Messrs

The World Bank

MNSSD Learning Series 1

Japanese Water and Wastewater Utility Management

Accountability and Performance Management for Better Results

Mohammed Benouahi, Lead Water Specialist

and

Satoru Ueda, Senior Water Resources Specialist

June 2008

Sustainable Development Department

Middle East and North Africa Region

Table of Contents

I. Introduction 1

II. Key Features, Status, and Issues 2

1. Country Background 2

2. Legislative and Institutional Framework 2

3. Progress of Water and Wastewater Service Coverage 5

4. User Tariff System 6

5. Unaccounted for Water 7

6. Financial Aspects: Cost Recovery 9

7. Investment-Financing Mechanism14

8. Governance Issues 15

9. Technical Aspects18

10. Water Resources Aspects22

III. Key Lessons Learned24

1. Legislative Aspects: 24

2. Institutional Aspects:25

3. Financial Aspects 26

4. Management Tool27

5. Technical Aspects27

Annexes

Annex 1: List of Persons Met for the Study30

Annex 2: Tokyo and Sapporo Monthly Water and Wastewater Tariffs33

Annex 3: Examples of Balance Sheets of Water and Sewage Utilities:35

Tokyo, Fukuoka, and Sapporo

Annex 4: International Comparison Cases36

Annex 5: Map of Japan and Visited Areas37

Annex 6: Japanese National Government (Ministries)37

Annex 7: Annual Renewable Water Resources per Capita38

(Japan and the World)

Annex 8: Urban Water Supply Progress and Benefits38

Annex 9: High Industrial Water Recycle Rate39

Annex 10: Historical Changes of Water Sources:39

Increasing Dam Storage Share

Annex 11: Rapidly Increasing Sewerage and Sanitation Service Coverage40

List of Tables

Table 1: Main Features of Visited Water Utilities and the Average in Japan 5

Table 2: Main Features of Visited Sewerage Utilities and the Average in Japan 6

Table 3: Average User Tariff 7

(comparison of water tariff between Japan and other countries)

Table 4: Unaccounted for Water 8

(comparison between Japan and other countries)

Table 5: Water and Sewerage Utilities Working Rations 9

(comparison between Japan and other countries)

Table 6: Income Statement of Water Supply Utilities10

Table 7: Construction and Improvement Budget Sources of Waterworks10

Table 8: Water Cost Recovery—Unit Production Cost and Tariff11

Table 9: Income Statement of Sewerage Utilities12

Table 10: Construction and Improvement Budget Sources of Sewerage Works13

Table 11: Wastewater Cost Recovery: Unity Production Cost and Tariff13

Table 12: Number of Employees per 1,000 Connections16

Table 13: Outsource Ratio of Operational Expenditures17

I. Introduction

Messrs. Mohammed Benouahi, Lead Water Specialist, and Satoru Ueda, Senior Water Resources Specialist, visited Japan from June 18 to 29, 2007, to study the water supply and sanitation utility system in Japan.

For information collection and interviews, the mission visited Japan’s Waterworks Division, Bureau of Health, Ministry of Health, Labor and Welfare; Sewerage and Wastewater Management Department, Bureau of City and Regional Development, Ministry of Land, Infrastructure, and Transportation; as well as the Tokyo Metropolitan Prefecture, Shiga Prefecture, Kyoto-City, Fukuoka-City, and Sapporo-City. The mission also visited the Japan Waterworks Association, Japan Wastewater Works Agency, and Japan Wastewater Works Association. Japan Water Forum provided useful advice for conducting the study. (See Annex 1: List of Persons Met for the Study.)

The mission met with members of the Ministry of Finance, Ministry of Foreign Affairs, Japan Bank for International Cooperation, and Japan International Cooperation Agency to brief them on the Bank’s strategies and operations in the urban water supply and sanitation sector, exchange information on the Middle East and North Africa (MNA) water programs, and discuss possible collaboration in the region. It also organized a seminar on the MNA Development Report on Water, inviting the key officials and experts at the WB Tokyo Office on June 28, 2007. About 50 specialists from governmental offices, academia, industry, and nongovernmental organizations participated in the seminar.

This note summarizes the key features of the Japanese water supply and sanitation utility system as well as the relevant water resources management with a focus on their institutional and financial aspects. It also provides the mission’s findings and lessons from the Japanese experience that can be applied in Bank client countries. Most of the data is based on the utilities’ annual reports for Japanese fiscal year 2005 ending March 31, 2006.

II. Key Features, Status, and Issues

1. Country Background

The area of Japan is 380,000 square kilometers, of which 70 percent is mountainous. It has a population of 129 million, living mostly in the coastal plain areas. The average precipitation is around 1,600 millimeters / year, and the country is vulnerable to heavy rainfalls from rainy fronts and typhoons. The rivers are short and steep, and they are difficult to manage as supply water without any reservoir storage and regulation.

The Japanese Government operates at three levels: (i) the national Government comprises the prime minister’s office and 11 ministries; (ii) the 47 prefecture governments; and (iii) the municipalities (cities, towns, and villages). As part of the governmental system reform, the number of municipalities has been greatly decreasing, from 3,232 in March 1999 to 1,804 in September 2007.

2. Legislative and Institutional Framework

2.1 General

The main water-related legislations include the following:

i. Public utility management—Local Public Enterprise Law (1952) and Local Government Autonomy Law

ii. Water resources development and management—River Law, Water Resources Development Promotion Law, specified multipurpose dam law

iii. Drinking water supply—Waterworks Law (1957)

iv. Industrial water supply—Industrial Water Supply Law

v. Irrigation water—Land Improvement Law

vi. Sewage management—Sewerage Law (1958), City Planning Law

vii. Water quality and environment—Fundamental Environment Law and Water Pollution Control Law

Both water supply and sanitation services are principally the responsibility of local governments, such as prefectures and municipalities. Local governments can organize and delegate their functions to autonomous semi-governmental enterprises. These utility entities carry out local government’s mandates and manage the responsibilities of daily operations while reporting to mayors and/or municipal councils. In principle, all operational expenses of utility services are required to be fully covered by tariff.

At the national level, the Ministry of Health, Labor and Welfare, Health Bureau, Water Supply Division, and the Ministry of Internal Affairs and Communication (MIAC), Local Finance Bureau are responsible for water supply. For sewerage services, the Ministry of Land, Infrastructure, and Transportation, City and Regional Development Bureau, Sewerage Department and the MIAC are in charge. While national ministries establish the regulations and guidelines for technical and service standards and review and approve utilities’ business plans in terms of basic scope, design, and investment schedule, they are not involved in operational aspects of water supply and sewerage utilities. They do not approve but are merely informed of changes in tariff levels. The ministries also provide subsidies for prioritized infrastructure construction under the clauses of the Waterworks Law and the Sewerage Law.

2.2 Water Supply

From the institutional perspective, the most important law is the Local Public Enterprise Law (1952). With the purpose of supplying water to improve the local public and residents’ welfare, water utilities are required to operate economically as independent and autonomous business entities / public enterprises. The expenses of the business operations are covered based on the beneficiary-pay-principle. The utilities collect revenues from customers and pay the related costs of the operation. This involves a well-developed accounting system so that assets can be separated from other municipal accounts and charged specifically to the water supply operation.

An independent commissioner is appointed as the head of the utility through the nomination by the head of the municipality (such as the mayor) and approved by the municipal council. Most water utilities are established to serve the population/area within a single municipality, and their main offices are housed in the municipality office buildings. The commissioner reports to the owners/regulators, namely, municipal councils, on key business decision-making matters, such as annual investment/operation plans, tariff increases, auditing, and so forth.

Water utilities are also required to follow the technical, operational, and service standards stipulated in the Waterworks Law (1957), which is governed by the Ministry of Health, Labor and Welfare. The Waterworks Law stipulates the basic management of waterworks, such as licensing for drinking-water-supply business and operation, drinking-water quality standards, construction, and administration of water supply systems, subsidies for investment schemes, planned improvement of facilities, responsibilities of utilities commissioner and personnel, and so on.

In 2006, 2,334 water supply utilities existed; out of which 1,469 were established as statutory entities under the Local Public Enterprise Law. The remaining 885 small-scale utilities were not subject to this law. They are, however, all subject to Waterworks Law with no distinction being made between urban and rural water.

2.3 Wastewater Management

In general, sewerage management is handled separately from water supply, although there are exceptions, such as Kyoto City, which the mission visited. As opposed to water supply utilities, most sewerage utility offices are established as internal departments or divisions within local governments (prefectures or municipalities) like other general administrative departments. Thus, almost all sewerage utility offices are accommodated within local governments’ office buildings. The head of sewerage departments/divisions are civil servants.

The user-pay-principle is applied for wastewater collection and treatment. In principle, the operational expenses are fully covered by users’ fee. The sewage tariff is billed and collected together with water tariff by water supply utilities and transferred to sewerage department based on the predetermined financial agreements.

Regarding storm-water discharge, given its public nature, all construction and operational/maintenance costs are covered by municipal general revenue. Storm-water discharge operations are clearly separated from sewage collection and treatment operations. For combined sewerage systems, local governments have established standard formulas to divide costs between sewage and storm-water operations. The personnel costs are also divided between two parts based on a predetermined formula, since the single sewerage department is responsible for both operations.

Sewerage utilities are also required to meet the technical, operational, and service standards stipulated in the Sewerage Law (1958), which is governed by the Ministry of Land, Infrastructure and Transportation. The Sewerage Law stipulates the planning, design, and operational aspects of sewerage systems (including networks and treatment plants), licensing for construction and operational plans, subsidies for investment schemes, water quality standards of outflows from treatment plants, maximum pollution level of discharges from factories/plants, regulatory/monitoring/sanction measures, responsibilities of sewerage utility’s manager and staff, and so forth. Sewerage utilities/departments are also required to coordinate with the environment department of prefectures and municipalities according to the clauses of the Fundamental Environment Law and Water Pollution Control Law in terms of quality and quantity of effluent discharges in rivers and lake basins.

In 2005, the number of sewerage utilities was 3,699. Of these, 213 sewerage utilities apply the corporate accounting system under the Local Public Enterprise Law while 3,486 utilities apply the general government accounting system. The number of the sewerage utilities under this Law is still small but is increasing for large cities. Among visited sewerage offices, Tokyo, Kyoto, Fukuoka, and Sapporo adopt independent corporate accounting systems under the Local Public Enterprise Law while Shiga prefecture employs a general governmental accounting system as a part of the prefecture government mandates.

3. Progress of Water and Wastewater Service Coverage

3.1 Water Supply

In 2005, the population coverage rate of water-supply-utility service in the country was 97.1 percent for the population of 129 million. This compares with 26 percent of population coverage in 1946. The water supply coverage significantly increased after the legislation of Waterworks Law in 1957. Both the number of patients with waterborne disease and infant mortality have been dramatically reduced to almost nil, as the water supply coverage has increased during the past 60 years (see Annex 8). Table 1 includes the main features of water supply utilities that were visited as well as the average data for all of Japan.

Tokyo

Sapporo

Kyoto

Fukuoka

Japan Average

Population Served

12,246,087

1,873,794

1,420,707

1,354,215

* 124,085,625

Service Coverage (%)

100.0%

99.8%

99.0%

99.0%

96.1%

Av

erage Daily Water Supply (m3/day)

4,427,100

546,925

590,151

406,393

57,644

Unaccounted for Water

5.8%

9.1%

13.9%

5.1%

8.5%

Number of Employees

4,563

713

909

403

* 58,733

Number of Employees Per 1000

connections

0.87

0.89

1.50

0.64

1.19

Water Tariff (USD/m3)

1.74

1.90

1.37

2.01

1.33

Working Ratio

63%

57%

54%

46%

49%

Note: (*) The numbers of populations and employees are not the average of water utilities, but total in Japan.

Table 1: Main Features of Visited Water

Utilities and the Average in Japan

The average daily water consumption per capita is now around 314 liters per day. The average consumption volume increased from 169 liters in 1965 to 322 liters in 1995, but thereafter has been gradually decreasing to around 314 liters thanks to improved water-saving equipment and public information campaigns. If we exclude heavy water users, such as hotels, public baths, and so forth, the average water consumption rate of households in Tokyo is estimated at around 244 liters.

3.2 Wastewater Management

In 2006, wastewater services covered 82.4 percent of the population of 129 million. This compares with very low wastewater service coverage of 6 percent in 1961. The system development was accelerated by the legislation of the Sewerage Law in 1958. The main features of the sewerage utilities that were visited as well as the average of all utilities in Japan are presented in table 2.

Tokyo 23

Wards (*1)

Sapporo

Kyoto

Fukuoka

Shiga (*2)

Enterprise

National

Average

(*3)

Non

-

Enterprise

National

Avera

ge

(*4)

Population Served

8,566,594

1,858,081

1,419,262

1,359,091

1,900,358

46,336,506

86,726,940

Population Coverage (%)

99.9%

99.5%

99.3%

99.4%

94.9%

96.6%

87.4%

Sewerage treatment

capacity (m3/day)

6,244,000

1,173,800

1,384,000

671,050

747,260

28,879,213

31,037,290

Unaccounted for Sewage

9%

30%

27%

20%

6%

18%

12%

Sewage Tariff ($/m3)

1.20

0.84

1.14

1.58

1.92

1.17

1.13

Working Ratio

(Maint.Costs/Tariff)

41%

52%

35%

38%

62%

42%

67%

Number of Employees

3,238

582

637

304

285

16,102

21,516

Number of Employees Per

1,000 connections

0.88

0.74

1.05

0.48

0.38

0.87

0.62

Notes: (1*) The column indicates the information only for 23 wards of Tokyo, exclucing Tama Wester M

unicipalities.

(*2) The data of Shiga Prefecture is the average of Shiga Prefacture Government (regional integrated sewerage system)

and 19 municipalities (regular sewerage) within the area of Shiga Prefecture.

(*3 and *4): The former represents the av

erage of sanitation utilities employing corporate accounting under the Local

Public Enterprise Law, while the latter represents the sanitation utilities employing general governmental accounting.

Table 2: Main Features of Visited Sewerage Utilities and

the Average in Japan

All collected wastewater by public sewers is treated at secondary level treatment plants About 15 percent is further treated at the tertiary level. Tertiary treatment is required for effluents discharged to closed water bodies, such as Biwa Lake, Tokyo Bay, Osaka Bay, and so on. The discharged effluent quality even from secondary level treatment is remarkably good, reflecting the quality of the operations. In general, the measured effluents biological oxygen demand (BOD) is around 3 to 10 mg/l, which is well below the national effluent standards of 20 mg/l.

4. User Tariff System

Water supply and sewerage utilities in Japan are required to fully cover operating and maintenance costs. In fact, almost all utilities fully cover operational costs by tariff. Most of them even generate surplus large enough to cover the capital costs portion of their budgets, including their debt obligations, and contribute to new investments from internally generated funds.

The combined water and sewage tariffs of US$2.5 per cubic meter, when measured against the total household expenditure, accounts for around 1 percent of the average household income. This compares with around 3 percent and 2 percent for electricity and gas bills, respectively. Table 3 includes a comparison of the combined water and sewage tariff between the Japanese and international cases.

Tokyo

Sapporo

Kyoto

Fukuok

a

Japan

Average

Damascus

Jedda

Tunisia

Egypt

2.9

2.7

2.5

3.6

2.5

0.08

0.01

0.7

0.9

London

Berlin

Brussel

Istanbul

Johannesburg

Singapore

Philadelphi

a

Campinas

Brazil

Gunajuato

Mexico

3.2

4.8

2.8

1.8

0.7

1.3

1.9

0.3

0.4

Sources: Local Public Enterprise Database (March 2006, Ministry of Internal Affairs and Communication, Japan);

Tunisia, London, Berlin, Brussel, Dmascus,

and Jedda (counry reports); Singapore (estimate by the PUB website tariff table).

Other countries (Water Supply & Sanitation Working Notes No.9, May 2006)

Note: The average tariff of the Singapore is estimated on the tariff structure on the PUB website

.

Note: The tariff of Japanese water and wastewater are combined for international comparison purpose with some assumptions.

Table 3: Average User Tariff (US$ per cubic meter)

A typical tariff system is based on a two-part tariff structure consisting of minimum charges and volumetric charges. Minimum charges are calculated based on meter diameters and use while volumetric charges are based on progressive block rates per cubic meter of water. Annex 2 includes examples of water and sewage tariff tables in Tokyo and Sapporo.

Water charges are calculated based on typical bimonthly meter readings at each household. Water utilities collect water bills along with sewage charges. The latter is then transferred to the sewerage system office after subtracting collection-service charges based on an agreement. Customers can pay water bills through account transfer or direct payment. They can pay bills at financial institutions and postal offices and at convenient stores in some areas.

Although water and sewerage utilities do not have complete authority to raise tariffs—they need to obtain approval from municipal councils—they are able to put forward proposals based on their overall revenue requirements. The commissioners or director generals of the utilities request tariff increases as part of their financial policies outlined in business, investment, and financing plans. While the proposed tariff increases are sometimes delayed or reduced at councils due to political considerations, most utilities seem to have been able to achieve financial balance through periodic tariff increases every three or four years. Given the very low, indeed, negative inflation rate, from -0.9 percent to -0.3 percent from 2003 to 2006, a lack of tariff increases did not affect the overall performance of water and sewerage utilities.

5. Unaccounted for Water

5.1 Water Utility

Almost all water supply utilities have achieved a very high efficiency in terms of unaccounted for water (UFW). The national average of UFW is around 8.5 percent, while most competent utilities, such as Tokyo and Fukuoka, have attained a level of about 5 percent. This small percentage of UFW is significant compared with losses in the range of 15 to 40 percent for water utilities in many countries in the world, including developed countries. Table 4 is a comparison of water utilities UFW in Japan and other countries.

Tokyo

Sapporo

Kyoto

Fukuoka

Japan

Average

Singapore

U.K.

Philadelphia

Tunisia

Shiraz

Iran

Johannesbur

g

Campinas

Brazil

Guanajuato

Mexico

5.8

9.1

13.9

5.1

8.5

4.8

15.0

32.0

20.2

35

.0

35.0

26.0

37.0

Sources: Local Public Enterprise Database (March 2006, Ministry of Internal Affairs and Communication, Japan); UK data on OFWAT annual report (2005),

Iran (county report); other countries, Water Supply & Sanitation Working Notes No.

9, May 2006.

Table 4: Unaccounted for Water (%)

To minimize physical losses, water utilities generally carry out repair works on surface leakage on the same day on a 24-hour operational basis and regularly detect potential underground leakage by electronic and correlation type detectors. They have been also upgrading distribution pipes from cast iron to ductile iron and service pipes from lead to stainless steel.

Thanks to improved operational standards and customer service, most utilities maintain their administrative UFW at almost nil. The nationwide average is 1.5 percent in 2006. If required, the utilities can easily exert their authority to cut off water supply to defaulters, although this is very rarely required to do so. Decisions about terminating service to defaulters are virtually automatic and follow a standard procedure.

The Tokyo Metropolitan Water Bureau is perhaps one of the best-run utilities in the world. UFW stands at around 5.8 percent with 100 percent coverage of a population of about 12 million. The average daily water supply volume is about 4.4 million cubic meters, and the total length of distribution pies is 24,782 kilometers. The staff number is only 1.2 per 1,000 connections. While it keeps core business management functions under in-house career staff, the use of service contracts for routine operations, maintenance, water billing, and customer services is widespread.

5.2 Sewerage Utility

All sewerage utilities/departments measure the amount of treated wastewater and compare it to the amount of sewerage for which treatment fees are collected. They calculate the UFW using a concept to that used for water supply. No collected wastewater is discharged without treatment. The national average UFW is 17 percent and 12 percent, respectively, for enterprise utilities and non enterprise utilities. The UFW of Tokyo is about 9 percent while Sapporo is close to 30 percent. The higher UFW of the latter may be attributed to underground water leakage into sewer networks, erroneous connection of rain sewers to sewage sewers, and so forth. There are very few other countries in which this level of UFW measurement in sewerage systems is conducted and used as a performance benchmark.

Once the sewerage system becomes operational, it is important for utilities to connect all households to the network in a timely manner, from the viewpoint of tariff collection and project benefits. All households are required to install water flushing toilets and get them connected to the sewerage system within three years after the system is completed. Most municipalities offer grant subsidies and interest-free loans for the installment of house connections and flush toilet systems. The sooner a household completes the connection to the sewerage network and begins paying the sewage tariff, the higher will be the subsidy it can receive for connection work.

6. Financial Aspects: Cost Recovery

The water utilities under the Local Public Enterprise Law are required to make annual financial statements by separately processing (i) an income statement in the current year, (ii) a balance sheet, and (iii) documentation of the source and application of funds. Annex 3 includes some examples of balance sheets of water and sewerage utilities.

On the national average, the working ratio of water and sewerage utilities ranges between 0.4 and 0.6. The working ratio is the relationship of operating expenses to operating revenues. The higher the ratio, the less contribution margin is available to cover non operating costs, such as depreciation and financial charges. The working ratio is one of the important benchmarks for operational efficiency and the profitability of utilities. In table 5 the combined working ratio of water and sewerage utilities between the Japanese and international cases is compared.

Tokyo

Sapporo

Kyoto

Fukuoka

Japan

Average

Singapore

Phila

-

delphia

Tunisia

Johan

-

nesburg

Campinas

Brazil

Gunajuato

Mexico

0.54

0.56

0.46

0.43

0.51

0.58

0.67

0.98

0.53

(water)

1.5

(sewage)

0.79

0.77

Sources: Local Public Enterprise Database (March 2006, Ministry of Internal Affairs and Communication, Japan);

UK data on OFWAT annual report (2005); Tunisia (Country Report); Water Supply & Sanitation Working Notes No. 9, May 20

06.

Note: The working ratio of the Japanese water and wastewater utilties are combined for international comparison with some assumptions.

Table 5: Water and Sewerage Utiliies Working Ratios

6.1 Water Supply

6.1.a Operational Costs versus Revenue

Table 6 includes the breakdown of operation and maintenance costs of the visited water supply utilities and the national total. The costs are clearly distinguished between (i) operational costs and (ii) capital costs, including depreciation costs and bond interest costs. The operation and maintenance costs of Tokyo is around US$2.5 billion per year, while the national total is about US$26 billion per year.

Cities

Tokyo

Sapporo

Kyoto

Fukuoka

National

Total

Personnel expenses

385

66

76

29

4,158

Energy expenses

77

3

6

4

871

Repair expenses

510

43

19

17

1,686

Chemicals/Materials

66

14

10

3

519

Outsource Fee

238

40

9

40

1,735

Bulk water purchase

0

0

0

19

1,415

Others

377

31

17

19

2,060

Operation Costs

Total

1,655

199

139

131

12,44

4

Bond

interests

195

67

52

47

3,759

Depreciation costs

609

97

81

73

7,261

Capital costs for bulk water

0

0

0

42

2,440

Capital costs

Total

804

164

133

163

13,46

0

Total

Costs

2,458

363

272

294

25,90

4

Water tariff

2,641

346

254

283

24,98

7

General & other accounts

213

28

19

6

1,357

Miscellaneous

93

5

1

20

1,347

Total

Revenue

2,947

378

275

310

27,69

1

Surplus / Deficit

489

16

3

15

1,788

Note: The exchanges rate was USD=JPY115 during the mission i

n August 2007.

Table 6 : Income Statement of Water Supply Utilities (March 31, 2006, in US$ millions)

The table also indicates the breakdown of their operational revenue. Around 95 percent of the operational budget is provided by water tariff. While the water tariff (about US$2.6 billion) of Tokyo fully covers the operational costs, the tariff of three other visited cities and the national average do not fully cover the capital portion of the operational costs (see also 6.1.c Cost Recovery, below). The balance of around 5 percent is covered by the investments and subsidies from general accounts of municipalities.

6.1.b Construction and Improvement Budget (Investment)

Table 7 includes the breakdown of investment budget sources for the four visited utilities and the national total for the Japanese fiscal year 2005 ending March 31, 2006. The national total investment amount was US$9.1 billion in 2006. The share of corporate municipal bonds varies between 20 and 70 percent while the national average is 34 percent. While national subsidies of up to 50 percent can be provided for large-scale construction and renovation works, the national average share is only 9 percent.

Table 7: Construction and Improvement Budget Sources of Waterworks

(For Fiscal 2005 ending March 31, 2006, in US$ millions)

Cities

Tokyo

Sapporo

Kyoto

Fukuoka

National Total

Enterprise bond

s

143

35

60

70

3,102

National subsidies

27

5

0

9

782

Other accounts & internal

revenue

599

46

23

40

5,272

Total Investment Budget

769

85

83

119

9,157

Note 1: USD=JPY115 in August 2007

Note 2: Other accounts and internal revenue

s include general accounts investment/subsidy, retained revenue earnings

on profit and loss account, and other revenues.

Generally, the largest share is supported by the investments/subsidies from the municipality general accounts as well as the retained earnings (utilities’ revenue). The investment budget of Tokyo was around US$770 million per year while the other three cities investment budgets were in the range of US$80–120 million per year. It should be noted that the construction costs are high due to the required high-level seismic design and large-scale water storage/diversion/distribution systems, particularly for urban cities.

6.1.c Cost Recovery

Table 8 includes the unit production costs of water operational costs and capital costs in comparison with the water tariff. As the national average tariff is US$1.33 per cubic meter against the average production cost of US$1.37 per cubic meter, the cost recovery ratio (including capital portion) is around 97 percent. If we look at the four cities that were visited, the production costs range between US$1.5 and $2.1per cubic meter. While Tokyo and Fukuoka fully recover the costs, Sapporo and Kyoto narrowly miss full recovery. The higher costs of these cities reflect the more advanced nature of infrastructure construction and operation in densely populated areas.

Cities

TokyoSapporoKyotoFukuokaJapan Average

Unit Production Costs

1.622.001.472.091.37

Unit Operation Costs

1.091.090.750.930.65

Unit Capital Costs

0.530.900.721.160.72

Unit Average Tariff

1.741.901.372.011.33

Note 1: USD=JPY 115 in August 2007

Table 8 : Water Cost Recovery - Unit Production Cost and Tariff (March 31, 2007 in US$ per cubic meter)

Note 2: Unit Production Costs = Unit operation costs and unit capital costs (depreciation and bond Interests)

6.2 Sewerage Management

6.2.a Operation Costs versus Revenue

Table 9 includes the breakdown of operation and maintenance costs of the visited water sewerage utilities. For sewerage utilities adopting the corporate financing system under the Local Public Enterprise Law, the operation costs are clearly distinguished between (i) running costs and (ii) capital costs, including deprecation costs and bond interest costs. The operation cost of Tokyo sewerage utility is around US$2.6 billion per year.

Tokyo

Sapporo

Kyoto

Fukuoka

National

Enterprise

Total

Personnel expenses

248

41

50

13

1,058

Energ

y expenses

90

13

11

9

348

Repair expenses

211

14

6

9

481

Chemicals/Materials

13

7

4

4

120

Outsource Fee

238

56

36

65

1,058

Others

116

9

22

32

755

Total Operation Costs

915

140

129

131

3,821

Bond interests

700

104

158

150

3,697

Depreciation costs

989

137

163

140

4,250

Total Capital Costs

1,690

241

320

290

7,947

Grant Total Costs

2,604

381

450

420

11,76

8

Sewerage Service Tariff

1,487

176

230

233

6,280

Rain Storm Discharge Fee

1,215

187

177

148

4,073

Other operation revenue

57

2

7

6

209

General accounts subsidy

59

12

41

31

1,504

Miscellaneous

20

1

1

2

119

Total Revenue

2,837

378

456

420

12,18

5

Surplus/Deficit

233

-

3

6

0

417

Note 1: USD=JPY115 in August

2007

Note 2: Rain storm discharge fee is paid by cities general account.

Note 3: Tokyo figures refer to 23 wards only.

Table 9 : Income Statement of Sewerage Utilities (March 31, 2006, in US$ millions)

The table also includes the breakdown of the operational revenue of the four visited sewerage utilities and the national total. On the national average, about 53 percent of the operational budget, including both running and capital costs, is provided by sewage tariff, while 35 percent of the budget is supplemented by the local government general accounts.

For wastewater and storm water-combined operations, cost-sharing schemes have been established. While wastewater collection and treatment portion is fully covered by the sewage tariff, the storm-water portion is covered by the municipal general budget. The operational costs of larger city utilities are higher, reflecting the fact that densely populated cities require advanced and complicated system including underground tunnels and reservoirs as well as urban flood control systems.

6.2.b Construction and Improvement Budget (Investment)

Table 10 includes the breakdown of investment budget sources for the four visited utilities and the national total in Japan’s FY05. The national total investment budget (both enterprise and non enterprise) was US$21 billion. The national average bond share is 48 percent, which is higher than that of water supply. The national average subsidy share is 38 percent, which is also much higher than that of water supply. The balance is covered by the municipal general account. The higher bond and subsidy rate reflects the fact that the development of sewerage systems was historically delayed; they were built more recently than the water systems and in cities that were more developed. The investment budget of Tokyo was around US$1.2 billion per year while that of the other three visited utilities’ were in the range of US$180–240 million per year.

Tokyo

Sapporo

Kyoto

Fukuoka

National

Total

Enterprise

National

Total

Non

-

Enterprise

National

Total

Enterprise bonds

478

106

106

139

9,950

3,000

6,950

Nation

al subsidies

314

62

63

79

7,944

1,992

5,953

Other works/beneficiaries

share

68

11

5

4

1,344

266

1,078

General accounts support

and other revenue

317

6

11

21

2,205

894

1,310

Total Investment Budget

1,177

185

185

243

21,443

6,152

15,291

Note 1: USD=JPY115 in August 2007

Note 2: Tokyo figures refer to 23 wards only.

Note 3: National total is the sum of (i) enterprise national total and (ii) nonenterprise national total.

Table 10: Construction and Improvement Budget Sourc

es of Sewerage Works

(March 31, 2006, in US$ millions)

6.2.c Cost Recovery

Table 11 includes the unit sewerage operational costs in running costs and capital costs, as compared with the sewage tariff. This table deals only with wastewater collection and treatment costs, since storm-water discharge costs are fully covered by the municipal general account.

Unit Costs

Tokyo 23

Wards

Sapporo

Kyoto

Fukuoka

Shiga

Enterprise

National

Average

Non

-

Enterprise

National

Average

Unit Operation Costs

1.02

0.81

1.00

1.76

3.33

1.29

2.4

2

1) Unit Operation Costs

0.49

0.44

0.40

0.60

1.19

0.49

0.76

2) Unit Capital Costs

0.54

0.37

0.61

1.15

2.14

0.80

1.66

Unit Average Tariff

1.20

0.84

1.14

1.58

1.92

1.17

1.13

Note 1: USD=JPY 115 in August 2007

Table 11 : Wast

ewater Cost Recovery

—

Unit Operation Cost and Tariff (US$ per cubic meter)

Note 2: Unit Production Cost = Unit operation costs and unit capital costs (depreciation costs and bond interests)

The sewage tariff ranges between US$0.8 and 1.9 per cubic meter. The national average operational cost is around US$1.3 per cubic meter for enterprise utilities and US$2.4 per cubic meter for non enterprise utilities. Based on these, the national average of the cost recovery rate (including capital costs) is 91 percent for enterprise utilities and 47 percent for non enterprise utilities. The running costs are fully covered by all utilities. The working ratios are 0.42 and 0.67, respectively, for enterprise and non enterprise utilities. In general, large cities, such as Tokyo, can recover all costs, including the capital portion, by the sewage tariff. In rural areas, such as Shiga, and many other non enterprise areas, it is not easy to collect an adequate level of sewage tariff to fully meet operation/capital costs. The operation costs, particularly capital costs, are much higher than that of urban areas. This reflects the fact that those rural utilities developed their systems in much more scattered areas with smaller economies of scale and in recent years without a historically developed infrastructure stock.

It should also be noted that the sewage tariff is generally set lower than the water tariff, despite the fact that sewerage system development costs are higher than that of water supply systems. This is a reflection of psychology; people are more willing to pay a higher tariff for drinking water than for wastewater. Under the circumstances, some rural sewerage utilities have no way but to compensate for the deficit from their municipal general account. This is negatively affecting the municipalities’ financial status and the provision of other public services.

7. Investment-Financing Mechanism

Most water supply and sewerage utilities mobilize external funds in addition to internal funds. Three major external financing sources are available.

7.1 Bonds

Utilities issue bonds with the authorization and approval/commitments of municipal governments. Some wealthy municipalities’ financial standing is very good. The Tokyo Metropolitan Office’s credit rating is AAA. Although utilities do not issue bonds on their own credentials, some of them generate sufficient revenue to cover a substantial portion of their investment requirements. Some good-performing utilities would be able to secure funds on their own financial credentials if allowed to do so.

7.2 National Subsidy

The national government ministries provide high-rate subsides for costly investment for large-scale infrastructure development. For waterworks, the Ministry of Health, Labor and Welfare provides subsidies of up to one-third of investment costs for large-scale systems development and renovation as well as for the introduction of advanced treatment systems. For sewerage works, the Ministry of Land, Infrastructure and Transportation provides a subsidy of 55 percent of the construction of treatment plants and 50 percent of pipe-networks development. The subsidy rate increases to 60 percent of the construction of treatment plants in the case of integrated basin-level sewerage systems, which collect sewage from more than two municipalities. The total allocated amount of national subsidies is much higher for sewerage systems than water supply systems as noted earlier.

7.3 National Tax Allocation to Local Governments

The Ministry of Internal Affairs and Communication allocates block grants from national taxes to local governments. This national tax allocation to local governments is designed to ensure the national minimum standards of public services, particularly for smaller rural municipalities that have few other sources of revenue. Among many parameters of the allocation criteria, the amount of issued municipality bonds for infrastructure development, including water and wastewater systems, is counted for determining the amount of the block grants. Although the grant is not directly allocated for the accounts of water and sewerage utilities but for the general accounts of local governments, it works as an incentive for local governments to issue bonds for infrastructure development.

8. Governance Issues

8.1 Key Features and Merits of Semipublic Utilities

The arrangements of the semipublic autonomous utility seem to have established a mechanism combining the merits of both private and public entities: (i) the high economic efficiency and financial autonomy of the private sector and (ii) the strong ownership and oversight functions of the public sector. Most utilities in Japan set well-defined targets for key performance indicators, including total revenue, water production, drinking-water quality, customer service, financial performance, water consumption, new connections, and so forth. The commissioners of water supply utilities are accountable to the municipal councils for achieving the targets, while the director general of sewerage utilities/departments report to the heads of municipalities, such as mayors.

The municipal councils or mayors are kept informed of the utility operation by the commissioner or director general and review the annual/quarterly operational reports, but they do not interfere in the daily operations. Most municipalities have established strong reporting frameworks, including financial audits and annual and periodic performance status reports, which are incorporated in the annual reports and are made available at public offices and on websites.

All utilities operate under sound financial management and procurement rules to ensure competitive prices and flexibility in the acquisition of needed inputs or services from the market. They generally follow public procurement rules. They also use internal and external auditors to enhance fiduciary responsibilities. Auditing procedures and techniques are applied to technical and operational areas other than those related to the financial statements.

8.2 Human Resources Management

The commissioners or director generals of utilities are appointed by the mayor of municipalities on the basis of expertise and experience. Some of them are selected from in-house career officers who are respected and possess long experience of different positions in the institutions. The commissioner / director general of water supply utilities reports directly to local councils, and assumes responsibility for overall human resources management.

It should be highlighted that the number of utility staff per household is about 2 per 1,000 connections if both water supply and sewerage utilities are combined. Each utility maintains the staff level of 1 per 1,000 connections. The rate is much smaller than that of competent utility companies even in advanced countries. In table 12 is a comparison the staff level per 1,000 connections between the Japanese and international cases.

TokyoSapporoKyotoFukuoka

Japan

Average

Singapore

Phila-

delphia

Tunisia

Johan-

nesburg

Campinas

Brazil

Gunajuato

Mexico

1.71.62.51.11.92.94.48.04.74.18.0

Sources: Local Public Enterprise Database (March 2006, Ministry of Internal Affairs and Communication, Japan), Tunisia (Country Report)

Other countries (Water Supply & Sanitation Working Notes No.9, May 2006)

Note: The number of Japanese water and wastewater utilities staff are combined for international comparison. The household connections are counted

as one for both water supply and sanitation although they can physically counted as two, i.e. one for water supply and another for wastewater. The

number of outsouced workers are not included as the number of regular staff for the Japanese utilities.

Table 12: Number of Employees Per 1,000 connections

Staff salary and promotions are based on performance, academic credentials, and seniority reflecting overall experience. The latter provides incentives for staff to stay with the same utility. The average service duration of career staff of water and sewerage utilities is about 25 years. Staff is rotated within the organization to enable members to obtain wider experience and perspectives, and those who display high potential are groomed for promotion. Staff turnover is very low and mostly due to mandatory retirement.

Most utilities provide ample career development and training opportunities to their staff, which also contributes to the low turnover rate. Staff skills are regarded as a critical input for improving performance. An extensive training plan covers professional skills development and corporate culture with an emphasis on frontline staff who come into direct contact with customers and/or contractors. The utilities provide various kinds of training programs for their staff as part of their annual performance review.

8.3 High Outsourcing Ratio

While most utilities keep core business functions in-house, they have engaged private contractors for (i) routine operation and maintenance of treatment plants and network pipes; (ii) checking and execution of repair works; (iii) engineering design and construction supervision; (iv) information and telecommunication technology services; and (v) metering and billing, among others. The average outsourcing ratio for water supply utilities is around 15 percent while that of sewerage utilities is around 30 percent. The high out-sourcing rates are reflection of the aforementioned slim personnel structure of the utilities. The utilities are gradually increasing the outsource percentage through natural attrition of in-house career staff. In table 13 is a comparison of the outsource percentage of operational expenditures between the Japanese and international cases.

Types

Tokyo

Sapporo

Kyoto

Fukuoka

Japan

average

Type

Singapore

Johan

-

nesburg

Campinas

Brazil

Gunajuato

Mexico

Water

14%

20%

7%

30%

14%

Wastewater

26%

40%

28%

49%

28%

Source

s: Local Public Enterprise Database (March 2006, Ministry of Internal Affairs and Communication, Japan);

Water Supply & Sanitation Working Notes No.9, May 2006.

Note: The Japanese average of wastewater is based on local autonomous enterprise entities b

y law.

Combined

25%

10%

21%

20%

Table 13: Outsource Ratio (%) of Operational Expenditures

Some utilities are piloting innovative large-scale privatization schemes for building and operating specialized facilities, such as cogeneration power plants, sludge treatment and recycling plants, and so forth. Several utilities have begun trials of privatization schemes and market testing with national and international private partners. The Private Finance Initiative Law in 1999 has motivated all types of public and semipublic entities to test private sector participation for such functions, which used to be managed exclusively by the public sector.

However, most utilities have not commissioned major packages covering full operation of water supply or sewerage treatment, but rather have limited themselves to some specific elements of operations. Given the heavy loan repayment for some sewerage utilities, they may continue or accelerate pursuing privatization initiatives in order to gain further operational costs reduction. However, given the already high level of operational efficiency, they seem to be carefully testing new arrangements.

8.4 Customer Service

Although water supply and sewerage utilities are monopolistic service providers, they are concerned about customer satisfaction. Important measures of customer orientation include friendliness of the customer billing and collection system, orientation toward seeking customers’ opinions, timely information to customers on water service disruptions/changes, and response to customers’ complaints. Many utilities operate a one-stop call center for customers with regard to water service disruptions, relocation, new subscriptions, payment, and so forth. Some utilities open customer windows for extended times, for example, to 8:00 p.m. on weekdays and open hours on Saturdays. They also establish water repair squads to conduct emergency repair and interrupted service recovery within 24 hours.

Those water utilities usually offer multiple options for their customers to pay their water and sewage bills, such as electronic fund transfer and payment at commercial banks, postal offices, convenient stores, and so on. Some service requests can be made on the utility’s website. These efforts have contributed to the reduction of administrative losses of water to almost nil. In other words, good customer services have enabled utilities to secure adequate water tariffs to recover water production costs from customers.

8.5 Nationwide Water and Sewerage Utilities Benchmarking

The Ministry of Internal Affairs and Communication, which administers the Local Public Enterprise Law, has led a standardized national benchmarking exercise for all water supply and wastewater utilities. The benchmark database of all utilities for every year is established and disclosed on the website of the ministry and municipalities. The total number of benchmarking items is more than 100, including service quality, financial efficiency, water losses, energy costs, revenue collection, financial performance, and other operational efficiency and performance indicators.

The national benchmark exercise provides an opportunity for municipalities and utilities to monitor their performance status and improvements across the country, thus making them more accountable to their constituents as comparative results can be made available to the public on a regular basis. This report has benefited from the national benchmark database in addition to the information directly collected from visited utility offices.

8.6 Other Semipublic Supporting Agencies and Associations

Some technical support agencies and associations have been established with the endowment from local governments, which in turn have support from the national government. For sewerage works, Japan Sewerage Works Agency provides technical support for construction, maintenance, and management of main facilities, such as wastewater treatment plants and pumping stations, based on prefectural or municipal utilities’ requests. The agency also conducts experiments, research, and training sessions. This agency is particularly important for small municipalities that manage sewerage projects, as they do not have an adequate number of staff who possess management and technical skills.

Japan Waterworks Association and Japan Sewerage Works Association carry out surveys and research related to water and sewerage systems. The associations also provide support for raising public awareness and disseminating information. In particular, the Japan Waterworks Association serves as a think-tank to the Ministry of Internal Affairs and Communication and municipalities in preparing various kinds of technical design manuals and guidelines while organizing technical conferences and workshops.

9. Technical Aspects

The mission visited water and sewerage treatment plants and learned that they are well operated and managed with advanced systems and that the level of water quality and wastewater treatment is quite high. The mission also observed that all visited plants are clean and that there is very little odor even in sewage treatment plants. Due to their proximity to residential neighborhoods, all facilities are built underground or are fully covered. Some important features on the technical aspects are summarized below.

9.1 Water Supply

9.1.a Drinking Water Quality Management

It is known that tap water is drinkable anywhere in Japan. Water utilities adopt advanced water treatment methods, such as ozone treatment and biologically activated carbon-absorbing treatment, in some areas, to eliminate odor, trihalomethane-precursor, and other objects that cannot be sufficiently removed by such conventional treatment processes as rapid sand filtration. To maintain strict drinking quality standards, water utilities prepare and execute water quality examination plans. The plan specifies the parameters to be analyzed and the frequency of analysis. The analyzed results are disclosed in the annual reports and/or posted on the Internet on a regular basis. As part of regular water quality monitoring, water utilities have installed automatic quality monitoring devices at various points in water supply areas for continuous monitoring of residual chlorine. In addition, regular water quality analysis is conducted at rivers and reservoirs.

9.1.b Water Distribution Optimization and Leak Detection

Most utilities have developed extensive water distribution pipe networks to ensure that stable and flexible water supply treatment plants and transmission pipelines are connected with each other to supply water through various alternative transmission and distribution routes in wide areas. The water supply system is monitored on a round-the-clock basis at the operation center in order to adjust to the changing water demands. The utilities have developed and utilized various kinds of operation systems, such as water distribution planning support systems, dam inflow simulation and reservoir operation optimization system, and so on.

Water utilities typically develop water supply operational plans that consist of (i) a water intake plan; (ii) a water main networks operation plan; and (iii) a pumps operation plan. The utilities also have developed water demand forecast programs with various parameters, such as weather conditions, time, the day of the week, holidays, and so forth. These plans apply to both ordinary days to emergencies, accidents, and drought periods.

Some advanced utilities, such those as Fukuoka and Tokyo, have developed more advanced water distribution systems in order to regulate pressure and flow in distribution pipes to promote the effective use of water and to minimize water leaks. This system uses pressure gauges and flow meters that have been installed throughout the city to monitor conditions within the pipes on a 24-hour basis from the Water Distribution Control Center via telephone lines. Based on the information obtained from the gauges and meters, the motorized valves can be opened and closed remotely to regulate the water pressure and flow. This helps to reduce excess pressure, which, in turn, helps reduce the occurrence of leaks within the system. The system can automatically detect pipe bursts by checking the rate of flow and pressure changes and their correlation. If the abnormality continues above set thresholds, the system gives warning to the operation center and site offices.

9.1.c Seismic Design and Preparedness

Japan is prone to earthquakes. Water utilities have taken various measures to ensure the best possible water supply for citizens immediately after earthquakes. They have set high antiseismic design criteria for physical infrastructure and established emergency operation systems. They have also built auxiliary power plants and emergency water supply basins and tanks to secure water supply during emergencies.

9.2. Wastewater, Storm Water, and Water Quality Management

9.2.a Wastewater Treatment Standards

The water quality of discharged effluent from sewerage treatment plants is regulated by the Sewerage Law. Amongst many parameters, BOD of effluents is set at 20 milligrams per liter. For most sewerage treatment plants, BOD of treated effluents outflow is below 5 milligrams per liter, which is much lower than the regulatory limits. BOD of inflowing raw effluents typically ranges between 100 and 200 milligrams per liter.

9.2.b Basin-wide Water Quality Control Plan

The Water Pollution Control Law requires local governments to set the environmental quality standards for each control point of rivers and lakes in order to meet the water quality requirements for the environment and human health. A comprehensive basin-wide water quality management approach is employed to meet the required water quality level and pollution load reduction. Based on the required amount of pollution load reduction, local prefecture governments prepare a Comprehensive Basin-wide Sewerage System Development Plan, which includes the basic parameters of sewerage collection and treatment systems in the basin. Close coordination is made between sewerage utilities and environment departments for preparing the plan and monitoring water quality.

9.2.c Advanced Wastewater Treatment

Standard activated sludge treatment plans are most common in Japan, while oxidation ponds and other primitive treatment plants are very few, due to expensive and limited land. For closed water bodies, such as Biwa Lake, Tokyo Bay, Osaka Bay, and so forth, tertiary treatment systems have been introduced to effectively remove nitrogen and phosphorous and prevent eutrophication problems.

9.2.d Industrial Pollution Control

The Sewerage Law also stipulates the water quality standards of effluents discharged by specified industrial factories/plants to sewerage treatment plants. In most cases, the maximum values of BOD and suspended solid (SS) are set at 600 milligrams per liter, while heavy metals are strictly controlled. The specified factories and other commercial facilities, such as hotels, livestock pens, cleaning businesses, and so forth, are required to install pollution control facilities/equipment onsite in order to meet the maximum threshold of effluents discharged to sewerage treatment plants or public water bodies.

The Sewerage Law and Water Pollution Control Law require local governments to conduct onsite inspections and compliance monitoring without notices, and if required, to provide administrative guidance and improvement order. The owners could face imprisonment of up to six months and/or up to a $2,500 penalty. Local governments provide grant subsidy and interest free loans for the owners to install required pollution control facilities/equipment.

One of the most important factors of industrial pollution loads reduction is the significant increase of internal water recycling of plants and factories. The information in Annex 9 indicates that the average recycling rate increased from about 20 percent to 80 percent during the past forty years. The water of rivers and lakes in Japan was heavily polluted from the 1960s through the1980s due to rapid economic development. The water quality has been significantly improved over the past 20 years thanks to the increase in industrial water recycling in addition to rapid development of sewerage management systems.

9.2.e Treated Wastewater Recycling System

The direct recycling rate of sewage effluent is very low (about 1.4 percent) except for toilet-flushing water use and environmental flow augmentation in small rivers and canals in some urban districts. However, indirect recycling through river systems is quite common in most urban areas. Treated sewage effluent discharged to rivers is quite important for augmenting the river environment flows and maintaining the ecology and scenic environment of rivers. This is also important for supplying water for downstream water users. Historically, many cities and towns have been developed along rivers and rely on this kind of natural water recycling system between the upstream and downstream of rivers. In some urban rivers, more than 50 percent of river water flow originates from treated effluents from sewerage treatment plants in the upstream sections of rivers.

9.2.f Sludge Treatment

Most sludge from treatment plants is dehydrated and incinerated to ashes, reducing the amount to about 1/40–1/50 of the original. On the national average in 2003, sludge was used for (i) landfill materials after incineration to ashes (about 40 percent), (ii) construction materials after melting of incinerated ashes to sludge (about 40 percent), and (iii) agriculture soil improvement materials after dehydration/drying of sludge. These operations are conducted mainly due to the environmental recycling reasons with governmental subsidies rather than commercial reasons.

9.2.g Storm-water Discharge

One of the important roles of a sewerage system is to prevent urban storm discharge and prevent floods. A comprehensive flood-prevention master plan is prepared to define the required flood runoff storage and reduction capacity by sewerage and river systems. In some flood-prone areas, underground storm-water storage pipes and reservoirs are constructed under roads. Permeable road pavements, onsite storage, and retarding ponds at schools, parks, and so forth are also constructed to reduce flood peak volume. Technical coordination is established for urban flood control between sewerage utilities and river administrators in order to ensure the proper operation of drainage pumps and other flood control facilities.

Some sewerage utilities have built rainfall radar systems to collect real time rainfall data to operate the storm water discharge systems in an optimized manner. The operation of treatment plants and pumping stations are carried out based on the information from the radar and telemetry water-monitoring systems. Citizens can access the information on the websites of utilities for emergency preparedness.

The combined system for both wastewater and storm water were established in bigger cities in historically earlier years. There were 23 combined sewerage systems and 1,873 separate systems out of total of 1,896 in March 2005. A combined system sometimes allows untreated wastewater to be discharged to public water bodies during flood periods. The combined system needs to be upgraded in order to reduce heavy pollution loads from the first flush of flood water by building flood-storage facilities. Shield tunneling is used to build large tunnels and storm water pipes.

9.2.h Electronic Sewer Registration Database

Some advanced utilities have established electronic data/information systems for managing assets, procurement, performance, and so on. Tokyo Sewerage Utility has developed an electronic sewer mapping system in 1/500 indicating all sewers location, depth, diameter, types, and so on in all service areas. All users can access the information on the Internet. This is useful in coordinating with other underground utility lines and assisting contractors in adjusting their designs and schedule.

10. Water Resources Aspects

10.1 Inadequate Water Resources Availability

The annual average precipitation in Japan is about 1,600 millimeters per year, and the average annual renewable water resource is about 3,337 cubic meters per capita. However, some regions are faced with much scarcer water resources due to high population density. The renewable water resource of the Kanto area, including the Tokyo metropolitan area, is only 905 cubic meters per year per capita, which is equivalent to that of Egypt. (See Annex 7).

In the early 1960s, Tokyo faced chronic water shortages and had to cut about 45 percent of water supply up to nearly a million households. People used to call the area during the scarcity the “Tokyo Desert.” Moreover, because of steep terrain / river bed slope and a high fluctuation of rainfall among different seasons, river flows, and water resources are difficult to regulate and manage without storage dams in the upstream reaches of rivers.

10.2 River Management: Water Rights and Discharge Permits

The River Bureau of the Ministry of Land, Infrastructure and Transportation (formerly the Ministry of Construction) has played a pivotal role in water resources management. The River Law covers (i) flood control, (ii) water use, and (iii) the water environment. The River Law designates the ministry’s regional river bureaus and river management offices as “river administrators” and requires them to issue water rights and discharge permits based on the current and future water balance of river basins. The river administrators are also responsible for issuing permits for the installment/construction of any hydraulic structures and land use in rivers.

10.3 Comprehensive Water Resources Development

The Specified Multipurpose Dams Law and Water Resources Development Promotion Law were legislated in 1957 and 1961, respectively. The former law stipulates the procedure for the execution of multipurpose dam projects, including cost allocation among participating parties. The latter law requires the preparation of comprehensive water resources development master plans for five (then six) major basins, including Tokyo, Kyoto/Osaka, Nagoya, Fukuoka, and so on. It also established the Public Water Resources Development Corporation in 1962 for executing major multipurpose dam projects in the designated basins. In 1973, the Dam Reservoir Resettlement Area Special Measures Act was enacted to provide stronger support for the residents in upper watersheds who were to be relocated by dam reservoir inundation.

10.4 Critical Roles of Dams

Thanks to those legislative initiatives, drinking water sources for municipalities have been significantly augmented and secured. On the national average, water sources for municipal water comprise natural surface water (34 percent), dams (45 percent), and groundwater (21 percent). The share of water resources from dams has increased from 19 percent in 1970 to 45 percent in 2005 (see Annex 10). In 2005, the number of dams with a height of more than 15 meters was 2,897, out of which 627 dams whose functions include storing water for drinking water supply purposes, while others are for flood control, irrigation water supply, hydropower generation, and so forth.

III. Key Lessons Learned

The mission was quite impressed with the overall performance of the Japanese water and sewerage utilities. The staff members who provided briefings and accompanied the mission to sites were very professional and efficient. The mission witnessed that they are working very effectively in their offices. The mission visited only four water and five sewerage utilities but confirmed findings with the national utilities benchmark database to ensure that those utilities were not isolated cases. Throughout the country, around 6,000 utilities of similar level operate under the same framework and provide water and sewerage services to a population of about 120 million people.

In many developing countries, the privatization of water sectors in the 1990s and early 2000s did not always bring success and, in fact, often resulted in dismal failure. The mission felt that the Japanese model may serve as a potential for the Bank’s technical assistance and policy advice for the water supply and sanitation sector in developing countries. The Japanese model adopts a semipublic corporate institutional framework under the Local Public Enterprise Law. The operational and technical standards are regulated by the Waterworks Law and the Sewerage Law.

The Japanese model possesses the following key features:

(i) enhanced public welfare though a stable water supply and sanitation service,

(ii) financial autonomy achieved through tariff and sound management system,

(iii) large-scale investment for infrastructure development on a long-term plan,

(iv) strong trust relationships with customers, and

(v) municipality-based utilities suitable for unique local settings.

Although those features are commonly required for water and sewerage utilities in developing countries, most typical privatization schemes have not fully addressed these points. Foreign firms and experts may not be in the best position to help developing countries create the utilities that can address those points.

The mission felt that the water utility systems in developing countries could be strengthened by introducing the semipublic management framework used in Japan. In this sense, the lessons the mission learned in Japan may give Bank staff and client countries some guidance when discussing the sector reform and recommend tailor-made recipes for each developing country based on its own experiences and lessons learned.

1. Legislative Aspects: Statutory Semipublic Utility

The Japanese statutory semipublic water utilities are established by the Local Public Enterprise Law. Some sewerage utilities also adopt a corporate financing procedure under this Law. The law requires the utilities to perform corporate management efficiency while pursuing the enhancement of the public welfare. It also requires the utilities to maintain financial autonomy by recovering operational costs, including running and capital costs, from tariff.

The performance of the utilities is outstanding. The national average of UFW in Japan is about 8.5 percent. The national average number of staff is 1.2 per 1,000 connections and the working ratio average is 0.49. What is remarkable is that these numbers are not the figures of the most competent utilities in large metropolitan areas but the national averages of 1,469 water utilities that supply water for 124 million people. Some urban water utilities, such as those in Tokyo and Fukuoka, where there have been considerable further improvements, have achieved even better UFW figures: 5.8 percent for the former and 5.1 percent for the latter.

Therefore, the model is not an isolated success case but rather a typical achievement in water utilities in Japan, which possess all the hallmarks of a major breakthrough in much improved efficiencies in the water supply and sewerage systems. It is hoped that these elements may be replicated in developing countries where the Bank has such projects. The legal framework provides for a balance between the strong public ownership and oversight functions and the private sector’s financial autonomy and operational economic efficiency. While the designs and operational standards of the utilities are regulated by the national laws for waterworks and sewerage systems, the utilities enjoy considerable autonomy for their daily operation and are relatively insulated from political issues. The utilities are not merely private entities seeking only economic gains but are designed to promote public welfare. These Japanese legal regulatory frameworks for semipublic corporate utilities can provide some useful models for developing countries.

2. Institutional Aspects: Effective Personnel Management and Client Connection

The utilities’ personnel management is generally effective and contributes to their overall high performance. The number of utility staff per household is around 2 per 1,000 connections if water and sewerage utilities are combined. This number is much smaller than the world average. The slim personnel structure enables utilities to treat those staff members in a manner comparable to that of private sector.

The staff is given adequate motivation and incentives to accomplish target performance goals. They are provided with good career prospects and training, with salaries comparable to those of the private sector. The average staff salary level is in the range of US$60,000–100,000 per year and attractive enough for qualified personnel, particularly in rural areas. The turnover rate is very low and basically attributed to mandatory retirement. The average length of career of a staff member is about 25 years. They are rotated among different posts to accumulate experiences and are gradually promoted on merit and seniority bases. The merit and seniority basis of promotion encourages the staff’s effort and long commitment to the institution.

The utilities also prioritize maintaining a strong front-line staff for operations and customer service. The utilities pay close attention to the provision of dedicated customer service and minimize any service disruption. The utilities provide tariff payment options and other service information for customers through window services, the Internet, and other information dissemination activities.

While utilities keep core business and strategic functions under the competent career staff group, they have increasingly been outsourcing daily operational tasks to further improve competition and efficiency and to reduce costs such as operations and maintenance, inspection, repair works, designing works, construction supervision, metering, billing, laboratory tests, and so forth. The outsource ratio of the operational budget is relatively high, at around 15 percent for waterworks and around 30 percent for sewerage works. Moreover, some urban utilities have begun commissioning the BOD/BOT schemes for some special segments of the water supply and sewerage system, such as cogeneration energy system at treatment plans. No full BOT/concession schemes have been tested for entire treatment plants. The local governments seem to be carefully testing some new arrangements to see if they can achieve more economic efficiency by inviting the private sector to participate. The approach seems quite reasonable. One of the important differences from privatization schemes in developing countries is that the Japanese utilities have adequate number of competent staff who can analyze new arrangements and effectively negotiate with private entities in the public interest.

3. Financial Aspects: Sound Financing Mechanism and Cost Recovery

All water and sewerage utilities are required to fully recover all operation costs from user fees. Indeed, most water utilities recover all costs through the tariff, providing strong financial autonomy for them. Most urban sewerage utilities that adopt corporate financing procedures also recover most operational costs, including the cost recovery of capital.

This self-sustaining mechanism has disciplined both water and sewerage utilities to closely review investment plans and their budgetary impacts and operational efficiency. Even sewerage utilities, which are generally considered to be more public than water supply utilities, can control financial aspects very effectively by adopting independent accounting systems. The national average of 3,699 sewerage utilities’ UFW is about 15 percent and the working ratio is about 0.6. The mere calculation of UFW by sewerage utilities itself reflects their efforts to closely monitor system operations and performance improvements.

Because of their excellent service and customer support, the utilities’ tariff increase proposals are generally accepted by municipal councils and constituents. The national average of the administrative UFW is about 1.6 percent. Water and sewerage utilities tariff are metered and billed together. Both of them have clear two-tier progressive tariff rates.

For new investment and major renovation projects, most utilities issue bonds with the approval and commitments from municipalities. Major urban utilities can easily mobilize funds thanks to the good financial standing of the municipalities. This is part of the reason why they have not conducted private financing initiatives for major investment projects. The utilities have adequate numbers of staff who can effectively process financing and procurement procedures. For developing countries, it is very important that water utilities establish strong financial bases for satisfactory operations and mobilization of funds for investment programs.

However, some sewerage utilities, mainly in rural areas, face difficulties in raising the sewage tariff to the level of fully recovering the capital portion of operational costs. They had to build sewerage networks in rather scattered, thus less economic, areas and in recent years without historical stock of infrastructure. In those cases, the national government provides grants from national taxes to local governments to assist in major infrastructure development. It also provides subsidies of up to 55 percent of investment costs for large-scale development and renovation works. These kinds of supplementary supporting measures may be more needed for rural utilities in developing countries.

4. Management Tool

Most water and wastewater utilities have developed an integrated information management system using electronic database and geographic information system (GIS) maps for data monitoring, operational support, performance review, and reporting. The system is also linked to procurement and contractual and financial management. Some utilities, such as Tokyo Sewerage Utility, post the GIS maps indicating the location, depth, and size of all sewer network pipes on the Internet for the use of contractors and general public.

All water utilities and some urban wastewater utilities employ corporate financing systems using income statements, balance sheets, and cash flow statements. They prepare annual budgetary plans and financial management reports to submit to local councils, mayors, and auditors.

Most importantly, all Japanese utilities conduct extensive benchmarking exercises to review their performance and improvement status and compare them with other utilities. They check various kinds of benchmarks in terms of physical, financial, and institutional aspects with more than 100 items. Annual reports are posted on their respective websites and reported to the national central database administered by the Ministry of Local Affairs and Communication.

The benchmarking reports have significantly increased the level of public review of utilities performance and service level. These tools should be disseminated to the developing countries that borrow credits and loans for projects.

5. Technical Aspects

The utilities have made significant efforts to ensure the quality of the water supply and sewerage system development and operation. It is remarkable that most secondary wastewater treatment plants keep the effluent quality of BOD below 5 mg/l while the effluent standard of BOD is set at 20 mg/l by the Sewerage Law.

Some sewerage utilities have introduced tertiary treatment plants to reduce nutrients, such as nitrogen and phosphorous, to prevent eutrophication of closed water bodies, such as Lake Biwa and Tokyo Bay. They have adopted state-of-the-art technologies in infrastructure design, construction, and monitoring. They utilize information technology such as integrated circuit (IC) tags, optic fiber cables, and telemetry networks for infrastructure operation and maintenance, including data collection, monitoring, and remote control.

In particular, the water utilities have developed water-distribution optimization systems from reservoirs, intakes, water mains, pumping stations, and treatment plants depending on various parameters related to weather conditions, temperature, the day of the week, and so on. Water utilities have also developed effective leak detection systems and procedures using water and pressure valves at major locations to monitor any abnormal changes on a 24-hour basis. Warning signals are automatically provided to site offices and emergency operational teams. Some utilities have developed pressure control systems to remotely control valves and, for example, lower water pressure in order to minimize leaks while ensuring a stable water supply to all households coping with ground elevation differences.

For water pollution control of major basins, prefecture governments have prepared basin-wide water pollution control plans, including point and nonpoint sources, and set the pollution loads reduction targets for each sewerage utility and other pollution sources. This is instrumental in coordinating various sewerage investment and pollution control programs on a basin-wide scale. The plans are made in close coordination with water utilities, environmental departments, and river administrators for covering sewerage system development and operational programs. The operational programs cover the required actions during drought and water quality accidents.

A similar type of technical coordination is made for urban flood control between sewerage utilities and river administrators in order to ensure the proper operation of flood control facilities, including drainage pumps. They also discuss flood mitigation master plans for basins to define their respective responsibilities and action programs while exchanging hydrological information on a constant basis. Some urban sewerage utilities have established radar networks to forecast rainfall patterns and operate their flood control systems in an optimized manner.

One of the most important factors observed in the Japanese utilities is that the staff shares the culture of valuing technological development to improve their daily operations. They prioritize their own technical development from the field and their own ingenuity. Staff members are given ample opportunities to continuously improve their technical skills. They are encouraged to participate in seminars. Some utilities plan technology development projects on a pilot scale and even obtain patents for successful ones. Other utilities have built their own training facilities and field stations. Furthermore, the government-affiliated agencies and associations, such as Japan Waterworks Association, Japan Sewerage Works Agency, and Japan Sewerage Association, have contributed studies for developing new technologies and disseminating technical guidelines and manuals. This is particularly useful for smaller utilities in rural areas that do not posses adequate numbers of technical staff.

This Japanese cultural aspect of valuing the technical capacity of in-house engineers may be relevant for developing countries. Although foreign consultants can bring some useful technologies and skills from abroad, they may not be fully familiar with unique local settings and existing staff capacity. It is quite important for local utilities to establish their own technical teams and to examine the suitability of any new systems and tools for their real needs.

Annex 1: List of Persons Met for the Study

Ministry of Health, Labor and Welfare

Health Bureau, Water Works Division

· Mr. Sombo Yamamura, Director

· Mr. Akira Nitta, Deputy Director

· Mr. Seki Kato, Chief of Technical Section

Minister Secretariat, International Affairs Division, International Cooperation Section

· Jyunichi Hioki, International Cooperation Deputy Director

Ministry of Land, Infrastructure and Transport

City and Regional Development Bureau, Sewerage and Wastewater Management Department

· Mr. Ryuji Uematsu, Planning Senior Deputy Director

· Mr. Takaaki Ito, Deputy Director

Tokyo Prefecture

Bureau of Waterworks

· Mr. Tomoyuki Tanimoto, Team Leader, Facilities Planning Section

· Mr. Tomohiro Ebizuka, Team Leader, Financial Affairs Section

· Mr. Yutaka Yamagishi, Senior Researcher, General Affairs Division

· Mr. Masahiko Nagasaka, Team Leader for PFI Project, Facility Section

· Mr. Masatoshi Mokuda, Team Leader for Leakage Prevention, Water Supply Division

Sewerage Works Bureau

· Mr. Yoshiaki Kon, Deputy Director for Master Planning, Planning Division

· Mr. Jyunya Koike, Planning Chief, Planning Division

· Mr. Tooru Oda, Chief, Planning Division

· Mr. Masayoshi Utsugi, Deputy Section Chief, Facility Control Division

Shiga Prefecture

Biwa Lake and Environment Department

· Mr. Manabu Tsukuda, Director

· Mr. Yoshio Tainaka, Director, Sewerage Works Division

· Mr. Masahiro Yoshizawa, Staff Chief, Sewerage Works Division

· Mr. Katsumi Koi, Director, Syonan-Chubu District Management Office

Kyoto City

Waterworks and Sewerage Works Bureau

· Mr. Hideo Suzuki, Director

· Mr. Shuji Tatsumi, Deputy Director, Planning and Coordination Division, Waterworks Department

· Mr. Hideichi Ishida, Deputy Director, Planning Division, Sewerage Department

· Mr. Tetsuya Nakanishi, Section Chief, Planning Division, Sewerage Department

· Mr. Satoru Hashimoto, Section Chief for Project Administration, General Affairs Department

Fukuoka City

Waterworks Bureau

· Mr. Yoshihiko Nishizawa, Director, Planning Division, Planning Department

· Mr. Tetsuji Ono, Section Chief for Survey, Operation Division, General Affairs Department

· Mr. Yuki Tokutomi, Technical Control Division, Planning Department

· Mr. Seiichi Koga, Planning Section, Planning Department

· Mr. Takashi Kondou, Planning Section, Planning Department

· Mr. Takao Yamanaka, Head, Water Management Center, Water Purification Department

Sewerage Works Bureau

· Mr. Tsuneo Hitaka, Director, Construction Department

· Mr. Tadanobu Yanagibashi, Director, Planning Division, Construction Department

· Mr. Takanori Matsuo, Section Chief for Technology Development, Planning Division

· Mr. Shuhei Yamaguchi, Planning Division

· Mr. Ryota Himeno, Head, Chubu Wastewater Treatment Center

Sapporo City

Waterworks Bureau

· Mr. Hi