siwi (iPosterSessions - an aMuze! Interactive system)

Indian urban water Supply Sector

Current Challenges

* Keeping pace with the demand for growing population

(2.38% annual growth in urban centers)

(Trading economics,2017)

*Providing coverage to the poor (35% population live below poverty line in urban centers)

(Nair, 2015)

*Ensuring sustainability of services keeping in mind the growing needs and changing lifestyles of people

(moving towards water intensive foods, technology, increasing stress on providing sanitation services and building toilets to make regions open defecation free)

*Improving the quality of services

Issue to be addressed

Low Tariffs (Kulshrestha et al, 2012)

Consequences of Low Tariffs

" The provision of safe water is a service and requires a service oriented attitude on the part of the water undertakings involved"

(Alegre et.al,2016)

OPEN

Performance Measurement- Need

*Indian urban water supplies are monopolies controlled by the government, wherein policies are focused on drinking water provisioning to the complete neglect towards making operations efficient and profitable

*Most municipalities operate with net financial losses (55% cost recovery (PAS, 2014)) implying dependence on the government subsidies, and poor services leading to consumer dissatisfaction

*For accessing financial resources from the market and for induction of private sector, the urban water supply utilities have to be made creditworthy and efficient.

This would invariably require the performances of the sector to be measured and analyzed

*Poor services imply reduced willingness to pay, and efficient operation of services will ensure internal resource generation and also help improve acceptability of higher user charges.

"Performance assessment of water services is essential for establishment of a regulatory framework to ensure that water supply monopolies do not result in services that are inefficient".

OPEN

Objective and Scope of the work

OBJECTIVE

To develop a quantitative framework for tariff determination under price cap regulation to help water supply municipalities improve performances of their services in the near future.

SCOPE OF THE WORK

The present work has been undertaken to measure productivities and efficiencies of 20 urban municipalities in India to answer the following specific questions:

METHODOLOGICAL APPROACH

" Data Envelopment analysis is used to assess productivity and efficiency levels of water supply utilities in most parts of the world"

OPEN

Analysis, Results and Discussions

Model Specification

Efficiency Change (1999-2009)

TE 2009< TE 1999 for 12 out of 20 municipalities
implying further deterioration in services over time.

Performances seem to be deteriorating over time for more than 50% of the sample municipalities, necessitating urgent policy intervention

Productivity Change (1999-2009)

Annual Productivity Change

Range= +6.9% to -8.9%,
average = -3.28%
implying overall negative productivity for sample indicating large deterioration in services with time.

Large scale inefficiencies exist in water supply operations primarily owing their roots to prevailing low sector tariffs that ensure increasing inefficiencies in operations of water utilities over time, implying progressive deterioration of services with time

X factors and Potential Savings

If inefficiencies are to be tackled, a fair and transparent scientific basis needs to be evolved that ensures that tariffs increase gradually over time to realistic levels, putting decision on tariffs out of purview of politics to bring about a fair and upright regulatory regime.

X factors

Range: 3.28% per year - frontier municipalities, to 10.67% per year for most inefficient municipality
Average =7.06%
implying that the average sample utility must reduce unit costs in real terms by 7.06% per year or must increase its tariffs by this amount to offset inefficiencies

Potential Savings

Rs. 392 million (22.18% of OPEX), if the municipalities were to adopt appropriate best polices and management tools.

OPEN

Conclusions and Recommendations

The study endeavored to measure of productivity and efficiency for 20 urban municipalities in India over a 10 year period to develop a quantitative framework for tariff determination under price cap regulation.

The results showed that water supply services exhibit marked inefficiencies, with decreasing productivities over time, thereby confirming the consumer perception that water supply services in urban India remain dissatisfactory.

The current results demonstrate the possibility of saving nearly 22% of OPEX, if the municipalities were to adopt appropriate polices and management tools of the existing best practices

The illustrated framework comprises a basic step for ushering regulatory-reforms.

BENEFITS

This may help municipalities to

bridge gap with best-practices,
improve their
annual productivity growths,
generate internal revenues that cover operational costs incurred by the government,

expand and improve services in rapidly expanding urban areas,
make water-supplies accessible to the poor.
ultimately leading to financial sustainability of the municipalities.

"Performance Assessment of utilities is an important tool to make the services efficient"

OPEN

Practical Implications

The Present study benefits various Stakeholders Involved in the water supply

*Water Undertakings

*Consumers or Direct Users

*Local, Regional and National level Policy making bodies

*Regulatory agencies

*Financing Agencies

*Water Supply Managers and Administrators

OPEN

Author Info

SAI AMULYA. N is a Doctoral Candidate in the Environmental Engineering Division, Department of Civil Engineering at the Maulana Azad National Institute of Technology, Bhopal, India. She works on water supply sector reforms and policy, sector regulation, and benchmarking. She is a recipient of the Commonwealth Scholarship Fellowship awarded by Government of UK at Durhum University, UK

Mukul Kulshrestha is Professor of Environmental Engineering in the Department of Civil Engineering at the National Institute of Technology, MANIT-Bhopal. Dr Kulshrestha holds a B. Tech. in Civil Engineering and M. Tech. in Environmental Engineering, both from Indian Institute of Technology, IIT-Kanpur, and has a Doctorate from IIT-Delhi. He has been a Visiting Fellow at the University of Leeds, UK and at AIT-Bangkok. He has more than 100 publications including 3 books, and 40 peer-reviewed International Journal Publications. His research interests include Water Sector Policy and Reforms, EIA, Exploration of linkages between Food and Global Warming, Climate Change, and Infrastructure Utility Performance Measurements.

Abstract

Highlights

• Paper details potential use of performance measures in price-cap regulation of water-supply services.

• The case study evaluates scope for setting tariffs under incentive-regulation for 20 urban centers where hitherto operations remain unregulated and monopolized by government

• DEA is used to assess performances and productivity growth of municipalities.

Introduction and objectives

Water-supply services have emerged as profitable industries across developed nations wherein water-tariffs are regulated and set scientifically by a Regulator. Unfortunately, across several developing economies Regulators remain non-existent, with monopoly operations of government whose policies are focused on drinking water provisioning for growing populations, with neglect towards making operations efficient and profitable.

The scope of work comprises:

• Reviewing existing water-supply scenario and sectoral reforms for providing valuable lessons to other countries of developing world.

• Investigating importance of performance-assessment in regulatory framework

• Developing a quantitative framework for tariff determination to evaluate possible cost-recoveries in municipal water-supply operations

Methodology approach
The Methodology focuses on answering the following :

• Using DEA analyse the extent of inefficiencies in water supply operations existing in the urban areas of India.

• Using Productivity Analysis to explore if water-supply operations are improving over time, and if not, then what could be the possible causes?

• Using X-factor calculations, evolve a scientific basis of determining water-tariffs in order to overcome financial losses in the sector and bypass local politics

• Drawing conclusions and policy outcomes in the context of a possible sector regulation and above findings

Analysis and results

The sample mean efficiency was found to be 57%, with individual municipalities performing as low as 14%. This indicated prevalence of large-scale inefficiencies in the water-supply operations. The TFP growth model indicated that over the time period 1999 to 2009 inefficiencies were found to be actually increasing over time implying further deterioration in services over time, thereby reflecting an urgent need for regulation which may enable the municipalities to gain efficiencies. Further, X-factors calculated based on mean annual productivity growth of 3.28% obtained from TFP model, revealed a maximum X-factor of 10.67% for the most inefficient municipality indicating that municipalities may end up increasing tariffs to a mean value of 7.06% per year over 5 year period. This tolerable tariff increase can lead to tremendous increase in efficiencies of water-supply operations.

DEA analysis also indicated a possibility of saving 22.18% of operating expenditure if the municipalities were to adopt appropriate policies and management tools of best practices.This is indicative of the fact that large savings are possible in water-supply operations that may result in strengthening of the services and benefits for the consumers including the poor

Conclusions and recommendation

The illustrated framework comprises a basic step for ushering regulatory-reforms. It further has implications for future privatization as private companies would not be forthcoming to sink investments in utilities that are highly inefficient. X-factors for scientifically increasing tariffs demonstrate how tariffs can be kept out of purview of politics in a fair/upright regulatory regime. The X-factor calculations may help inefficient municipalities to bridge gap with best-practices, thereby effecting savings for financial sustainability and reduction of subsidies. Internal cost-savings may be used to expand and improve services in rapidly expanding urban areas and to make water-supplies accessible to the poor.