WSUP MASTER CLASS DAY 3: CORPORATE COMMITMENT AND FINANCES FOR LIC UNITS

One of yesterday’s highlights for those in the LIC group was the Hard Talk-style debate on some of the key issues identified on Tuesday. The interviewer was our very own CEO Sam Parker and the panel consisted of Francis Lamptey of Ghana Water Company Limited (GWCL), Paul Mwarania of Nairobi City Water and Sewerage Company (NCWSC) and Elmer Largo of Manila Water.

The questions were broadly on two topics: how to ensure corporate commitment to LIC service provision when it is currently viewed as risky, difficult and non-profitable, and how to secure the finances which enable service providers to serve the poor at scale.

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On the first question, Francis highlighted that the management need to be clear that it is ‘more risky not to take risks’, because ultimately low-income consumers need water and they will ‘feel cheated’ if it is not provided through the mandated authority, making them more likely to make illegal connections or even take more drastic action. For example, a water treatment plant in an LIC in his area of work has been repeatedly vandalised because it is viewed as using their land to treat water and then take it to the rich. Meanwhile, in Mozambique serious demonstrations led to a reduction in LIC connection fee by 50%. Francis again: ‘You never know what they will do because water is life’.

Since everyone will be served in one way or another, why not make sure the water company gets the revenues through them being served, rather than losing money to Non-Revenue Water (NRW) and to acts of vandalism and at the same time leaving low-income consumers to be over-charged?

Paul’s perspective was that demonstrating the commercial viability would bring top level management on side because, even though only a small proportion of revenue may be derived from LICs, the reduction in costs from severe NRW reductions is also very important. According to him, these savings could be ring-fenced for network expansion. From the floor, there was an experience that NRW can be reduced almost to zero with application of an appropriate model.

In the Philippines, corporate commitment has been gained and Elmer explained that this was achieved through bringing top management on side, by explaining their responsibility to reduce waterborne diseases as well as the gains that can be made through reducing the huge number of illegal connections. It was presented as a ‘win-win situation to give them water’.

Meanwhile, the Manila Water budget for LIC works has been around $1bn over 13 years. For other utilities represented, where could they access this level of funding? For Francis, it may be possible to secure donor grants, ‘but it’s not the way to go’; investments would ideally come from the company.

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According to Paul, contribution of organisations like WSUP is small compared to the need, but it achieves (along with WSUP’s expertise) the vital step of demonstrating good models, after which scaling can be done with the company’s funds. He says there is not currently enough funding in NCWSC, but ‘the trend is good’ as the business case is being demonstrated. This experience was shared by delegates from LWSC, Zambia and JIRAMA, Madagascar, but DWASA (Bangladesh) representatives stated that their revenues were not enough to support LIC expansion activities.

Finally, Sam questioned whether companies were performing financial analysis of their programme. According to his back-of-the-envelope calculations, Return on Investment (RoI) in NWSC’s pre-paid metering programme is around 200%, so why is this not attracting investment? In general, it has been rare for LIC units to undertake rigorous financial analysis, but there was general agreement that doing so might enable high level management to invest more in LIC services.

So there you have it: More risky not to take risks; win-win to give them water; very commercially viable; external funding (and expertise) only needed to pilot effective models for service­­­­­ – what are we waiting for?

PAST BY JON DOUGLAS, ACF PROGRAMME SUPPORT OFFICER 

This article was also posted on the WSUP Blog.

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