Topic: BusinessIndustry

Last updated: October 25, 2019

At first glance performance management of water utilities may appear to be an outmoded banality. Water supply operations are so common that it would seem unthinkable to still have unanswered conceptual problems and issues. Such senses are particularly acute at developed countries, where good performance of water utilities is a normal practice. However, on the global arena one could observe a more dreadful picture, with hundreds of millions of people suffering from failures in performance of water utilities. “Clean, safe drinking water is scarce.

Today, nearly 1 billion people in the developing world don’t have access to it.” (“Global Water Shortage,” n.d.). Substandard drinking water supply contributes significantly to increased mortality and morbidity, especially amongst the children. According to Gro Harlem Brundtland “Long before the advent of modern medical care, industrialized countries decreased their levels of water-related disease through good water management… In developing countries, preventable water-related disease blights the lives of the poor… 3.

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4 million people, mostly children, die annually from water-related diseases. Most of these illnesses and deaths can be prevented through simple, inexpensive measures.” (WHO & others, 2001). “Far more people endure the largely preventable effects of poor sanitation and water supply than are affected by war, terrorism, and weapons of mass destruction combined.” (Bartram, Lewis, Lenton, & Wright, 2005). “Water related illnesses caused by unclean water and poor sanitation are responsible for the majority of sickness in developing countries” (Brady, Pfluger, Mauldin, & Starke, 2013). Apparently, nonperformance of water utilities is still an issue, and it bears a heavy cost in terms of human lives and social sufferings.Inherently, urban water supply is an envious business.

It is a natural monopoly with a concentrated and affixed customer base with virtually inelastic demand. Such attractive and critically important operations can and should be universally organized in an effective and sustainable manner. However, in developing countries water utilities too often constitute failed businesses, dependent on support from governments and International Financial Institutions (IFIs) for continued operations. Nonperforming water utilities are so common, that the Centers for Disease Control and Prevention (CDC) states on its site: “In most developing countries, tap water should probably not be drunk, even in cities. This includes swallowing water when showering or brushing your teeth.” (Centers for Disease Control and Prevention, n.d.).

Naturally, governments, utilities, IFIs and the public at large continually seek answers to the question of what would be the proper way for managing performance of water utilities, especially at developing countries. “In previous decades the governance of local public services has been the focus of administrative reforms in order to improve the efficiency and productivity levels and cope with increasing constrains in financial resources” (Pazzi, Duygun, Tortosa-Ausina, & Zambelli, 2013). “Today in Italy, as well as in other countries, there is an intense debate over the water industry. Both researchers and policy makers are looking for the most effective strategies for the efficient use of water, with particular focus on governance, organizational and location choices.” (Romano & Guerrini, 2011). Nevertheless, there is still no good answer to the question. There are however different solutions practiced by various countries and locations, with some turning into trends.

This paper reviews main current trends in performance management of water utilities in the world, as practiced by developed and developing countries.2 Water Utilities’ Performance Management Patterns and TrendsCurrent practices in managing performance of urban water utilities could be grouped into the following categories:(a) Direct management by the government;(b) Outsourcing management to the private sector;(c) Managing performance by licensing and/or certifying water supply activities;(d) Managing by instituting and supervising performance standards;(e) Adopting Performance Agreements;(f) Comparing and evaluating performance by means of ranking and/or benchmarking;(g) Utilizing economies of scale and scope;(h) Automation of operations with Information and Communication Technologies.Some countries use a combination of such practices, while some fail to have any systematic approach to performance management of water utilities.

Predictably, the prior tend to have well performing utilities, while the later tend to have dilapidated and dysfunctional water supply and wastewater services.Direct management by government typically involves running state owned water utilities. Such utilities could be owned by municipalities, as in case of Swiss cantons, or by national governments, as in case of Tajikistan. Direct pubic management is one of the most common modalities for organizing drinking water supply.

It is based on the premise that drinking water supply is a critically important public service, which should remain under public domain.Outsourcing management to the private sector is based on the premise that private sector is inherently more efficient and innovative, enabling better performance. The private sector involvement ranges from outright privatization, as in case of water utilities in the UK, to Public-Private Partnership (PPP) arrangements, as in case of most water utilities in France.Managing performance by licensing and certification of water supply operators is based on the premise that only properly trained, experienced and accredited professionals could ensure suitable performance of a utility, irrespective of ownership structure.

It is a common practice in the Unites States, with water supply operations certified and/or licensed at the state level. Utilities’ performance management based on formally adopted standards of operations is led by the International Organization of Standardization (ISO), which had a great success with ensuring en masse performance adequacy in many other fields. The ISO had notable success stories in performance management with ISO 9000 series relating to quality controls and ISO 14000 series relating to environmental management.

Recently, in a bid to enable better performance of water utilities the ISO had issued standards specific to drinking water supply operations, such as: ISO 24510:2007 “Activities relating to drinking water and wastewater services — Guidelines for the assessment and for the improvement of the service to users”; and ISO 24512:2007 “Activities relating to drinking water and wastewater services — Guidelines for the management of drinking water utilities and for the assessment of drinking water services”Performance enhancements by enabling comparison, benchmarking and ranking on an international arena are led primarily by the IFIs, such as the World Bank and the Inter-American Development Bank. The underlying premise here is to induce a competitive behavior between utilities by evaluating, benchmarking and ranking their performance against each other, and themselves over a timespan.Another popular approach to performance enhancement has been scaling up water supply operations by various types of amalgamations, including mergers of several urban utilities located in the same region; combining urban and rural water supply operations; combining water supply and wastewater operations; and even combining water supply and wastewater services with other communal services, such as gas supply and electricity.Given modern advancements in Information and Communication Technologies (ICT), expanding their use for improving utilities’ performance would be logical. The ICT advancements resulted in paradigm shifting changes in utility operations, particularly in billing, collection, customer relations, public relations, hydraulic modeling, asset management, and automated controlling of operations. What’s more, the technologies have become more standardized and less expensive, enhancing their applicability and adoption in the developing world. These district methodological approaches to performance management of utilities have a rich history, a strong base of proponents and opponents, and a rationale worth a consideration. As can be seen from the sections below, none of these approaches is a panacea, always and everywhere delivering better performance.

Nevertheless, the approaches do have a track record of successful application within particular circumstances. What’s more, many approaches are complementary, enabling some synergies when used concurrently. In the sections below each of the approaches would be reviewed.2.1 Direct Management by GovernmentDirect operation of public utilities by governments is the most conventional and common modus operandi. “Water services are owned and run by the public sector in over 90% of the largest 400 cities in the world (those with populations over 1million).

In small towns and rural areas the proportion is even lower.” (EPSU Secretariat, 2012). «The Water Supply Services (WSS) are generally considered public services provided though a network and regulated by public authorities» (Pazzi, Duygun, Tortosa-Ausina, & Zambelli, 2013). The underlying premise here is that water supply is a public service, best handled by the public itself. The level of government involved in operating water utilities varies significantly, depending on circumstances and governance culture of the country.

The most notable success with this approach could be observed in Switzerland, where the “drinking water market is highly segmented, characterized by a very large number of water utilities operating in a very heterogeneous context, acting as local monopolies very often controlled by the municipalities” (Faust & Baranzini, 2014). In Switzerland governance is primarily concentrated at the level of cantons, which are relatively small and close to municipal governance structures. Furthermore, water sources are abundant at almost all residential locations. Respectively, water supply operations are handled by local public enterprises or departments of municipal authorities. By contract, in Israel the central government plays a strong, paternal role and water sources are scares. Consequently, water supply operations are centralized, with 80% of bulk drinking water produced by the state-owned National Water Company (Mekorot) (“Main Facts & Figures,” n.d.).

In larger countries, such as Italy, where the central government is too distant from most localities and many individual municipalities are too small, regional government structures assume operational control over water supply operations (Pazzi, Duygun, Tortosa-Ausina, & Zambelli, 2013). Whether water supply operations are handled by a national public entity, or by a local government, the methodological approach is based on the same concept – operating public utilities is a public matter, best handled by governments. After all, governments are distinctly established for managing public matters. The efficacy of such an approach is as good as an efficacy of governance in general. In Switzerland and Israel, where governance systems and practices are advanced and efficient, performance of water utilities is similarly good. In larger countries, efficacy of government operations can vary significantly between various locations, and so does the performance of water utilities. In developing countries with considerable systematic weaknesses in governance and efficacy of public institutions, failed performance of water utilities is all too common, often warranting considerations for detaching water supply from government operations by private sector participation.

Direct operation of water utilities by local, regional or national governments appears to be a valid proposition for countries with well performing governments, which are typically constrained to advanced economies. For the developing world such a methodological approach in performance management of utilities may not be very appropriate. Incidentally, here it is important to distinguish between regulating and operating water utilities. Governments have a mandate to regulate public safety and wellbeing, and respectively regulate most aspects of public utility operations, such as quality of drinking water, availability and continuity of water supply, quality of effluents, water supply connections to fire hydrants, working hours, contract enforcements, financial and tax reporting, etc.

Such regulating is a part of governments’ normal business and is distinctly different from operation of public utilities. The subject of this paper is limited to performance management of operations, as is handled directly by governments or other parties.


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