kwsb modernization roadmap -...

Report No: AUS0000417.

PakistanKnowledge,Capacity & Learning ActivitiesKWSB Modernization Roadmap}

.March 30, 2017

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Karachi Water and Sewerage Board: Recommendations for Improving Services to the People of

Karachi

Prepared by:The World Bank Global Water Practice

Updated: 14 Aug 2017

Exchange Rates

1 PKR = US$0.101 US$ = PKR 105.35

Abbreviations

24/7 24 Hours per day, 7 Days per WeekBOT Build Operate TransferCFO Chief Financial OfficerCY Calendar YearGOP Government of PakistanGOS Government of SindhHR Human ResourceICT Information and Communications TechnologyIT Information TechnologyKDA Karachi Development AuthorityKE Karachi Electric Corporation (K-Electric)KM KilometersKMC Karachi Metropolitan CorporationKPI Key Performance IndicatorsKWSB Karachi Water & Sewerage Boardlcd Liters per Capita per DayMD Managing DirectorMGD Millions of Gallons per DayMOU Memorandum of UnderstandingNGO Non-governmental OrganizationNRW Non-revenue WaterO&M Operations and Maintenance ExpensesP&D Planning & DevelopmentPKR Pakistani RupeeSTP Sewage Treatment PlantUK United KingdomWWTP Wastewater Treatment Plant

This report is a product of the staff of, and consultants employed by, the World Bank Group. The findings, interpretations and conclusions in this document do not necessarily reflect the views of the World Bank Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this report.

Executive Summary

This note responds to a request from the Government of Sindh to assist the Karachi Water & Sewerage Board with financing and technical assistance. The observations and suggestions outlined below are the result of a series of visits by World Bank staff to Karachi over the last five months, with the latest team visit being in June 2017.

Our first observation is that many of the mega cities in the developing world have grown so quickly that they struggle to deliver basic infrastructure services, including potable water and wastewater collection and treatment. Examples are Lagos, Cairo, Manila, San Paulo, Kinshasa, Dhaka and Karachi.

In these metropolises, the water and sewerage utilities are no longer equipped or empowered to deal with the very challenging reality on the ground. Typically observed are weak governance structures, a lack of operational autonomy, sprawling informal settlements, poor accountability to customers, overstaffing, a frequent turnover of top management and an increasing dependence on fiscal transfers.

Specifically, for Karachi the combination of: 1) rapid population growth; 2) the lack of a legal and institutional framework that is adequate to the city’s evolving needs; and 3) a utility that has been increasingly challenged to meet its responsibilities, has resulted in the current dire situation:

A huge unmet demand for water (550 MGD supplied against a requirement for 1200 MGD); High non-revenue water percentage (50-60 percent); Very large financial losses (estimated at PKR 569 million/US$5.4 million per month); A low collection efficiency (just 58 percent); Very large outstanding arrears (estimated at PRK 32 billion/US$305 million of which 90% are from bulk

customers including the GoP and GoS); An inability to pay for electricity (GoS now pays the bill but outstanding debt to K-Electric is US$320

million); No sewerage treatment for a city of more than 22 million inhabitants (an estimated 475 MG of raw sewage

is discharged daily into the Arabian Sea); 16 Managing Directors since 2007; and Federal Supreme court intervention and directives (prompted by class action judgements against the utility

for failure to carry out its basic functions).

However, and unlike many of the utilities operating in the cities mentioned above, the Karachi Water and Sewerage Board (KWSB) presents a unique and entirely credible opportunity for a water and sewerage company to function as a successful and profitable business. The facts on the ground to support this observation are:

An existing installed capacity of 650 MGD which, after KWSB reduces leakage, will buy time for new schemes to come on-line, including surface water, desalination and reuse.

A seaside location which will allow reasonably affordable desalination to become a significant part of the Karachi’s future water supply;

A legal service monopoly guaranteeing 22-25 million people as customers; The potential for more than 2 million customers accounts (including in the existing 4 large industrial

estates); A very densely settled city, requiring only 9 meters of pipe between customer connections, on average; and The average bill is about US$5/month (PKR 524) per connection, equating to monthly revenue potential of

US$10 million (PKR 1.047 billion); and

The potential for KWSB is easily seen in comparison with other, successful, water utilities around the world with a similar number of customers, as shown in Table ES 1.

Table ES 1. KWSB and Selected Comparators

All Assumptions

2016 2019 2022Revenue From Water and Waste-Water sales 6872 12791 13939Expense 13695 13337 13111Net Income

-6823 -546 828

# of Customer (in Million) 1.1 1.3 1.5% of bill collected 50% 70% 85%Non-revenue Water 60% 45% 35%

Use the assumptions

Syndey ConsumerKWSB NYC Water Water PSEG Cellular

Industry Water Water Water Electricity TelcomNo. of customers (000) 1100 835 1800 2200 2000Revenue US$ Billion 0.66 3.8 2.8 4.8 1.0Employees 11297 6000 2558 2393 1000

Notes: PSEG is the largest gas electric utility in the State of New Jersey. Consumer Cellular is an American postpaid mobile virtual network operator, headquartered in the State of Oregon.

The comparators shown above all have one trait in common: they run their utility like a business. This means they all have stable and well compensated professional management, they have a sophisticated “customer first” service orientation, which allows them to collect most bills in 30 days, and they operate very efficiently by leveraging technology.

Within five years, KWSB can turn itself around and be the provider of reliable and high quality water and wastewater services and be financially stable. The table below (Table ES 2.) demonstrates how KWSB could evolve from a loss-making entity into a profitable business as a result of improvement in just a few key parameters: 1) number of customers; 2) percentage of bills collected; and 3) reductions in non-revenue water. The amount of water produced stays the same as today, as do the tariffs. The opportunity for KWSB’s turnaround into positive cash flow is attainable even without entering into more complex areas such as increase in tariff and reductions of staff.

Table ES 2. A Turnaround Perspective for KWSB

The proposed “five-year turnaround plan” described below (Table ES 3.) illustrates how KWSB can transform itself from a heavily subsidized state owned enterprise into a viable and self-sustaining business with significant growth potential.

Table ES 3. KWSB Turnaround Benchmarks

Year Turnaround Benchmark

0 MOU between GoS and KWSBWater Resources Sequencing Study Tendered (includes desalination)

1 Enabling Legislation UpdatedBoard of Director Members and Powers RevisedKey Department Heads Hired (aka the Reform Managers)5-year Strategic Plan Developed by the BoD (includes Capital Works Program & Private Sector Participation)Energy Efficiency Study Undertaken

2 Institutionalize a Citizen Report Card, a functioning hotline and streamlined system

of handling complaints (see Text Box below)Information disclosure in accessible formats, including through ICT platforms Initial 3-year Rolling O&M and Capital Budget Prepared (includes desalination)New Customer Billing Regime OperationalizedLarge and Old Bad Debts ResolvedCustomer Service and Grievance Strategy ImplementedLow Income and Unplanned Settlement Service Pilot Strategy Implemented (see Text Box below)KWSB pays at least 50% of its electricity bill

3 Wastewater Treatment Plants 100% OperationalElectricity Use Reduced by 10%[add more as needed]

4 Private Sector Strategy for Large Infrastructure Implemented [add more as needed]

5 Sindh Government Subsidies for Operations and Maintenance EndAt least 200 MGD in NRW recovered

Turning around and then successfully running a very large utility is challenging, but it becomes possible as key objectives and goals are identified and efforts are focused on their achievement. World Bank experience, based on working with hundreds of water and wastewater utilities around the world, confirms the following five goals to be the necessary and sufficient hallmarks of a sustainable and efficient utility:

1. 24/7 safe and reliable water supply for all customers2. At least 80% of wastewater is collected and safely treated and disposed of3. Financial sustainability4. A motivated and professional workforce5. A modern and effective governance structure

KWSB can be turned around and made a world class utility that exhibits all the characteristics of a dynamic and successful business. As is explained [Grab your reader’s attention with a great quote from the document or use this space to emphasize a key point. To place this text box anywhere on the page, just drag it.]

Responding to ConsumersModern utilities spend considerable human and IT resources on ensuring timely responses to requests from their consumers. Requests run from requests for a connection, reporting leaks, complaints about water quality and billing inquiries. Tools used to receive and track customer requests usually include an integrated “hot line” for telecommunications, email and text messages and an associated data base for tracking requests and response times. KPIs are in best practice utilities a part of the customer response system as area set of goals and objectives. Staff working on customer requests will need substantial training in working with the public and they should be managed by a senior manager that specializes in this area.

Best practice utilities, and especially those involved in a turn-around process, frequently publish once a year a “Citizen’s Report Card”. This report card highlights progress made during the previous 12 months on a selected number of parameters that have been agreed with key stakeholders. Topics usually covered include water quality and quantity issues, average time taken to resolve customer requests, progress in water and wastewater coverage—and especially in low income areas, resolving flood issues in certain areas and progress in achieving overall financial sustainability.

in the sections and technical annex that follow, most of the major reforms can be achieved in five years and the turnaround fully realized in ten years.

To make this turnaround a success, sustained and determined political backing will be required. Global experience indicates that it is this factor that will more than any other determine the ultimate success of the effort. It will also require a significant capital works investment over the medium term. A proposed investment program until the year 2030 is shown in Table ES 4. below

Table ES 4. Medium-term Investment ProgramDhabeji Pumphouse (100 MGD) 14.4 1,497.6 1,497.640 MW Power Plant at Dhabeji (Private Financing) Upgrade water systems in 10 low income high priority communities 20.0 2,080.0 2,080.0Upgrade water systems in other low income communities where needed (no cost estimate yet)

40.0 4,160.0 4,160.0Priority Sewer Netwok Rehabilitation 54.5 5,668.0 5,668.0Complete Sewer Network Rehabilitation as recommended by Masterplan 92.0 9,568.0 9,568.0Energy improvements at major pumping installations 50.0 5,200.0 5,200.0125 meter reading devices 0.5 52.0 52.0Install 800,000 water meters 40.0 4,160.0 4,160.040 Sewage Suction and Jetting Trucks 21.5 2,236.0 1,000.0 1,236.0

Subtotal 2,811.6 292,406.4 89,996.8 202,424.0

Reform Program, Investment planning and management & transaction advice 48.0 4,992.0 0.0 4,992.0

Total 2,859.6 297,398.4 89,996.8 207,416.0

Details of Reform Program, Investment planning and management & transaction advice

Reform Program

Design & provide Technical Assistance and Training 3.0 312.0 312.0Implementation of a GIS system 2.5 260.0 260.0Improving grievance redress system through training and construction of 6 Service Centers 3.5 364.0 364.0Improve billing and collection system 2.0 208.0 208.0Upgrading of Financial and HR Systems including Software & Hardware 4.0 416.0 416.0

Extension of Portion of Sewage Treatment Plants to prepare for industrial reuse of effluent2

1 Private Financing; transaction advice included below2 Feasibility Study needed to review cost estimate

To assist in the turnaround, the World Bank can assist in the following ways.

First, the World Bank can help finance a major water supply & sanitation project. An initial costing of the project is illustrated in Table ES 5..

Table ES 5. Draft Proposed KWSB Project

Financing US$(In Millions) US$ PKR GoS WB Other IFIComponent 1 - Reform Component 1.1 - Reform Karachi Water and Sewerage BoardDesign and provide Technical Assistance and Training to KWSB 3.0 312.0 0.6 2.4Design and Implementation of a Communication Program 0.5 52.0 0.1 0.4Implementation of a GIS system 2.5 260.0 0.5 2.0Develop and implement customer relation strategy incl. training and construction of 6 service centers 3.5 364.0 0.7 2.8Conduct Customer Identification System 1.0 104.0 0.2 0.8Improve billing and collection system 2.0 208.0 0.4 1.6Upgrading of Financial and HR Systems including Software & Hardware 3.0 312.0 0.6 2.4Design and Implementation of a NRW Control Program 3.0 312.0 0.6 2.4Design and Implementation of a Meter Maintenance Program 1.5 156.0 0.3 1.2Design and Implementation of an Asset Management Program 1.0 104.0 0.2 0.8Strategy for and Strengthening of the Katchi Abadis Cell and NGOs/CBOs working in Katchi Abadis 2.0 208.0 0.4 1.6Preparation and Implementation Support for Gender Action Plan 0.5 52.0 0.1 0.4Strengthening Monitoring of Industrial Discharge into the Sewerage System 1.0 104.0 0.2 0.8Develop and Implementation of a Tanker Strategy 0.5 52.0 0.1 0.4Subtotal Component 1.1 25.0 2,600.0 5.0 20.0

Component 1.2 - Reform Karachi Metropolitan Corporation 0.0 0.0 0.0Design and provide Technical Assistance and Training to KMC 0.5 52.0 0.1 0.4Design and Implementation of a Communication Program 0.5 52.0 0.1 0.4Design and Implementation of a Water Wastage Reduction Program 1.0 104.0 0.2 0.8Design and Implemtation Support for a Stormwater Maintenance Program 2.0 208.0 0.4 1.6Subtotal Component 1.2 4.0 416.0 0.8 3.2

Subtotal Component 1 29.0 3,016.0### 5.8 23.2

Component 2 - Securing Sustainable Water Supply & SanitationComponet 2.1 - Karachi Water and Sewerage BoardUpgrade water networks in 10 low income communities 20.0 2,080.0 4.0 16.0Extension of Portion of Sewage Treatment Plants to prepare for industrial reuse of effluent 40.0 4,160.0 8.0 16.0 16.0Rehab Existing & construction new Water Filtration Plants (gap financing) 85.0 8,840.0 17.0 68.0Priority Sewer Netwok Rehabilitation 54.0 5,616.0 10.8 43.2Priority Network Rehabilitation to reduce NRW (possible with private sector participation) 50.0 5,200.0 10.0 40.0Energy improvements at major pumping installations 50.0 5,200.0 10.0 20.0 20.0125 meter reading devices 0.5 52.0 0.1 0.4Install 800,000 water meters to incentivise reduction in water consumtion 40.0 4,160.0 8.0 14.0 18.040 Sewage Suction and Jetting Trucks 12.0 1,248.0 2.4 9.6Subtotal Component 2.1 351.5 36,556.0### 70.3 119.2 162.0

Componet 2.2 - Karachi Metropolitan CorporationConstruct KMC Slaugherhouse Wastewater Treament Plants 3.0 312.0 0.6 2.4Karachi Metropolitan Corporation Priority Storm Drainage Network Rehabilitation 12.0 1,248.0 2.4 9.6Household Water Quality Communication and Improvement Program 1.0 104.0 0.2 0.8Subtotal Component 2.2 16.0 1,664.0### 3.2 12.8

Subtotal Component 2 367.5 38,220.0### 73.5 132.0 162.0

Component 3 - Studies & Project ManagementFeasibility & Tender Documents for this Project 6.0 624.0 1.2 2.4 2.4

Desalination Plant Transaction Advice & Supervision 3.5 364.0 0.7 2.8Conduct Energy Audit 1.0 104.0 0.2 0.8

Groundwater institutional review and Fresh/Saline Groundwater Mapping 1.5 156.0 0.3 1.2Feasibility & Tender Documents for Next Larger Project incl. revision of S4 9.0 936.0 1.8 3.6 3.6Project Management 2.5 260.0 0.5 2.0Subtotal Component 3 23.5 2,444.0 4.7 12.8 6.0

Karachi Water and Sewerage Modernization Project (KWSMP) draft Aug. 10 2017

Water Supply Sequencing Study incl. desalination 1

PPP Options Study for NRW Reduction 1

Next, the World Bank can provide a range of technical assistance, such as including experts on its Task Team (lawyers, private sector specialists, BOT transaction specialists, utility financial specialist, and IT gurus).

Third, the World Bank can arrange a variety of study tours to leading utilities with a similar size and set of challenges to better understand the state-of-the-art approaches and solutions. Topics to be studied could include “back office” advances that leverage IT to increase customer contact and promote customer relations, improve billing and collections, engage in demand side management. Other topics could include NRW reduction, energy efficiency, increasing the value added of treated wastewater and advanced wastewater treatment plants.

Finally, the World Bank can leverage its financing to bring in other financing partners. Several other large IFIs, such as the Asia Infrastructure Investment Bank, the Asian Development Bank, the European Investment Bank, as well as selected bilaterals may have interest to invest in KWSB and would be more likely to make an investment in a joint or parallel arrangement with the World Bank.

Background

KWSB has a customer base of more than 1.1 million, with more than 22 million people requiring services from KWSB. A selection of the utility’s key operating characteristics are shown in Table 1. below.

Table 1. KWSB Selected Key Operating Parameters

Population with Piped Water Service 1/ 80%-85% (estimated)Population Regularly Using Tanker Service 2/ 50% (estimated)Population Connected to the Piped Sewer Network [Need Number]Annual Net Income (Rs. Million, FY2016) -6,821Percent of Billings Regularly Collected 29Outstanding Arrears (Rs. Million, FY2016) 31,720

Notes:1/ Not 24/7 water availability2/ “Regularly” defined as more than two times per month

As illustrated in the table above, KWSB is currently in an unsustainable financial position and is not meeting its mandate to deliver water and sewerage services. While the current situation is untenable, there is an opportunity for a fairly quick turnaround if a well-designed reform program can be successfully completed.

With a current production capability of 650 MGD, and assuming that physical losses in the distribution system can be reduced to 20%, this represents an effective production of 520 MGD, or 24 gallons per person per day. This is comparable to the average per capita consumption in the UK of 33 gallons per day and is more than double the World Health Organization’s water guideline value for sustaining a basic quality of life in a tropical climate, of 11 gallons per person per day. The currently installed capacity buys time to identify potential new water supply sources and thereby implement significant increases in water supply.

Karachi is a densely-settled city with customers located very close together, making pipe distances relatively short (an estimated 11 000 km of pipes for 1.2 million connections, or 9 linear meters per connection). Just over 9000 large customers (1% of all existing customers) account for 60% of the KWSB revenue.

The city has well-developed cellular and financial networks that can easily be exploited for improved customer management and increasing levels of payment.

The Provincial and Local government is concerned and supportive of the need to improve the provision of water and sanitation services to Karachi and KWSB has many dedicated professional staff and management.

In contrast to these positive aspects, KWSB operates under an ambiguous and outdated legal framework for water resources management and regulation. However, the KWSB Act of 1996 could easily be amended and updated to improve the clarity of key roles and to make the utility more autonomous and manage itself as a viable business.

The existing organizational structure does not support what most water professionals would consider to be the strategic objectives of large utility such as KWSB, i.e.,

The ability to deliver high quality water and wastewater services on a sustainable and financially viable basis, with an emphasis on customer service and social equity.

In fact, KWSB over the last decade has emphasized engineering and technical functions as it struggled to keep up with demand and political pressure. In contrast, customer service and financial management have been to large degree neglected. The installation of a permanent CFO and establishment of a dedicated customer management division are needed and would be very helpful.

The staffing ratio of KWSB, at over 11 per 1000 customers is far higher than the international best practice of less than 4. Currently, many of these staff are non-specialized and are not capable of performing higher level

functions. However, with a formal training program, KWSB can “grow into” a better staff per connections ratio as the city grows and more customers are added.

Investment in infrastructure has not kept pace with the rapid growth of the city or the degradation of assets over time because of inadequate expenditure on asset management. This has resulted in an aging pipe network, inadequate infrastructure coverage (with most areas of the city not experiencing a 24/7 water service and many communities not having direct access to piped water, but rather relying on unregulated tanker suppliers), inefficient power consumption, under-collection of billed amounts, high electricity bills, dated IT systems, unreliable plant and vehicles, under-reading water meters giving rise to under-billing of water consumption, high levels of non-revenue water, frequent water outages and pollution of local rivers and the sea. The sea pollution is of particular concern as the long-term water requirements of Karachi will most probably be met by desalination and this will only be possible if the high levels of sewage pollution are reduced through effective sewage treatment.

About half the population in Karachi and its environs lives in unplanned settlements. Many of these have not been regularized within the KWSB network. A high number of illegal connections and non-revenue water at an estimated 60% of production, are negatively affecting the ability of KWSB to achieve a level of financial sustainability that enables the organization to fund its operations from its own billings and collections. While KWSB is already supplying unbilled water to unplanned settlements, arrangements based on best practices from across the world can help improve the services in low-income settlements and at the same time increase the revenues of KWSB. See also the related Text Box below.

Recent judgements handed down by the Supreme Court also are broadly consistent with the observations, findings and recommendations of this paper. This synergy not only reinforces the main messages for change for KWSB, it also provides a powerful support for their initiation and implementation.

Key Turnaround Goals That Will Make KWSB a Successful Business

Running a successful large utility is hard work, but it becomes easier when management and staff concentrate on a few key objectives and goals. World-wide experience has shown the following five goals to be the necessary and sufficient hallmarks of a sustainable and efficient utility:

1. 24/7 safe and reliable water supply for all customers2. At least 80% of wastewater is collected and safely treated and disposed of3. Financial sustainability4. The utility has a motivated and professional workforce5. The utility has a modern and effective governance structure

Each of these goals is explained below in the context of a KWSB turnaround. Actual implementation of each goal will be done by the new “Reform Managers” under the direction of the Managing Director. The seven suggested Reform Managers, along with the Managing Director, will comprise KWSB’s Senior Management Team. They are:

1. Chief Engineer Chief Financial Officer2. Head Legal Counsel3. Chief Technology Officer4. Customer Service Head5. Human Resources Head6. Planning Head

Low Income and Unplanned SettlementsKarachi is characterized by a large number of low income and unplanned settlement areas. It is estimated that up to 50% of Karcahi’s residents live in these so-called “katchi abadis” (Reference: http://www.sindh.gov.pk/dpt/SKAA/index.htm) Most katchi abadis have either very infrequent or no piped water service and all of them are without piped sewers. Some have only indigent residents and basic and/or temporary housing while other areas are better off. However, all

http://www.sindh.gov.pk/dpt/SKAA/index.htm

The World Bank will assist KWSB to draft Terms of Reference for each of the Reform Managers and provide targeted technical assistance to each as part of its planned project. Once the Reform Manager have taken up their posts, the World Bank will then work with each to develop “Action Plans” to achieve the five goals. Each Action Plan should be ready for implementation within two months of the Reform Manager taking office.

7.

Goal 1. 24/7 safe and reliable water supply for all customers, limited to 110-120 lcd.

To achieve this goal, KWSB would have to:

Augment water supply for future needs (up to an additional 1100 MGD by 2031 after desirable NRW reductions) through a combination of surface water, desalination and reuse;

Have universal metering, with accurate district and customer meters; Reduce NRW to no more than 20% (Establish a proper distribution system based on demand and hydraulic

zones); Improve WSS services to all low-income areas (with nil-exclusion, 24x7, acceptable water quality and

revenue to cover O&M at a minimum); Gain control over tanker hydrants to be an emergency service on non-profit basis; Define, and then strictly adhere to, the service territory for piped water and sewer access; Keep existing water treatment plants in continuous operation; Train KWSB staff to operate and maintain water treatment plants; Increase service territory to cover 100% of the population in the greater Karachi Metropolitan city by

2031; and Remove all unauthorized connections (e.g., suction pumps).

Goal 2. 80% collection and safe disposal of wastewater


Rehabilitate existing sewerage collection networks to ensure all sewage reaches the sewage treatment plants (STPs);

Rehabilitate existing pond and trickling filter sewage treatment plants; Construct new WWTPs to cater for a full load with future growth (approximately 900 MGD treatment

capacity by 2024); Have in place a legal requirement that every KWSB have a connection to the sewerage network; Train staff to operate and maintain pond and trickle sewage treatment plants; Bid out on a BOT basis new advanced activated sewage treatment plants that take up less land and can

potentially be smaller and located closer to customers; and Purchase 40 suction/jetting tankers for sewer cleaning and pit emptying.

Goal 3. Financial Sustainability

By end CY2018: Be in a position to pay its electricity bill (about PKR 69 billion/year: US$65 million).


Agree with at least the GoS on a plan to extinguish the current “circular debt” issue; Hire a strong in-house team (including legal and operational experts) that works solely on customer

receivables; Resolve large and stale customers’ receivables (e.g., owing over PKR 1M and more than 12 months

overdue);

Low Income and Unplanned SettlementsKarachi is characterized by a large number of low income and unplanned settlement areas. It is estimated that up to 50% of Karcahi’s residents live in these so-called “katchi abadis” (Reference: http://www.sindh.gov.pk/dpt/SKAA/index.htm) Most katchi abadis have either very infrequent or no piped water service and all of them are without piped sewers. Some have only indigent residents and basic and/or temporary housing while other areas are better off. However, all

Ensure every bulk customer gets a bill every month, and every non-government bulk customer pays that bill within 30 days;

Ensure all bulk customers do not have illegal and unmetered connections; Permanently lower electricity costs (which are KWSB’s largest cost item); All government departments settle bills with KWSB (PKR 25 billion) and vice versa, KWSB settles its

dues (by 2020); and Reduce electricity consumption at the 60 pumping installations in the networks, through the replacement of

inefficient pumps or the installation of improved power factor correction equipment.

By end CY2023: Be in a position to cover 100% of cash based O&M costs (including 3% of net assets for repairs and maintenance), plus debt service.


Have in place a modern and effective customer care department with customer satisfaction information on a quarterly basis in public domain (possibly IT based with monthly review of performance indicators);

Construct 6 customer facilitation centres to improve customer relations; Guarantee every domestic customer gets a bill every month; Achieve 90% bill collection within 30 days; Ensure large government customer budgets have a utility line item; Develop and enforce a tariff structure inclusive of graduated slabs on volumetric consumption (i.e., an

increasing block rate) and also pro-poor (lifeline) tariff regime based on credible data; Adjust tariffs automatically with inflation; A commitment and mechanism in place to finance KW&SB 6 year workplan (based on phased improved

in credit worthiness); Demonstrate financial transparency and predictability and ensure a financial independent audit; and Have built confidence among its principal donors and banks that it is a viable and growing entity and,

therefore, a valuable partner and customer.

Goal 4. A 100% motivated and capable workforce


Appoint the Reform Managers to oversee the institutional reform process; Have a sophisticated and responsive Human Resources Department staffed with HR professionals; Establish performance based job descriptions of all officer cadre staff (grade 17 and above). Link

measurable indicators to staff rating and bonuses; Establish a training programs that meet the technical needs of the utility; Mandate a minimum number of training days per year for all employees; and Determine the “right” number of employees using international benchmarks, and if currently overstaffed

reach the goal through “growing into the business: and non-redundancy measures.

Goal 5. Operate under a modern and effective governance framework:


Have in place a modern legal framework that covers water resources management, regulation and utility rights and obligations;

Enforce a groundwater regulatory framework (especially exercise on bulk customers by 2024); Finalize and outsource high technology & high risk operations on the basis of business case (profit

equation and lack of capacity). These may be related to areas such as billing and collection, major water supply pumping stations, wastewater plants and electricity generation options);

Eliminate, through the legal and institutional framework, political interference in the utility’s normal operations;

Establish systems of accountability to customers, including grievance redress systems. This includes, inter alia, an institutionalized Citizen Report Card1, functioning hotline, streamlined system of handling complaints and a system of information disclosure in accessible formats, including through ICT platforms; and

Put in place and maintain an empowering environment for the KWSB MD to achieve the goals outlined above.

The World Bank stands ready to offer technical assistance and infrastructure to help KWSB and GoS realize the vision of an improved KWSB that meets the needs of the people of Karachi. The following Technical Annex details all the topics above, and for which the World Bank can provide technical assistance.

1 A “Citizen Report Card” is an annual communication to its customers on how it has progressed in the current year on a number of Key Performance Indicators (KPIs). These KPIs typically include items such as: time to resolve a complaint; number of “boil water” warnings during the year; reductions in in-accounted for water; improvements in financial health, etc. Report Card results are typically published it the local media, posted on the utility’s website and/or included with the monthly bill.

Technical Annex

1. The need for an MOU and amendments to the KWSB Act

As an important first step in the process of addressing the issues described above and maximizing the strengths and opportunities that the KWSB has, it is recommended that an MOU be entered into between the Government of Sindh Province and the KWSB to clearly indicate the commitment of both parties to the institutional and governance reform processes and financial investments that are required to support the much needed capital investment program in Karachi.

The proposed MOU would represent:

• A written commitment between the sector’s principal stakeholders• Clarifies expectations and responsibilities• Provides a road map for actions and the related timing• An advocacy document for use with donors

Themes of the MOU would comprise at least the following:

1. 24/7 safe and reliable water supply for all customers.

Topics would include the following: Describe KWSB’s metering policy, e.g., universal or not, accuracy indicators, technology selected, key

dates Describe Non-revenue water strategy, goals and key dates Describe strategy for serving currently un-served areas Describe the geographical extent of KWSB’s service territory, with key dates Describe the raw water supply strategy, including key background studies, large investments and key dates Describe tanker hydrants policy and implementation steps with key dates Describe the large asset operating strategy and related Key Performance Indicators, including training and

role for private sector

2. At Least 80% of wastewater is collected and safely treated and disposed of.

Topics would include the following:• Describe the strategy for drainage infrastructure vis-à-vis the sewerage network, e.g., will certain part of

the city have a combined drainage and sewerage system?• Describe the sewerage connection policy and strategy, with key dates for implementation, e.g., every

KWSB customer has connection to the sewerage network• Describe the strategy for on-site sanitation• Describe the role of large district treatment plants versus smaller and more dispersed treatment plants• Describe the large asset operating strategy and related Key Performance Indicators, including training and

role for private sector• Describe strategy to develop and implement innovative processes for sludge disposal and generating

electricity

3. The utility is financially sustainable.

Topics would include the following:• Describe customer receivables policy and key performance indicators• Describe billing issuance and collection objectives and key performance indicators• Describe policy on illegal and unmetered connections• Describe energy provision strategy for near, medium and long term• Describe strategy to decrease energy input per cubic meter for both water and sewage

• Describe strategy to avoid government arrears and key performance indicators• Describe customer care and grievance strategy, with key performance indicators and key dates• Describe the water and sewer tariff policy, including cross subsidization among customer classes and the

pro-poor aspects • Describe the financial transparency strategy• Describe the strategy for financing from bilateral and multilateral financial institutions, commercial banks,

Government of Sindh and Government of Pakistan

4. A motivated and professional workforce.

Topics would include the following:• Describe the overall Human Resources strategy with key performance indicators• Describe the strategy for ensuring the hiring and performance of the senior leadership team• Describe the staff salary and bonus strategy• Describe the training strategy with key performance indicators, and that mandates a minimum number of

training days per year for all employees• Determine the “right” number of employees using international benchmarks, and if currently overstaffed,

measures to reach the goal through non-redundancy measures

5. A modern and effective governance structure.

Topics would include the following: Describe a modern legal framework for KWSB that covers water resources management, regulation and

utility rights and obligations Describe the governance strategy for KWSB that covers, at a minimum the Board of Directors and

Managing Director Describe the regulatory framework for water and wastewater, including the role of a regulator Describe the integrated water resources strategy, that includes surface water, groundwater, desalination and

treated wastewater Describe the role for Government of Sindh, City of Karachi, NGOs and other major stakeholders

6. Private Sector Strategy.

Topics would include the following: Outsourcing Strategy2

Infrastructure Asset Investment Sovereign Guarantee Strategy

Amendments to the KWSB Act.

Sections of the KWSB Act require amendment in order to: 1) modernize KBSW’s legal authority; and 2) reflect the utility’s current size and extensive responsibilities. Best international practice would suggest the following revisions:

Restructure the Board of KWSB by reducing the number of board members and broadening the expertise of the board by including independent professionals in engineering, financial, human resources, industries, customer relations and community development as well as members of the civil society;

10 Board meetings per annum are required; Empower the organisation to publish bylaws and operational procedures to regulate the relationship with

its customers and take action against those who contravene the bylaws;

2 An “Outsourcing Strategy” contains: 1) the utility’s policy on the expected benefits from outsourcing as well as its decisions on what activities can be outsourced and which will not; and 2) an indicative time frame for when the major outsourced activities will be tendered and the expected contract length.

Empower the board to appoint the MD. The power to appoint the MD is currently vested with GoS [Section 5(1)];

Transfer selected powers of the government to the Board. The Board may be authorized to approach the government for underwriting loans, arranging sovereign guarantees and transferring the title of assets to KWSB;

Establish a coordinating mechanism in the Act for liaising with KMC, KDA and other agencies, to streamline asset management, mutation and transfer matters; and

Clearly define the roles and responsibilities of the board and the executive management team.

The Government of Sindh would need to hire a lawyer to work on the drafting of the MOU and the subsequent legislative processes. The World Bank would provide an international legal expert who would share with the government global best practice that can be referred to by the government in finalizing their own draft. The GoS has nominated Mr.Faheem Junejo, Local Government, GoS to coordinate with the World Bank on this process.

2. Dated Program for Task and Deliverables Going Forward

Deliverable 1: Conclude and sign the MOU between the Government of Sindh and the KWSB by 31 October 2017.

Deliverable 2: Draft and approve the amendments to the KWSB Act by 31 December 2018.

Deliverable 3: Appoint a new Board of directors for KWSB by 31 January 2018, and hiring of the new Managing Director by 28 February 2018.

With the MOU and amendments to the KWSB Act in place the process of appointing a new Board of directors for KWSB, under the chairmanship of the Minister of Local Government should commence.

The process to appoint the reform managers to lead KWSB to a new future should then be initiated by the Board of directors appointing the Managing Director, who would in turn appoint the senior management team, comprising:

Chief Engineer Chief Financial Officer Head Legal Counsel Chief Technology Officer Customer Service Head Human Resources Head Planning Head

Deliverable 4: The KWSB Managing Director to appoint the senior management team by 15 April 2018.

2. KWSB capital funding requirements

Work can then begin on implementation of the short-term capital expenditure program to lay the foundations for larger capital projects, while at the same time initiating steps to improve customer management and increase revenues.

The Table TA 1. below summarizes the estimated capital funding requirements for the short and medium term, from 2018 to 2024:

Table TA 1. Short and Medium Term Capital Investment Program

Dhabeji Pumphouse (100 MGD) 14.4 1,497.6 1,497.640 MW Power Plant at Dhabeji (Private Financing) Upgrade water systems in 10 low income high priority communities 20.0 2,080.0 2,080.0Upgrade water systems in other low income communities where needed (no cost estimate yet)

40.0 4,160.0 4,160.0Priority Sewer Netwok Rehabilitation 54.5 5,668.0 5,668.0Complete Sewer Network Rehabilitation as recommended by Masterplan 92.0 9,568.0 9,568.0Energy improvements at major pumping installations 50.0 5,200.0 5,200.0125 meter reading devices 0.5 52.0 52.0Install 800,000 water meters 40.0 4,160.0 4,160.040 Sewage Suction and Jetting Trucks 21.5 2,236.0 1,000.0 1,236.0

Subtotal 2,811.6 292,406.4 89,996.8 202,424.0

Reform Program, Investment planning and management & transaction advice 48.0 4,992.0 0.0 4,992.0

Total 2,859.6 297,398.4 89,996.8 207,416.0

Details of Reform Program, Investment planning and management & transaction advice

Reform Program

Design & provide Technical Assistance and Training 3.0 312.0 312.0Implementation of a GIS system 2.5 260.0 260.0Improving grievance redress system through training and construction of 6 Service Centers 3.5 364.0 364.0Improve billing and collection system 2.0 208.0 208.0Upgrading of Financial and HR Systems including Software & Hardware 4.0 416.0 416.0

Extension of Portion of Sewage Treatment Plants to prepare for industrial reuse of effluent2

1 Private Financing; transaction advice included below2 Feasibility Study needed to review cost estimate

3. Improve Customer Service

Deliverable 5: Install and commission IT platforms and train relevant staff on their use by 30 June 2018.

In order to improve customer service and the ability of KWSB to attend to system faults and address customer grievances, investments are needed in IT platforms to support staff and management in executing their functions efficiently and effectively. A critical component of this IT system support is a GIS platform, linked to a fault handling system and an asset management system.

Deliverable 6: Set up 6 customer services centers across the KWSB area of operations and deploy trained staff to attend to customers by 30 June 2018.

The proposed Customer Service Centers will improve the interaction between KWSB and its customers by making access easier and transactions more personal. It will bring the KWSB closer to its customers and give the organization a public face.

Deliverable 7: Purchase 40 vacuum tankers and deploy them to improve sewage disposal in the KWSB area of operation by 31 March 2018 [Andreas: are the vacuum trucks to be financed quickly as part of the PPF? What date should we put here?]

Linked to the construction of these regional centers, services to customers will be improved by the purchase of an additional 40 vacuum tankers to empty overflowing pit toilets and clear blocked sewers.

4. Provide 24/7 service to Low Income Areas and Unplanned Settlements

Provision has been made in the capital program above, for the upgrading of the water reticulation network in four low income communities that include unplanned settlements, to demonstrate the ability of KWSB to provide a 24/7 water supply to communities. The areas proposed for this initial intervention are to be decided, but will likely include Gulberg, Shah Faisal and North Nizamabad.

Deliverable 8: Upgrade the water distribution network in the areas of Gulberg, Shah Faisal and North Nizamabad and selected other katchi abadis to provide a 24/7 water supply by 31 December 2018.

5. Achieving financial sustainability

Deliverable 9: Purchase and bring into service 125 hand held meter reading devices by 31 December 2017; and

Deliverable 10: Purchase and install 800,000 [Andreas please confirm this number] water meters over a seven-year period, beginning in early 2018, and with the initial effort concentrated on bulk customers.

Increased revenue is seen as the first step towards financial sustainability. As an initial set of actions in this regard, provision has been made for the purchase of 125 hand held terminals and associated meter reading software to be able to record meter readings electronically and reduce opportunities for errors or corrupt practices in reading customer meters.

The purchase and installation of 800 000 meters will allow the water supplied to all existing customers to be metered accurately and billed accordingly. Meters that are older than 10 years typically under-read by more than 10%. Experience with other large utilities suggests that the first metering priority will be to replace all bulk customer meters, as this customer class represent about 65% of total annual revenue.

Deliverable 11. Design a plant resolve the “circular debt” challenge with the Government of Sindh.

The GoS is currently paying the electricity bill for KWSB, at about PKR 6.9 billion per year. However, the GoS currently owes KSWB more than PKR 7.5 billion and, if it is assumed that these arrears accumulated over 20 years, that amount would equal PKR 375 million annually. That PKR 375 million amount is more than 5 times the amount it pays annually to KE on behalf KWSB. See Table TA 2. below.

Table TA 2. Revolving Debt Summary

Percent ofRS B Total Receivables

Annual Electricity Bill 6.9 21.8%

Accounts Receivable Total 31.7

The relative magnitude of these amounts appears to present an opportunity to quickly resolve the circular debt between KWSB and GoS. KWSB billings to GoS in 2016 and the electricity bill paid by the GoS are only PKR 1.4 billion apart, and if the Cattle Colony is included then GoS + Cattle Colony exceeds the annual electricity bill by about PKR 2.7 billion.

Deliverable 12: Complete improvements to electricity demand at major pump stations by 2024

Undertaking urgently needed energy efficiency projects at major pump stations in the KWSB networks will reduce the monthly electricity charges currently paid.