In search of new ideas on public-private partnerships and water-loss reduction

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Chris Shugart is prize manager for the Dreampipe Challenge.
 
Credit: Asian Development Bank

Two questions worth debating are whether we might soon see a renaissance in public private partnerships (PPPs) in urban water supply and services, and whether PPPs are a good way for water companies in developing countries to reduce their staggering level of water losses.

These pressing issues demand our attention because an inordinately high level of water losses – up to 50 percent of water entering the distribution system – burdens water companies and customers in developing countries. More precisely, the culprit is “non-revenue water” (NRW): both physical losses (leakage and bursts) and commercial losses (poor customer databases, meter inaccuracies, and illegal connections).

The consensus is that there is no lack of technical solutions to the NRW problem. In the concluding sessions of a recent conference on water losses in Bangalore, India (February 1–3), organized by the International Water Association (IWA), experts spoke of the need for a “change in mind-set” if the problem of NRW is to be given sufficient attention by politicians and utility managers. True enough, but how exactly do you do that?

Dreampipe Challenge

The Dreampipe Challenge, a new innovation prize, could help answer both questions. Funded by the U.K. Department for International Development (DFID), Dreampipe will offer attractive prizes – three in Stage Two of about £400,000, or US$580,000, each – for new or improved ideas, submitted by anyone, about ways to increase financing for utility companies to enable them to reduce non-revenue water.

Dreampipe’s approach is to focus on financing. Why? It’s true that many water companies still have a lot of reorganizing and preparatory work to do, but some are ready and eager to move forward – and have already done as much as they can do with the cash available to them. What they need now is external financing for investments to undertake a serious NRW-reduction program. Those that succeed can serve as examples for the others.

International financial institutions do not have unlimited resources, and their procedures can be slow. The local bank down the road will be reluctant to lend without collateral in the form of a physical asset; it cannot dig up pipes and sell them if the water company doesn’t repay the loan.

In principle, NRW-reduction programs should be able to pay for themselves (including the cost of financing) from the cash flow generated by cost reduction and additional revenue. The payback period for the first, highest value, set of interventions could be just five to seven years.

The Dreampipe Challenge is not limited to ideas involving PPPs (and it is not biased in favor of or against PPPs), but PPP solutions are certainly a strong possibility. This brings us back to the question of whether there will be a renewed enthusiasm for PPPs in this sector.

Looking back to look forward

A decade ago, after an initial boom marked by over-ambitious goals, interest in intensive forms of PPPs in the water sector – especially full concessions – waned. Attention then moved to PPPs involving management, operation & maintenance, and more limited-scope services. (Not all of these of these might legally qualify as PPPs in some countries; the term “PPP” is being used broadly here. For standard details and definitions, see https://pppknowledgelab.org/ppp-cycle.)

In the past ten years, these so-called “performance-based contracts” have evolved with different emphases and designs – often shaped by local circumstances. Some have succeeded and others have fallen flat – often without leaving clear lessons for others to follow.

Certainly PPPs for NRW reduction are not easy going. Probing into the factors that cause NRW and remedying them involves the private partner deeply in the core activities of the water company and might threaten vested interests. In some cases, dealing with commercial losses can be politically sensitive and risks exposing corrupt practices.

Many questions remain. Should a water utility performance-based contract be narrowly focused on NRW reduction, or should it take a more holistic approach to performance improvement? How rigid should the contract be, and how open to continual adjustment or renegotiation? What lessons can be learned from the way energy performance contracts (involving energy service companies) are typically structured and financed?

Those of us working in the field look forward to the publication by the IWA in October 2016 of a book examining recent experiences with various forms of performance-based contract in urban water – and not just for NRW reduction. It is said that the book will conclude that great progress has been made over the past ten years with the design of these contracts but that results have been uneven and there are still many challenges. It will set out recommendations about what works and what doesn’t. The timing of this book will fit well with Stage Two of the Dreampipe Challenge (the submission deadline for Stage Two is expected to be end-2017).

Reading the future would require a crystal ball, but I would wager that we’re going to see a new wave of improved PPP-type arrangements in the urban water sector in the years ahead, many of which will highlight NRW reduction as an important performance objective.
 
Further details are available at the Dreampipe website. The deadline for submissions for Stage One, which requires a short concept note, is April 17, 2016.

Authors

Chris Shugart

Independent Consultant

Join the Conversation

Victor Kayode
March 22, 2016

I will like to strengthning my idea on how to recycle the waste water in manufacturing companies in to more domestic use.

Mary Ann Gina Valderrama
March 22, 2016

IN SEARCH OF NEW IDEAS ON WATER CONSERVATION: Hello, may I make a suggestion for PPP. May the company have a contest of the person or family who has consumed the least for a month so that it may encourage people to be mindful of water. The cubic meter may be divided among the household resident (s). Practice of people at Sukyo Mahikari Philippines is to recycle water to water plants or flush toilet.

Mary Ann Gina Valderrama
March 22, 2016

Hello. The PPP may organize a contest to encourage people to save up on water. The least amount of water used by a household of one person to a family may be rewarded or recognized. Practice of Sukyo Mahikari Philippines members is to recycle water from washing to water plants or flush toilet.

Nirere Sadrach
March 24, 2016

Collaboration between planners, construction sector and water management to develop clear and well programmatically mapped results to locate cubic meters and track consumption routes.

Emmanuel Mosoti Machani
April 15, 2016

By leveraging private sector efficiencies and access to commercial credit, we are developing a PPP (an unsolicited proposal) to upgrade archaic Water Service Provider metering networks. With trade finance from a local bank - by way of a stand-by letter of credit, a simple, low cost, 4 stage financing mechanism - coupled with favourable credit : debtor day ratios from input suppliers, the Special Purpose Vehicle shall provide access to low cost funds to water service providers that shall enable them acquire smart metering solutions that in turn shall curb physical and financial water losses. Projected increased revenues and managed costs of physical meter reads shall allow water reticulation expansion without transferring infrastructure expansion costs to consumers.
The model is universal, scalable and replicable in any market; ours, while bespoke to local private sector financial instruments and public sector support for PPPs, it's modelled for the greater Eastern Africa region.