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Lessons from the Field: Prepaid Water in Urban Africa

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ImageCan prepaid systems become an instrument to improve access and quality of water services to poor people in African cities and towns? Or does prepayment deny poor people more access to water? Do prepaid systems cost too much and impose more technical, affordability and social pressure on service providers already struggling to cope with growing demand? And what do customers think?

A new study from the World Bank's Water and Sanitation Program (WSP), The Limits and Possibilities of Prepaid Water in Urban Africa: Lessons from the Field, explores these questions, drawing on evidence from eight city case studies: Kampala, Nairobi and Nakuru, Lusaka, Maputo, Mogale City, Maseru and Windhoek. Most readers know that in this context new approaches are urgently needed. While urbanization continues to accelerate in Africa, large numbers of urban Africans still do not have their own water connections. So can prepayment make a difference?

We learned that . . .

Prepaid water is not a miracle cure, and cannot substitute for ineffective overall management. It is not obviously cost-effective for the provider and it has not been consistently reliable. A service provider that falls short on effective management and monitoring,  governance, and sound customer relations is likely to take on far more than it can deal with by resorting to prepaid systems.

Different prepaid water applications have different implications. Prepaid standpipes serve people without their own connections, enabling them to buy water at the utility tariff, without an intermediary’s markup and limited hours. Prepaid household connections help manage the risk to customers of debt and possible disconnection and debt, and the risk to service providers of bad debt. Prepaid meters on institutional customers consuming large volumes help manage demand and debt risk, and improved collection can support cross-subsidization to poor customers. Of the three applications, prepaid public standpipes seem most likely to enable water utilities to serve poor households better and offset investment and running costs, provided there is a distribution network with adequate pressure, convenient credit purchase points, and ability to address faults promptly.

Prepaid water involves far more than metering and new technology. Technically, the system comprises metering, dispensing, and credit-loading components. Its delivery system hinges on several factors. The first is effective credit vending through functional and accessible purchase points, close to customers, easy to use at flexible hours, and reliable. Second, close monitoring and rapid response is essential to identify and resolve problems quickly. And a strong focus on communication with customers is essential, backed up by a service team geared to act swiftly to remedy faults that affect the supply of water that customers have already paid for.

Prepayment can benefit customers, and most seem to like this option. Customers are not primarily interested in the technology. They want  good, affordable services, reliably delivered. Many say that prepaid systems enable them to manage their accounts more directly, and they know where they stand all the time, in contrast to conventional systems that carry the risks of inaccurate and high bills, debt and disconnection or  reliance on intermediaries who mark up prices.

Prepaid systems provides an incentive for service providers to extend services to poor people in areas where previously they had limited revenue prospects, and a means to improve revenue collection and reduce wastage. But revenue income will meet or exceed prepayment costs only at higher consumption volumes, and the volume of sales required will be determined largely by how cost-reflective the tariff is.

The affordability and cost-effectiveness for utilities of prepaid water remain a challenge. Service providers’ costs are likely to increase (at least for a while) due to significantly increased capital expenditure on metering devices; possible increases in leaks and repair bills where better demand management raises network pressures; recurrent costs such as the cost of vending and ongoing repairs and monitoring; and selling more water at subsidized lifeline tariffs rather than full tariffs. Service providers should assess these cost and revenue effects upfront. 

Prepaid metering cannot compensate for inefficient billing and collection. The viability of prepaid systems—like most of a service provider’s business—hinges on the tariff regime. If a service provider, for whatever reason, charges below cost (e.g., through lifeline blocks), it is unclear whether it can find added financial benefit from using a relatively expensive charging mechanism.

The performance of the technology is still inconsistent. The technology is not yet as reliable or effective as prepaid electricity, because prepaid meters have more moving parts and are vulnerable to damp, grit and air. If the prepaid industry is to grow, it is important to ensure that meters can be repaired locally and that the supplier can offer good after-sales service and spares.

How can services providers make prepayment work for them and poor customers?

Be clear about the priority: Reaching people without their own connections. Prepaid systems’ core potential is in addressing the fact that many urban Africans still do not have their own water connections and cannot access subsidies. Prepayment does not offer an obvious answer to these challenges, but some of these systems’ attributes may provide a tool for addressing some of them. 

Recognize that prepayment technology is not intrinsically anti-poor. Some critics fear that prepaid systems make it too easy for service providers to close off water supplies where people cannot afford advance payment, and when credit is exhausted. But the technology is merely a tool of policy and regulatory frameworks which can provide safeguards and lifeline support, and guidance for working closely with customers in rolling out the technology.

Recognize that prepayment does not equate to the “commodification” of water. It has been implied that prepaid meters typify the commoditization of water, or even privatization. Significantly though, of the eight service providers covered in the case studies, two of the pace setters were neither private nor publicly owned corporate agencies, but municipal water departments concerned with providing services that meet the needs of the people they serve.

Recognize the challenge of prepaid systems to service providers. The high initial outlay of prepaid systems poses big challenges.  Service providers should assess the cost and revenue effects of introducing prepaid meters carefully early on, compared to the alternatives. Economic regulators and higher-level policy makers could play an important role in doing so.

Think big about the technology. If prepaid water systems are to be applied more widely, the robustness and reliability of prepayment systems need to be improved. The game changer could be information and communication technologies (ICT) to eliminate cumbersome token usage and link prepaid meters to mobile phones and vendors. The entry of Standard Transfer System (STS) compliant technology holds particular promise for loading credit and paying for water across a common platform shared with prepaid electricity, and promotes greater compatibility between different brands through adherence to global specifications. A combination of regulation and demand from service providers for components across brands could produce a mix of price, quality and innovation to reach the millions of poor urbanites that still lack access to safe water.

To summarize . . .

Prepaid systems are not a quick fix, and require effective policy, regulatory and other transformative measures plus quick response times when they fail.  But they are not inevitably anti-poor  and can make a tangible contribution in the quest for access to improved water supply.

Related links:

New Study: The Limits and Possibilities of Prepaid Water in Urban Africa: Lessons from the Field

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Chris Heymans

Senior Water & Sanitation Specialist

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