There is no universal solution to these challenges, but the World Bank sees them under three broad areas: governance, finance, and capacity.
Strengthen sector governance, citizen participation and utilities to improve service delivery
Effective service delivery depends not only on the governance and finance of service providers, but critically also on the relationship of the sector with the state. Increasingly, water and sanitation services are delivered in the context of a multi-tiered state – federal or decentralized. Aligning the water sector in terms of roles and responsibilities to the different tiers of government is fundamental to creating the right accountability and incentives for making services work, and especially for poor people.
Secure a reliable revenue stream sufficient to cover operation and maintenance costs
Securing sufficient revenue remains a day-to-day challenge for many utility managers. Data from the International Benchmarking Network for Water and Sanitation Utilities (IBNET) shows that only 64% of the 4,500 utilities in the database cover more than their O&M costs from user fees. User fees are, in most cases, the most reliable source of revenue given that government transfers can be unreliable, or may come with political patronage requirements. Increasing reliance on user fees also means that managers and staff will focus more of their attention on meeting customer needs, rather than trying to satisfy politicians on a day–to-day basis. This requires attention to commercial operations (billing and collections), price setting (cost recover tariffs), and the design of tariff structures that achieve cost recovery while considering affordability.
Pricing
Revenue and affordability, however, raises the issue of pricing water. Today, in the context of climate change, the world is seeking to put a price on carbon but there is uncertainty on how to value water. Yet, to ensure water security, pricing and valuation of water has become even more essential. Pricing will need to play the role of supporting water efficiency and reducing waste; facilitating the allocation of water between competing needs such as energy, agriculture, and municipal sectors; creating accountability in service delivery; meeting environmental needs; and securing universal access and affordability. A single price cannot meet these differing objectives, but a lack of pricing or underpricing has the same impact – inefficiency, inequity, and mis-governance. Indeed, the most expensive water, especially for the poor, is free water. Time and again studies have shown that subsidies in water are often captured by better off in society and poor revenue streams for provider undermine their accountability and ability to universalize service delivery, leaving poor households outside the ambit of formal service delivery. The Gordian knot of pricing water can only be cut in the context of institutional reform, sector governance, and ensuring that the linkage with the state can allow distributional goals to be addressed through effective safety nets financed separately and securely.
Improve operational efficiency to ensure that each revenue unit delivers the maximum service possible.
The two largest areas of inefficiency are typically energy consumption and leakage. In both cases, greater use of performance-based contracting provides service providers with opportunities to leverage their public sector skills with the technical capacity and incentives of the private sector to reduce costs and improve quality of service.
Increase and improve access to investment capital.
To achieve universal and quality services, investment capital must extend beyond what has historically been available from government grants, subsidies, and loans. The next period must see a move toward mobilization of more domestic capital, whether from banks, capital markets, or other sources such as pensions and insurance companies
Increase capacity building of utility staff and managers to professionalize the sector.
Capacity is often perceived through the lens of training and, that too, through a prism of supply driven, top down training methodologies. Capacity building in reality is much more and, importantly, intimately linked to the institutional set up of the service provider. A local government or a service provider that has operational flexibility with its own revenue sources, and is held accountable for service delivery, will constantly seek to invest in their own capacity through organizational changes, contracting in of systems and skills, and, yes, also training. Capacity building in such a setting becomes more demand driven and related to operational needs. The World Bank will continue to provide infrastructure finance to support clients in their drive to meet the SDGs. This will be balanced by an increasing use of its international knowledge and experience to improve service providers by linking governance, financing, and capacity building so that our clients move toward universal, quality water and sanitation services in a sustainable manner.
Adapted from: World Bank