger,Rwanda,Ghana, the Gambia,Tanzaniaand Gabon (multi-sectoral); and Zambia,Kenya and Mozambique (water-onlyregulators).Regulatory bodies should,among their other functions,promoteachieving full cost recovery by approvingtariffs that reflect this concept.Theyshould also drive for improved efficiencyby monitoring performance – alsoreferred to as incentive-based regulation.

Services for the urban poorServices for the poor are anotherimportant element of service delivery insub-SaharanAfrica’s urban areas.As statedabove, at least 60% of the urban popula-tion live in informal settlements and aregenerally considered to be poor.As astarting point,utilities need to acknowl-edge the poor as valued customers.Thissegment of the population cannot andshould not be neglected.Utilities shouldfurther consider adopting lifeline tariffsthat take into account affordability levels(essentially cross subsidies).However,lifeline tariffs should not in any way leadto the commercial viability of the utilitybeing compromised.A third strategy that seems to help

utilities to focus on serving the urbanpoor is establishing special units to dealwith this sector.A number of utilities inthe region have established such unitsincluding Zambia (LusakaWater andSewerage Company),Kenya (NairobiCityWater and Sewerage Company),Uganda (NWSC),Tanzania (DAWAS-CO) and Malawi (BlantyreWater Boardand LilongweWater Board).However what is true is that ‘a well

performing and financially viable utility isa necessary but not sufficient condition toserve the urban poor’.

Performance incentivesAs a performance improvementtool,utilities should work towardsdeveloping and signing performanceagreements with government bodies.

The performance agreement is usuallysigned with the line Ministry or anoversight or supervisory body.Forinstance, in Ghana the agreement is withthe state enterprise supervisory body, inUganda it is with the Ministry ofWaterand Environment, in Swaziland it is witha special unit in the cabinet office, and inKenya the agreements are with theWaterService Boards.Performance agreements in themselves

are not sufficient,mainly because ofunclear monitoring mechanisms and alack of incentives for achieving theagreed indicators.However, in Uganda,Burkina Faso,Lesotho and Swaziland theuse of performance agreements havebrought positive results.

Remaining challengesWhile the above actions may berecipes for improved utility performance,challenges still remain.Sustainabilityand commercial viability are usuallyhighly compromised – tariffs still donot reflect costs in many countries.The issue of tariffs tends to be extremelyemotive, and yet under the current systemof suppressed tariffs utilities are notguaranteed to provide efficient andeffective water services.Non-payment for services rendered,

particularly by government entities,makes the situation worse.Sometimesthe problems are exacerbated byinaccurate utility records, and lowlevels of billing and collection.In terms of technical operations,many

utilities have high non-revenue waterlevels.This is usually due to a combina-tion of factors including low levels of

metering, low billing and collection rates,and low investment in the sector.Othertechnical issues include a high turnover ofquality staff, and a high rate of staff per1000 connections.Utilities in sub-SaharanAfrica should strive to achievearound eight staff per 1000 connections.While there may be challenges and

difficulties in meeting the MDGs, thereare opportunities for utilities in sub-SaharanAfrica to contribute to thedevelopment agenda.These opportunitiesinclude a growing market for waterservices inAfrica that presentsopportunities to invest in infrastructure,and the fact that governments have inrecent years been embracing reform.Utilities are also generally eager to learnand develop innovative ways to improveperformance and motivate their staff, andthus improve their image.�

About the author:Dennis D Mwanza is Deputy Chief of Party atSustainable Water and Sanitation in Africa(SUWASA) based in Nairobi, Kenya. Email:[email protected].

Water treatment plant in Bauchi, Nigeria. A lack of maintenance can lead to deterioration of treatmentfacilities. This treatment plant is however reasonably maintained. Credit: D Mwanza.


GOVERNANCE

The term governance has been inthe English language for quite a

few centuries now, but the termspread really during the 1990s andthe 2000s and the idea was to reflectthe existence of new ways of regulat-ing and providing services,’ says DrMonica Garcia Quesada, a ResearchFellow at the UNESCO Centre forWater Law,Policy and Science at theUniversity of Dundee, Scotland.‘The term water governance isusually defined quite loosely as therange of political, social, economic,and administrative systems thatare in place to develop and managewater resources and providewater services.’Quesada continues:‘National legal

frameworks establish the formal mecha-nisms for those relationships, for thatrange of political, social, economic,administrative systems; they are theformal mechanisms that have beenagreed to manage water resourcesand provide water services.’Against this backdrop,Quesada has

carried out a three-year research project,funded by Suez Environnement, to assessthe governance of water services provi-sion in a range of countries across Europe.Governance is a broad concept, yet, saysQuesada,debate around the provision ofwater services has tended to focus on theinvolvement of the private sector.One ofthe aims of the research has thereforebeen to fill the gap between the usual areaof debate and the wider range of factorsthat can actually be of relevance.‘Certainly the debates on water

privatisation are very,very important,’ saysQuesada,but she adds:‘We need to gobeyond the debates on water privatisationand really understand what is happeningon the ground in different countries, towhat degree citizens can intervene,regardless of the ownership of theindustry, to what extent citizens canbe informed, can make the providersaccountable.’

At the heart of the research is anapproach that Quesada has developedto evaluate the governance providedby national legal frameworks.Thisapproach takes as its starting pointtheAarhus Convention – theUNECE Convention onAccessto Information,Public Participationin Decision-making andAccess toJustice in Environmental Matters.‘It is a very well established

international convention that pointedat key features of governance,’ saysQuesada.‘It sets out certain keyelements of governance we felt couldbe used to understand water services.’

Transparency, accountability and participation are three central aspects of the public’s ability to engagewith how water services are provided. KEITH HAYWARD reports on a research project that has developed anapproach for assessing how national legal frameworks deliver such governance and has used thisapproach to look at governance in a range of settings across Europe.

Beyond the privatisation debate: understandinggood governance in water services provision

Criteria for evaluating transparency, participation and access to justice in relationto setting price and quality of service for water services provision(Water and sanitation services in Europe: do legal frameworks provide for ‘good governance’? Mónica GarcíaQuesada. UNESCO Centre for Water Law, Policy and Science, University of Dundee, 2011. p54-57.)

Transparency1 Regulatory documents are in the public domain so that consumers can

have access to them2 Tariff setting process and the quality service procedure is regulated so that

the consumers know how it works3 Decisions published so that consumer can access them4 Reasoning behind decisions published so that consumer can access them5 Formal mechanisms for protecting the right to access informationParticipation6 The regulatory framework guarantees the right of consumers to participate

in price and customer standard setting7 The regulatory framework allows for participation of consumers in the

spheres of investment, operation, pricing, and service quality8 Consumers can participate in stakeholders multilateral meetings:

for co-decision, consultation or opinion for water price and waterstandards setting

9 Consumers have the right to receive feedback so that they can understandto what extent their views are taken into account

Access to justice10 Consumers can initiate non-judicial proceedings against water services

providers (either the responsible body directly or a contracted wateroperator) if they fail to perform their duties

11 Consumers can initiate non-judicial proceedings against relevantauthorities if they fail to perform their duties

12 Consumers can initiate judicial proceedings against water servicesproviders (either the responsible body directly or a contracted wateroperator) if they fail to perform their duties

13 Consumers can initiate judicial proceedings against relevant authorities ifthey fail to perform their duties

14 Consumers have to assume financial costs of bringing cases to courta) Court fees applyb) Legal aid is available

‘

Dr Monica Quesada


GOVERNANCE

Price setting and quality of serviceThe approach therefore uses transparency,participation and accountability,or accessto justice, as the three pillars of gover-nance.A number of criteria have beenidentified in each case, all geared towardsassessing governance of two key areas ofdecision-making in water services provi-sion: setting water prices, and establishingstandards for quality of service.‘We focused on decisions concerning

the establishment of the water tariff andthe service standards because, regardlessof their institutional and regulatoryframeworks, all countries need to makedecisions to set water tariffs and decide onthe characteristics of the service they giveto consumers,’ says Quesada.For example,one of the criteria for assessing access toinformation is whether or not theprocesses to do with tariffs and quality ofservice are regulated so that consumersknow how they work. In all, 14 criteriahave been identified and used as the basisfor assessing governance.Much of the project dealt with

getting a full picture of the variousnational legal frameworks that providefor the governance in this area.Thework covered England,France, Italy, theNetherlands, Scotland and Spain, as wellas looking at the wider context ofEuropean Union legislation.‘These six countries represent different

cases worth examining, from the priva-tised model of England, to the directprovision of certain municipalities in Italy,France or Spain,or the delegated andpublic model of Scotland and theNetherlands,’ comments Quesada.That much effort went into this aspect

of the project is reflected in the finalreport:‘Readers of the report can benefitfrom having a detailed account of thecontent of national regulations concern-ing access to information, consumersparticipation and access to justice in water

services provision, from six differentnational jurisdictions,’ says Quesada.‘Weconsider this to be a main contribution ofthe research,which can be useful to bothacademics and practitioners.The conceptof good governance is “demystified”, asthe report shows that it translates intoparticular regulatory decisions taken byrelevant authorities.’Quesada then used the 14 evaluation

criteria as the basis for assessing thegovernance in the countries studied.The criteria were used primarily as ameans of comparing the governanceof the countries.This means the resultsdo not present, for example, a discreteassessment on a country-by-countrybasis of how the national legal frame-works rate against the criteria.‘Throughout this study it became quite

clear that we were dealing with verydifferent regulatory frameworks,’ saysQuesada.‘We thought that it would beinsufficient just to grade countries interms of good or bad governance…Comparative analysis is valuable in the

sense that it allows us to understand whatis going on in different countries.’Quesada nonetheless adds that shebelieves the indicators could be used toevaluate individual countries.Three broad approaches to setting

prices and service quality standards wereidentified: a regulatory approach by anindependent national body, as seen inEngland and in Scotland; a bilateralcontract approach between the publicauthority responsible and the provider ofthe service, as seen in France,Spain andItaly; and what is termed the self-regula-tory approach,where the service providersubstantially decides on price and service,as seen in France,Spain andTheNetherlands.The discussion of theevaluation therefore highlights theseapproaches and groupings.

Need for a nuanced analysisThe overall conclusion drawn from theresearch is that,while ownership anddelegation of water services may shapegovernance, they do not determine what

legal provisions are made so thatconsumers have access to information,can participate in decision-makingprocesses, and have access justice, andQuesada concludes the report by stating:‘The present report advocates a morenuanced analysis in order to understandgovernance in water services provision,beyond indiscriminate assumptions onthe consequences of particular manage-ment and ownership solutions.’Alongside this,one of the general

conclusions of the project is that,whilethere are marked differences in waterservices governance between countries,there are some patterns evident in relationto these three different broad approaches.‘Within each category, certain

countries rank better than others,’ saysQuesada.‘For instance,within the regula-tory agency model,we have observed thatScotland provides more opportunities toconsumers to access information, toparticipate and [to obtain] access to justicethan England.Within the delegatedmodel,French local authorities thatcontract out services to either private orpublic providers ensure better governancemechanisms than their Spanish or Italiancounterparts.As for the self-regulatorymodel, the Netherlands has set morecomprehensive mechanisms to favouraccess to information and to justice thanlocal authorities directly providing theservice in France,Spain or Italy.’While the research has delivered

findings that can now be shared withothers in the sector,Quesada alreadysees scope for further research.‘I think that for future research it would

be interesting to go forward comparingcountries within the three differentsubgroups,’ says Quesada.She commentsthat there is a trade-off between lookingat quite different countries but having tomake what may be more superficialcomparisons,or getting greater depth bylooking at fewer similar cases. She givesthe example of Italy,France and Spain ascases that could be looked at more close-ly: ‘Those three countries have verysimilar regulatory mechanisms,but Ithink it could be interesting to providemore nuance to those differencesbetween countries that have similarregulatory frameworks.’�

Water and sanitation services in Europe: do legalframeworks provide for ‘good governance’. MónicaGarcía Quesada. UNESCO Centre for Water Law,Policy and Science, University of Dundee, 2011.Available at: www.dundee.ac.uk/water.

Access to justice – one of the three mainaspects of good governance.Credit: michelangelus – Fotolia.com

‘The concept of good governance is“demystified”, as the report showsthat it translates into particularregulatory decisions taken by

relevant authorities.’Monica Quesada


IT & COMMUNICATIONS

The Managed Devices service ofthe Field Force Automation

business of UK communicationscompany BT is being used by theutility ScottishWater to providemanagement and support forthe hand-held devices used byover 500 engineers on the groundto make their daily tasks swifterand more efficient.The range of managed mobile

devices includes personal digital assistants(PDAs) fromMotorola and PanasonicToughbooks with backup from ateam of BT Field ForceAutomationservice engineers that ScottishWater’s 1200 engineers can contactvia a dedicated helpdesk.BT’s expert in field force automation,

Dave Lewis, says that the company builtits Field ForceAutomation business fromits own work.‘Back in the late 1980s wehad 36,000 engineers in the field.Therewas an obvious manpower resourcerequired to handle faults and engineersand we went down the mobile FieldForceAutomation route.‘This was before broadband and com-

puter literacy – people did not havecomputers of their own.We had a steeplearning curve,because we had to trainour own workforce in using computers.After doing that, a slim-lined workforceput us in good stead.We ran our ownsystem for years and then thought,whynot offer that expertise to other utilities?’

Developing mobile workingScottishWater had realised in 2007that the mobile technology used byits field force could no longer supportthe requirements of its business, and sodecided to upgrade from devices runningthe latest version ofWindows MobileandWindows XP.This was also seenas an opportunity to develop mobileworking further, in order to improvethe productivity of field force staffwhile reducing operating costs.

The plan was to have more dynamicwork scheduling to help ensure the mostappropriate person was the first torespond to an incident, ensuring faster

fault resolution.The utility developed anapplication for mobile work manage-ment, closely integrated with customer,work and asset management solutions,but

UK utility Scottish Water has improved its management system for the mobile technology used by itsworkforce. LIS STEDMAN reports on the approach, which is supported by the services of communicationscompany BT.

Faster in the field – mobile technologymanagement solution for Scottish Water

Celebrations at the BT Tower in London to mark 500 days to go to the start of the London 2012 Olympic Games,of which BT is an official partner. Credit: BT.


IT & COMMUNICATIONS

wanted a partner to be responsible for theprovision and 24/7 support of mobiledevices and connectivity across thefield force.The concept that BT worked on with

ScottishWater is identical to that offeredto other industries, in that it involvespassing information from a central area tomobile stations, capturing what these doand sending that information back tothe centre.‘It could even be ambulancestaff picking people up for daycare,’Mr Lewis notes.He adds:‘When ScottishWater put

out a request for information to preparefor tender, I believe we proved not onlythat we could do what they wanted,butthat we had already done it efficientlywith our own people.’Another importantconsideration in a difficult economicclimate would likely have been theneed to be confident that the chosenpartner would be in business over anumber of years.

Dealing with faulty devicesBT also already had a partnership withone of ScottishWater’s neighbouringwater utilities, so there was additionalconfidence in the service.The mainchallenge,Mr Lewis says,was the BTnext-day replacement service for faultydevices.Despite modern communicationsand the ability to transfer parcels in a veryshort time from one urban centre toanother on the other side of the world,rural Scotland, like other areas with smallroad systems winding round ruggedterrain, is not so easily reached.

‘Given the remoteness of some of theareas,we had to have a prior agreementwith ScottishWater that in some areaswe couldn’t meet that target, it had tobe 48 hours,’ he notes.However,morepositively, improved mobile serviceprovider coverage meant that mobile staffcould upload and download informationwithout needing to travel back to base,which provided significant time savings.This meant that in some areas one

mobile service provider would be usedand in others, another,depending onwhich had better coverage in thatparticular area.‘We saw it as normalbusiness as usual,’Mr Lewis said.‘BThas employees of its own in the samelocation as ScottishWater and we haveto look after them in exactly the sameway as ScottishWater; although wehave dedicated people looking afterthis contract, the processes are the same.’This thinking applies to all client

companies.‘We know from our ownexperience how important it is to getengineers’ equipment working 100% ofthe time.The service desk has trainedengineers,not people following a simpleflowchart.We are able to fix the majorityof devices over the phone rather than justsend out a new device the next day.’This also adds to the efficiency of the

service ScottishWater’s engineers are ableto provide, as they are able to continueworking with the equipment designed forthe task rather than reverting to a paper-based system.‘It also saves postal costs, andlooking at it from a utility point of view itis a way to save on costs and carbonfootprint, save on fuel costs and cut downon journeys,having the right person inthe right place at the right time.’Field force automation also enables

swift responses to customer calls,which isimportant in a society that increasinglyexpects fast results,Mr Lewis observes.With two water utility contracts already

in BT’s portfolio, the company is awarethat as other utilities come to re-examinetheir field force systems,new elementssuch as GPS location, in-vehicle trackingand other advances may prove attractive.BT is still working on a further element

that would extend the service to ScottishWater’s laboratories.‘We are doing sometesting.Obviously with the laboratorytests there are different issues.With vehi-cle tracking we can have scenarios wherepeople have fridges in the vehicle and wecan monitor these so the temperaturedoesn’t rise and make the test void.Wecould monitor a whole range of datapotentially,’ he says.This potential newavenue is being reviewed with a third-party tracking company.‘Technology never stands still,’

Mr Lewis notes.‘There is alwayssomething round the corner, someonecomes up with a new idea that mayhave costs and benefits – some ideasyou think are good do not have theright costing,whereas somethingsimple would.We are constantly lookingat ways to improve on costing and servicein our own industry, and there are somany synergies we may find that whatworks well for BT would work well forwater or gas or other utilities.’�

The Panasonic Toughbook CF-19

BT field force automation expert Dave Lewis

Thames Water’s Toughbook extensionThe UK’s largest water and sewerage company, Thames Water, has extended an eight-yearrelationship with Panasonic by ordering 2000 Toughbooks for its mobile field force. The below-ground and new connection teams will use the Panasonic Toughbook CF-19, which is describedas ‘fully rugged’, while the above ground engineers and water quality sampling teams will be usingthe full-function hand-held PC, the Toughbook CF-U1.

The devices are said to be an important element of the company’s business transformationprogramme, allowing the engineers to interact with the utility’s new work and asset managementinformation system.

The intention is to improve operational efficiency through more effective job allocation, schedul-ing, reporting and communication. All of the devices have integrated GPS systems to help locateassets, and record work correctly against fixed assets. Live information can also be provided toscheduling teams to improve the response to customer and operational calls.


INTERVIEW

We would like to be an opponent– of course a creative

opponent – of the government’sstrategies,’ comments ProfessorRoumenArsov, President of theBulgarianWater Association.‘We are preparing to review[them] and declare our position,as we usually do.’Arsov is Professor in the Department of

Water Supply,Sewerage,Water andWastewaterTreatment at the Faculty ofHydraulic Engineering at the UniversityofArchitecture,Civil Engineering andGeodesy.He sees this task as one of thetop priorities for his association over thecoming year – to play an active part in thedevelopment of the sector in the country.And there is indeed a lot happening, andso potentially a great deal to comment on,and a great deal taking place that affectsBWA’s members.In particular, the country’s Ministry of

Environment andWaters has prepared anew Strategy forWater ResourcesManagement.Arsov explains that this iscurrently subject to negotiations betweenministries.‘This summer we expect thisstrategy to be published for officialcomments,’ he says.This policy is to be accompanied by a

second key strategy, the Strategy forWater Supply and Sewerage SectorReorganization and Development,whichis the responsibility of the Ministry ofRegional Development and PublicWorks.Arsov explains that a documenthas been prepared by his Faculty andthat this is expected to undergofurther development.Arsov does however point to challenges

in influencing these strategies.Forexample, an earlier request by BWA toprovide input to the water resourcesstrategy was,he says, turned down.Andwhile the second document was preparedto include four options,he states that itappears the variant preferred by theMinistry is the one that will be takenforward.‘This option is already negotiated

with the EU and theWorld Bank, and itseems this will be the final version,orstarting point for the development of thestrategy [itself],’ he says.In the meantime, fundamental changes

to the Bulgarian water sector are alreadyunderway following amendments to thecountry’sWaterAct.At the heart of these changes is the

need to tap into the EU support availableto help address the country’s huge waterinfrastructure needs.Arsov explains thatsome €1.3 billion of EU funds areallocated to the sector for 2007-2013.Theproblem,he says, is that this ‘is utilised lessthan 10% up to now’.Furthermore,water and wastewater services across thecountry are provided by companies.‘Only municipalities are eligible forauthorisation of European funds allocatedfor Bulgaria,’ saysArsov.In an attempt to address this,Bulgaria is

transferring ownership of water sectorassets over to municipalities.‘I wouldsay that now all the water companieshave transferred their properties tomunicipalities,with some exceptions,’ saysArsov.He explains that these exceptionsare where assets are not well documented,so he anticipates this somewhat technicalissue can be resolved.More problematic though is the

municipalities who have to take control ofthe assets.According toArsov, these justdo not have the capacity and the rightstaff to take on management of theinfrastructure.‘I guess maybe one or twoyears have to pass [before] municipalitieswill be able to accept these properties andstart managing them properly,’he says.Butof course the intention is that this is aprocess meant to help release EU funds.‘So the problem is really very seriousfrom the side of municipalities.’ In themeantime, the municipalities need torely on the water companies.‘Nowmunicipalities use the expertise of thewater companies – they have no otheroptions now,’ addsArsov.On top of this,Arsov sees that

municipality budget restrictions mean thenumber of projects getting initiated islimited.‘Very few applications for designprojects and for construction took placebecause municipalities do not havemoney to pay for design projects,’ saysArsov.He says municipalities have hadbudget cuts of 20% or more, and that theyhave to spend from their own budgetand then get the money reimbursed astechnical support by the EU in thefollowing budget year.‘That is why theprocess started,but with a very low rate,’he explains, adding that presidential andlocal elections due in the autumn meanmayors are reluctant to commit funds.‘They are afraid to spend money justnow,’he says.To add to this, the government has

initiated the creation of ‘WaterAssociations’ across the country,with eachbringing together representatives ofgovernment and municipalities as thenew framework for managing water.There are 51 ‘definite territories’ acrossthe country, corresponding to theoperating areas of the water companies.According toArsov, the intention is toreduce the number of territories to 28,with oneWaterAssociation coveringeach.He says that 24WaterAssociationshave been created,but they are notfunctioning.‘So associations exist, butthey don’t work; they didn’t start workingsince their creation,’he says.

‘

Bulgaria’s water sector is undergoing fundamental reforms, aimed in particular at accessing availableEuropean Union funds in order to support much-needed improvements to the sector. KEITH HAYWARDspoke with PROFESSOR ROUMEN ARSOV, President of the Bulgarian Water Association, about the changes andthe role of his association.

A role in reforms: representing Bulgaria’s waterindustry in a time of change

Roumen Arsov

In the meantime,he says that theintention had been for municipalities toact voluntarily and reduce the number ofdefinite territories, and that in turn therewould be a reduction in the number ofoperating companies.‘Municipalities haveto cooperate on a voluntary basis and toagree to organise one territory of thistype, and this is also a problem now,’ saysArsov.He says that a further amendmentto theWaterAct is being prepared withthe aim of accelerating this process.‘Therewill be a definite regulation which willmake possible these existing definite areasto be merged,but the law amendmentsare not available yet,’ he says.Further changes on the way relate to

the opportunities for the private sector tobe involved in water and wastewaterservices provision.Bulgaria’s current lawson public private partnerships allow onlyfor concession contracts, as a result ofwhich there has only been limitedinvolvement by the private sector,but anew law is set to change this.‘The newlaw includes possibilities for other optionsof PPP well known around the world, andit is expected that this will attract moreparticipants from the private sector,’ saysArsov.He explains that the proposed textof the law was published in late May forcomment, and that parliament is expectedto vote on it in the autumn.The hope is that this will open the way

for extra funding in the sector, as the EUfunding that is the shorter term focus ofthe reforms will not be enough to coverthe sector’s requirements.‘If it was utilised100%, it will cover no more than 20% ofthe needs,’ saysArsov.‘The rest shouldcome from national budgets,which is

not very promising, and the last part isexpected to come from PPP.’With some €12 billion needed to

meet the needs of the sector, attractingfunding is going to take time,maybe 20years, but it raises the prospect of tariffincreases,which will no doubt be anotherissue for BWA to comment on.‘Thereis potential in this respect because nowthe water tariffs are even lower than 2%of average family income,’ saysArsov,comparing it to the 4% or moregenerally seen across the EU.But hesees potential problems too.‘Theproblem is that we have a lot of smallsettlements where only elderly peoplelive.They are not able to respondadequately financially… For now it isreally a very delicate situation.Tariffsobviously have to be drastically increased,but on the other hand this will decreasethe percentage of payment.’Current concerns around tariffs also

relate to the government’s hope ofcreating a state water company to manageall water resources and act as the bulksupplier.‘They intend to manage this forone price for all the country and to sell todifferentWaterAssociations,’ saysArsov.While this will equalise tariffs, this meansthere will be increases in some places.‘This is not quite fair from the point ofview of some municipalities and somewater companies currently operating inthese area,’he says, adding:‘This is one ofthe problems and it is under negotiationbetween municipalities,water utilities andcentral government.’Clearly all the reforms have major

implications for the current operatingcompanies, facing as they do the

process of a reduction in the numberof operating areas and the need indue course to seek to be awardednew operating contracts in the faceof competition from the private sector.‘We have good technical staff at all

water companies,’ notesArsov.‘They arevery skilled,well educated.’He doeshowever note that there is a skills gap atthe operator level,hence one of the othercurrent main priorities for BWA is tocomplete the creation of a training centrefor water utility operators.He is therefore optimistic about the

prospects for these companies.‘There is agood base.They are quite competitive. Ihope most of them will continue to dotheir job in the same place.’But it is notclear yet what will be the interest orimpact of, say, competition frominternational bidders.‘Nobody knowswhat will happens,’ addsArsov.That said,he is confident that local staff willremain key to delivering the servicesand improvements.He notes thatinternational companies ‘definitely willhire experts from local companies…Thisis indispensable because local peopleknow better the situation and theyknow their job… So I expect that localcompanies, if they don’t succeed to winthe bids, they will join the winner.’In this period of intense change,

Arsov sees another priority for BWA:‘One of the main tasks of the associationis to create an environment for discussionsof the problems and to make declarationsand to disseminate knowledge.’Thismeans there is what he describes as‘quite a tough programme’ofconferences and seminars,on topicssuch as water losses,water operatorpartnerships and commercially-availablewastewater technologies.But it is the task of seeking to provide

input to legislation and policy thatclearly looks as though it will bedemanding.‘We have to work onthis professionally, and this is one of thechallenges of our association.We arecorrective of the government, trying tocooperate positively and to criticise thewrong steps, and in the latter we face a lotof problems obviously.Negotiations arenot very smooth, and sometimes ouradvice is just neglected.’ �

Acknowledgement /additional information‘Bulgaria – Sector reform to meetEuropean Union requirements’.Roumen Arsov. p42. IWA Yearbook 2011.


INTERVIEW

A new WWTP for the town of Stara Zagora,central Bulgaria


PRODUCTS & SERVICES

Grontmij has launched a newasset management service

targeted at water utility providersto appraise and improve theeffective use of existing datamanagement systems.The RAM Policy Programme has

been developed to improve the efficiencyof people,business process, technologyuse and data resources, says Grontmij.Ian Gray, regional director in theAssetManagement team for Grontmij, said:‘We have spent a long time developing aprogramme that will enable us to go intoan organisation, examine their datamanagement approach, identify whereefficiencies could be made and makechanges that will offer substantial andlong-term savings.’The new service will see Grontmij

assess water providers’ existing assetsand data management systems andidentify any poorly performing or‘stressed’ assets which are operatingbeyond the expected cost.Mr Gray added:‘We’re incredibly

optimistic about the level of efficiencysavings we can achieve with the newRAM policy programme.’�

http://grontmij.com

Grontmijlaunches assetmanagementprogramme

Surveying instrument distributerKOREC has announced that it

has signed an agreement to becomean IntelligentTrench partner and aUK supplier of the IntelligentTrenchunderground mapping solution,which will allow every road excava-tion in the UK to be recorded,photographed and mapped on anational database, the company says.Contractors and utilities can record data

on a new excavation for future referenceby recording the GPS coordinates ofthe marker positions and allocatingphotographs and asset data to this point,

including attributessuch as the material anddiameter of the pipe.Surveys can also beuploaded and shared forfuture reference.Contractors and utilities

can view existing infor-mation remotely via theweb portal to see what informationalready exists, or at the location itselfin order to plan works, carry out targeteddigs and avoid third party damage.�

www.korecgroup.com

KOREC to distribute 'Intelligent Trench'undergroundmapping solution

UC4, a US IT automationsoftware company, has

released UC4 Service LevelGovernor,what the companysays is a proactive management,monitoring and reporting tool thatenables the efficient delivery ofservice level commitments.UC4Service Level Governor takes ONEAutomation,which integrates theautomation of business processes,applications and IT infrastructureonto one platform, to the next step,says UC4, by automating decisionsand using cloud computing.Commenting toWater Utility

Management International on thissoftware’s application to the waterindustry,Matthew Busch,ProductMarketing Executive at UC4 ProductManagement, said:‘Utility companies usesophisticated customer care and billingsoftware systems to ensure a continuousstream of revenue and consistent cus-tomer service.These systems are invalu-able to the business.A delayed, failed,orincorrect billing cycle can result in miss-ing or delayed revenues.UC4 can proac-tively monitor the service levelsassociated with billing processes. If aprocess is going to be delayed,UC4 willrecognize the situation and allow forproactive measures to be taken to ensurebilling is completed timely and accurately.‘The core technology is a Complex

Event Processing (CEP) engine to

identify event patterns that could leadto problems; and proactively resolvethem before SLA (service level agree-ment) violations occur,’he explained.‘For example, it might avoid an SLAviolation by automatically provisioningadditional resources or reprioritizingother workflows.At the same time, itwill send out pre-emptive alerts, to keepyou apprised of the situation.UC4 Service Level Governor

includes a service-level managementwizard that provides a dashboardoverview of SLA rules and automatedactions; a real-time monitoring dashboardthat provides an overview of fulfilledand violated SLAs; and a reportingdashboard that tracks the fulfilmentor violation of SLAs over extendedperiods of time.‘UC4 service level governor changes

the way you manage your service levels,’said Busch.‘Yesterday you knew what youmissed,with UC4 you know what youdeliver.The approach is about beingproactive and not reactive.’�

www.uc4.com

Next generation service managementtool released

Telvent has announced that itwill partner with the City of

Portland,Oregon,USA, to upgradethe PortlandWater Bureau’s real-time data acquisition system.PortlandWater Bureau managers and

planners will useTelvent’s OASySDynamic Network ofApplications(DNA) supervisory control and dataacquisition (SCADA) system to utilisereal-time data monitoring.This will be used, saysTelvent,

to monitor and manage the waternetwork’s pump control, reservoirvolumes and flow control.�

www.telvent.com

Data acquisition upgradefor PortlandWater Bureau


READING & RESOURCES DIARY

Bank releases tool for customermanagement best practiceThe Inter-American Development Bank’s(IDB’s) water and sanitation division hasreleased an evaluation tool to implement goodpractices in customer management for waterand sewerage operators.In designing the tool, the bank considered

four levels of customer management develop-ment, ranging from level 1, the obsoletecompany (with old procedures and toolsdesigned in the 1980s); through to theoperational company (where basic customermanagement processes are in use), themodern company (which has implementedmodern technologies to achieve a productivitylevel and quality of service), and the companyof the 21st century (described as ‘a communi-cating business, where all systems are inter-connected to facilitate the exchange of dataand information’).To facilitate use of the tool, all customer

management issues have been grouped intofour main functional areas – the ‘billing factory’,which consists of recurrent billing andcollection activities, revenue management,customer care, and customer marketing.Pilot projects at ANDA in El Salvador and

EMAAP-Q in Quito, Ecuador, helped to validatethe concept and the questions in the assess-ment tool in detail. Separate reports have beenproduced that include an analysis of theutilities’ customer management activities, theresults from using the tool, and the proposedaction plans to strengthen their customermanagement. �

The tool is available at: www.iadb.org/en/topics/water-sanitation/publications,2031.html

Wastewater Treatment OperatorTraining Manual: Fundamentals ofUtility ManagementWEF says that this manual is intended for waterand wastewater utility operations professionalswho aspire to or have been promoted tomanagement or leadership positions. Utilitymanagers must be knowledgeable in the areasof personnel management, budgeting andfinancial management, communications,utility operations, safety and security, recordkeeping, and relevant laws and regulations,says WEF, and this manual conveyssome of the lessons learned fromhigh-performing utilities’management strategies.WEF 2011240 pages. Paperback.List price: $70Member price: $50To order, visit: www.e-wef.org

Risk Assessment for WaterInfrastructure Safety and SecurityAuthor: Anna Doro-onProviding a quantitativerisk assessmentmethodology, RiskAssessment for WaterInfrastructure Safetyand Security analyzesthe terror threats againstUnited States' waterinfrastructure. It focuseson the human safety,environmental, and economic consequencesthat could be triggered by terrorist attack. Itincludes detailed plans, engineering designs,economic analyses, and protocols forstrategic counterterrorism and emergencypreparedness. The text also examines thelegal and regulatory requirements relatedto the protection of water infrastructurefrom terror hazards against human healthand the environment.

This book:• Provides a full evaluation of the potential

terrorist threat against human healthand the environment through the watersupply system

• Presents qualitative and quantitativeprocesses and models for the secure andsafe operation of facilities and criticalinfrastructure as required by EPA, DRS andother regulatory agencies

• Examines all aspects of water safety andsecurity, including recent incidents of hightrace levels of prescription and other drugsin the water supply

• Offers various risk and vulnerabilitymethodologies for assessing criticalwater infrastructure

IWA Publishing and CRC Press August 2011448pp. HardbackISBN: 9781780400211Price: £67.75/US$121.95/€91.46IWA members price: £51.00/US$91.80/€68.85To order, visit: www.iwapublishing.com

ArcGIS for Water UtilitiesGeographic information systems solutioncompany ESRI has developed a rangeof maps and apps packaged for theArcGIS platform and specifically designedfor water utilities. Maps, apps and bestpractices are available for download fromArcGIS’s Water, Wastewater & StormwaterUtilities group, and the ArcGIS ResourceCentre has a blog and forums explaining theapplications and tools available. ArcGIS forWater Utilities is an expansion of previoustemplates provided for water utilities.www.esri.com

PURC Advanced InternationalPractices Program: BenchmarkingInfrastructure Operations7-10 August 2011, University ofFlorida, Gainesville, Florida, USAW: http://warrington.ufl.edu/purc/develop/details.aspx?courseId= 204&courseMeetId=117

African Water Leakage Summit6-7 September 2011, Midrand,South Africa8-9 September 2011, Cape Town,South AfricaE: [email protected]

Leading-Edge Conference onStrategic Asset Management27-30 September 2011, Muelheiman der Ruhr, GermanyW: www.lesam2011.org

LESAM 2011 will provide an opportunity todiscuss developments at the leading-edge ofasset management to an audience of utilitypersonnel, regulators and consultants. It willbe focused on the techniques, technologiesand management approaches aiming atoptimizing the investment in infrastructure,while achieving required customerservices standards. Topics include:technical innovations; sustainabilityapproaches; and risk management.

Water Loss Reduction in WaterSupply Systems14-15 November 2011, Sofia,BulgariaW: www.bwa-bg.com

Water Loss 201222-25 January 2012, Manila,PhilippinesW: www.iwa-waterloss.org/2012

IWA Water Security Conference -Resilience 201225-27 March 2012, Sydney,AustraliaW: www.watersecurity2012.com

IWA World Water Congress andExhibition16-21 September 2012, Busan,South KoreaE: [email protected]: www.iwa2012busan.org

Denotes an event organised orsupported by the InternationalWater Association

Documents

JUNE2011 VOLUME6 ISSUE2 utility management€¦ · Design&print Layout: IPL Print & Design Ltd Printed by Hobbs the Printers, UK Advertising Christian Letessier-Fenodot T: +44 (0)20