Private operators do add value to water service. But what is it?

19-04-2017

When asked what value private operators bring to the provision of water services, the usual answers tend to follow the lines of managerial expertise, technology, and finance. But these answers and arguments are vague and ambiguous at the best of times: Public utilities are highly competent managerial wise, there are many instances of them adopting state-of-the-art technologies, and public water is not as costly as private water.

But what if the true value of what they add to public water can only be seen from another angle? This article explores the three events where a public-private partnership (PPP) has the opportunity to help the most: An agent of change when policymakers implement new objectives; a needed effective up-front commitment mechanism; and a challenger of long-standing practices.

 

An agent of change

Policymakers on national and local levels all acknowledge the vitality of accessible sustainable water and sanitation services. From time to time, the issue will come to the forefront and take the spotlight in political agendas and usually climax in new policies and priorities underlining cleaning bodies of water, reducing water wastage, as well as conserving water.

While these targets may be incredibly broad, when fleshed out, they have the potential to double wastewater treatment capacities, reduce leaks, and extend the water distribution network. These goals are the driving force behind progress in the industry, though they may sometimes catch municipalities and their public utilities on the back foot as they lack the technical and human resources to realise them.

In these circumstances, a PPP can step in and offer invaluable and rapid expertise pertaining to various areas – such as the operation and design of a wastewater plant – which can be done under a performance-based PPP contract. Also beneficial is the private sector’s capability to move finances and assets expeditiously. For instance, over the last decade, PPPs in China have stepped up significantly, continuously rolling out water treatment designs and operations.

PPPs also have a part to play in recasting water utility services when major economic and social changes take place, like when Germany unified, or when economies move and transition from planned economies. In these cases, PPPs can emphasise efficiency gradually and in line with policies, thus allowing government trust and capacity to grow and develop.

However, water utilities in emerging markets face another challenge altogether. Theirs is the utterly relentless and possibly overwhelming dynamics of rapid urbanisation. The complications of the issues may lie in robust government leadership alongside a broad range of consultations. But private water operators instead have a chance to champion alternative approaches, like decentralised water services, even as public utilities concentrate on their core base of operations.

 

A commitment mechanism

Time inconsistency concerns are not the only issues policymakers are faced with; policies that can bring about numerous advantages in the long-term may cost them politically in the short-term, and is one of the major reasons why politicians do not look much into such policies. For example, while leaders want the public water utilities to be financially independent and sustainable, the utility itself relies on the general public paying their water bills – and on time. Cutting off consumers who have the ability to meet the costs of consuming the water, yet choose not to, is an effective method to prevent people not paying their water bills. However, it is an unpopular move, and many households will appeal to their elected representatives for exceptions and leniency. To keep their popularity, many politicians will not refuse the petitions.

Thus, the government will require a self-commitment mechanism, a part the private operator will be able to play well. PPP contracts with a stipulated bill collection time can be awarded by the government, even as they move to protect susceptible consumers who may not be able to afford to make their ends meet. Therefore, the government can keep their popularity as the private operator carries out the unpopular task.

 

A challenger

While private water utilities are not necessarily more efficient than public water utilities, public utilities often come with long-standing practices and methods in their service. Some managers, although with great technical skill and an illustrious career, may have a narrow view of possibilities, especially if their entire career was within the same utility.

On the other hand, manage in the larger private water utilities are more likely to have spent their careers in various nations and experienced all sorts of conditions. Others still may have come from other industries. Their methods and approaches may not be better, but they are still a reliable sounding board for the public sector, and are more capable of integrating diversity into any and all options presented. PUB, Singapore’s public water utility, is acknowledged globally as one of the most efficient utilities, and the top management board in the organisation appreciates the value a challenger can bring to the water industry. In the PUB, PPPs are not competitors; instead they are respected as benchmarks.

 

Source: Eco-Business