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waterutilitymanagementI N T E R N A T I O N A L

MARCH 2007VOLUME 2 ■ ISSUE 1

ANALYSIS4 Evaluating the real impact of

corruptionBy Lis Stedman

5 A sanitation solution for Indonesia’s urban areasBy Lis Stedman

FEATURES6 MANAGEMENT

Improving performance at water and wastewater utilities through effective knowledge managementBy Peter von Zweck and Elisa Speranza

9 TRAININGMastering utility managementBy Lis Stedman

10 FINANCEFinancial sustainability as afoundation for infrastructuredevelopment and management: bestpracticesBy Eric Rothstein and Deborah Galardi

14 COMMUNICATIONSCommunications as a cornerstone ofwater utility leadershipBy Jane Mobley

15 UTILITY REFORMThe secrets of a successful public water utilityBy Keith Hayward

19 PROJECTSCapitalising on international funding for infrastructure projects in China - lessons from case studiesBy Xiu Hua Zhang and Chi Rong Huang

23 PROCUREMENTPartnership instead of privatisationBy Manfred Rauch

Astudy by World Bank senior economist Charles Kenny has highlighted the need for

use of large surveys to better assess corruption in infrastructure projects and responses to the problem.

Recommendations of the work includedeveloping a focus on inputs and outputs which might provide better evidence of weakgovernance and high corruption in infrastructureprojects and in particular of the developmentimpact of problems. This focus would meanevaluating budgeting priorities and projectselection procedures as well as the quality of

construction of selected projects at sector level.The report concludes: ‘There remains an

important place for focused, well-designed large surveys to evaluate modes and levels ofcorruption in particular environments, andpotential policy responses.

According to the report, the Bank is to trialpublic expenditure tracking surveys, which followthe flow of resources through layers of govern-ment bureaucracy as a potential tool for measur-ing misappropriation of government funds,combined with unit-cost and quality of servicedata on final outputs. (See Analysis, p4) ●

World Bank study assesses corruption

The UK’s National Audit Office has issued areport that takes a detailed look at Ofwat’s role

in regulating the demand for water and leakagelevels in England and Wales.

NAO head Sir John Bourn’s report to parliament, titled Ofwat – meeting the demandfor water, starts by noting that ‘there are inherentweaknesses in information on demand for waterand leakage’. Ofwat has secured better leakagedata, it notes, but calculations still depend onestimates of actual consumption, which variesconsiderably even within the same region.

The report notes: ‘It is not currently clear howmuch of this difference is due to socio-economicor other factors affecting water use as opposed toinconsistencies in consumption estimations, northe impact that these differences may have onthe aggregate projections of demand.’

The report also effectively finishes the chances of a north-south water transfer pipeline,highlighting the possible £15 billion price tag and‘significant environmental damage’.

While calling Ofwat’s approach to settingleakage targets ‘sensible’ and supported by 62%of consumers surveyed, the report criticises theregulator’s approach to Thames Water’s persistent problems, saying that ‘customerswould have benefited if Ofwat had been able to obtain such an undertaking [the legally-binding agreement by Thames to increase investment] earlier.’

Ofwat should continue to press companies forimproved data on leakage and consumption byworking with key stakeholders such as the EA, toensure regional usage differences are investigatedand explained, and by considering the impact ofthe unreliability of quickly-outdated demographicdata. The regulator must also continue tocoordinate the work of independent reporters,who verify the information provided to Ofwat.

The report also says that water companies

must manage an ongoing uncertainty about thelocation and number of new-build homes,particularly in the South East.

Ofwat should take the lead in ensuring theevidence for the results of water efficiencyprojects is reliable by encouraging companies topropose appropriate water efficiency projects atthe next price review and regularly reviewing andupdating its good practice register, the report adds.

The regulator should also press for a long-term and sustainable approach to leakagemanagement and take into consideration theimpact of public perceptions of leakage, particularly in a drought.

The report also supports Ofwat’s approach toThames Water, noting that in securing anundertaking to provide extra investment at nocost to the consumer, the regulator had ensuredthat Thames addressed other issues of concernsuch as its low security of supply as well astackling its leakage problems.

It goes on to suggest that leakage levels below the economic level of leakage should beconsidered, where reducing leakage wouldenable environmental damage to be reduced.

Sir John Bourn said at the report’s launch: ‘Agood understanding of the needs of waterconsumers should be at the heart of Ofwat’sregulatory regime. The regulator must work toachieve robust and reliable data on how consumers use water and on how effective waterefficiency projects are in conserving water. Thisdata can then be used to underpin its regulatory decisions.

‘In the case of leakage problems in theThames region over the last six years, Ofwat hasnow taken direct action with a view to protectingthe consumer. It must ensure, in future, that itsenforcement actions are timely and focused onthe consumer.’ ● Lis Stedman

Criticism of regulator for handling ofdemand and leakage in England and Wales

2 • WATER UTILITY MANAGEMENT INTERNATIONAL • MARCH 2007

EDITORIAL

Editor / Associate PublisherKeith [email protected]

Publishing AssistantOisin [email protected]

Water Utility Management Internationalfocuses on the needs and interests ofsenior water utility managers. The aim is toprovide those heading water andwastewater utilities with an internationalreference point on the strategic issuesaffecting their organisations. Water UtilityManagement International will also be ofvalue to consultants and others followingdevelopments in this area.

Presented in a newsletter format, WaterUtility Management International containsnews, interviews, and in-depth briefings ontopical issues. Other articles take anexecutive briefing approach or be based onlandmark case studies. Regular themes forarticles include financing, investment,regulation and personnel matters. There isalso be a central theme of achievingefficiency in water utilities, encompassingtopics such as benchmarking, billing,tariffs, IT and service standards.

For more information, visit:

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PUBLISHING

PublisherMichael Dunn

Water Utility Management International is published four times a year (March,June, September, December) by IWAPublishing. Statements made do notrepresent the views of the InternationalWater Association or its Governing Board.

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ISSN (print) 1747-7751ISSN (online) 1747-776X

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waterutilitymanagementI N T E R N A T I O N A L

NEWS

GLOBAL: Banks report progress in good strategy developmentThe African Development Bank, the Asian DevelopmentBank, the European Bank for Reconstruction andDevelopment, the Inter-American Development Bankand the World Bank have just released a reportshowing they are making good progress in adoptingManaging for Development Results practices, whichaim to improve the design, implementation andevaluation of strategies and operations to help achieverelevant development results.

UK: Regulator voices concerns over new Thames boardOfwat has raised concerns in a consultation paperafter it has become clear that the new board ofThames Water is to have no involvement with the day-to-day running of the utility. The new owners of thecompany, led by Australia’s Macquarie Bank, haveappointed a board comprised entirely of non-executivedirectors, with the chief executive and chief financialofficer only reporting to the board rather than beingpart of it. Ofwat said that the new arrangementsdeviate sharply from industry norms and contrast withbest practice seen in listed companies. An Ofwatspokesman said: ‘We will consider any proposalsThames may have to address our concerns. Werequire companies to comply with good governance,and we can consider modifying the company's licenceconditions as an option to meeting our concerns.’

ZIMBABWE: Water board threatens disconnections over debtsThe Zimbabwe National Water Authority (Zinwa) hassaid it is owed over $800 billion in unpaid water billsby government departments, domestic residents andcompanies, and is considering disconnecting itsdebtors. Among those in debt are hospitals, prisonsand farms. The country’s Minister of Water Resources,Munacho Mutezo, has told a parliamentary committeethat the debt is crippling the utility’s operations. Thegovernment has decided to take over water distribution from local authorities, under the umbrella of Zinwa, to allow them to re-focus on otherdevelopmental issues.

UK: Defra publishes proposals for compulsory watermeteringThe Department for Environment, Food and RuralAffairs has published draft proposals for compulsorywater metering in areas of serious water stress, whichare likely to include most of South East England. Watercompanies in areas designated as of serious waterstress will be able to seek compulsory metering as partof their long-term water resource management plans.The proposals, developed by the Water Saving Group,will add metering to the existing raft of options forcompanies, alongside more efficient water use anddeveloping new resources.

US: EPA releases specs for water-efficient toiletsThe Environmental Protection Agency is releasing afinal specification for the latest generation of water-saving, high-efficiency toilets. Those that useless than 1.3 gallons per flush and meet performancestandards for quality will qualify for EPA’s WaterSenselabel to help consumers make informed buyingdecisions about water-efficient products.

The new toilets are the product of extensiveresearch in fluid dynamics conducted over the last sixyears, and have significantly improved flows andreduced water use. It is estimated that they couldreduce water bills by 10%.

AFRICA: Campaigners condemn promotion of privatesector participationCampaigners from over 40 African countries havecondemned international aid donors and governmentsthat promote private sector participation and commercialisation as the solution to Africa’s watercrisis. At a meeting in Nairobi at the World SocialForum, 250 representatives announced the launch ofa new African Water Network to counter what they calla ‘misguided push for water privatisation’.

Ghanaian activist Al-hassan Adam said: ‘Thelaunch of this network should put the water privateers,governments and international financial institutions onnotice that Africans will resist privatisation. Wedemand governments provide access to clean waterthrough efficient public delivery.’

Global engineering firm CH2M HILL has developedand released the US’s first physical security

standard guidelines for water and wastewater utilities. The guidelines developed under the WaterInfrastructure Security Enhancements programme willprotect the American public from potential malevolentacts and other threats by enhancing the physicalsecurity of the nation’s water and wastewater infrastructure system.

Standards were developed as a joint effort betweenthe American Society of Civil Engineers (ASCE) andthe American Water Works Association (AWWA), withtechnical input from the Water EnvironmentFederation (WEF). The project was funded by the US

Environmental Protection Agency. CH2M HILLdrafted the document and assisted in the resolutionreporting during the balloting process.

The guidelines will provide utilities with practicalinformation to help implement improved securitymeasures in new and existing facilities. In addition,the guidelines address construction and design risks.The Draft Standard for Trial Use will be reviewed andconsidered for approval as an American NationalStandard upon completion of a six-month publiccomment and trial use period.

Raw water supplies, pumping stations, distributionsystems, treatment plants and support facilities areall included in the recommendations. ●

Security guidelines for the US

Black & Veatch has announced that it is beginning aproject on behalf of the ADB to help the government

of Indonesia to formulate an investment loan to improvesanitation services in the country.

The project is intended to decrease urban pollution,

improve public health and enhance the generalpopulation’s wellbeing. The study will prepare citysanitation strategies for five large cities and full feasibility studies for up to three of these. (See Analysis, p5) ●

Black & Veatch begins Indonesian sanitation project

WATER UTILITY MANAGEMENT INTERNATIONAL • MARCH 2007 • 3

NEWS

Business

CHINA: Salcon signs up for wastewater projectsAsian water supply operator Salcon has signed a memorandum of understanding with Australia Sun to jointly invest in five wastewaterprojects in Suzhou city, in Jangshu province, China. The Australiancompany has won concession rights in five districts and towns to refurbish,upgrade and construct new wastewater treatment plants of various sizes.The joint venture will refurbish, operate and manage four existing plants aswell as constructing, operating and managing one new plant in Wujiangand Wuzhong in Suzhou. Total value of the contracts is around RMB450million ($58 million). Total treatment capacity of the plants will be 360MLD

GUYANA: Severn Trent International has contract terminatedSevern Trent International’s contract to supply water in the impoverishedSouth American state of Guyana has been terminated, with the country’swater minister saying this was due to a failure to meet targets such as theamount raised from water bills. Severn Trent said the agreement was‘amicable’ and that it would help the government during a two-monthtransition period. The firm said in a statement: ‘Both Guyana Water andSevern Trent International would like to have achieved more but eventssuch as the floods and delays in securing funds for capital investmenthave thwarted that.’ STI began running Guyana Water in 2002. The supplywill now be handed over to Guyanese management.

GLOBAL: Veolia announces success in tranche of projectsVeolia Water has announced the signing of three key projects in Ireland,Singapore and the island of Guam. The municipal authority in Limerick,south-west Ireland, has awarded the company, in partnership with Dutchcivils company Ascon, a €60 million ($77.6 million), 20-year DBO contractto upgrade the Clareville water treatment plant. The Public Utilities Boardof Singapore has signed a contract for a second extension to the KranjiNEWater plant, which produces recycled water. The contract is worth €8.5million ($11 million). Guam has given Veolia a contract to manage itswastewater service, with the company signing up to establish a system ofsustainable development for the island, which is a key US naval base. Thecompany has also won its 21st contract in China, with the Lanzhou WaterSupply Company, and a further contract, with its Omani partner, SuhailBahwan Group, to build, own and operate a desalination plant in Oman.

UK: Gemserv wins Scottish competition contractUtility retail market specialist Gemserv has been awarded a contract tosupport the introduction and operation of competition in the Scottish watermarket to 2011. The company is working with the Water IndustryCommission for Scotland to develop the market design for the Scottishwater market, which opens for all business customers in April 2008. Afterimplementing the systems and processes to enable competition, Gemservwill manage the operation of the market for the Central Market Authority,which will administer the water market in Scotland.

Loans and tenders

TURKEY: Nevsehir announces tender for wastewater treatment worksThe city of Nevsehir in Anatolia, Turkey, has announced that a tenderingprocess will begin shortly for consultancy services and construction of anactivated sludge wastewater treatment works of around 130,000PE in itsfirst stage to serve the municipal area. The consultancy services tenderhas a maximum budget of €1.3 million ($1.71 million) and the construc-tion element is estimated at €7.5 million ($9.86 million). The tender will belaunched in March. The work is part of a project aimed at assisting Turkeyin harmonising its environmental standards with those of the EU as part ofthe accession process. The works may be extended in future to includetertiary treatment and improvements in its capacity to some 184,000PE.

MOROCCO: World Bank provides grant for pilot water, wastewater accessThe World Bank has signed a grant agreement for an aid pilot project toimprove access to water and sanitation services in poor communities inMorocco. The funding will be in the form of $7 million through contributions from the International Finance Corporation, the privatesector arm of the World Bank Group ($4.9 million) and the UK’sDepartment for International Development ($2.1 million). The project aimsto demonstrate an output-based subsidy mechanism to facilitate access towater and sanitation services for some 11,300 low-income households inselected peri-urban neighborhoods of Casablanca, Tangiers and Meknès.

TANZANIA: World Bank approves IDA credit for water sector supportThe World Bank has approved an International Development Association

(IDA) credit of $200 million for Tanzania’s water sector support project.This is part of a total $700 million that the Development Partners Group, ofwhich the World Bank is a part, will contribute to the government ofTanzania’s five-year water sector development programme. The development partners, who are Germany, The Netherlands, France,Japan, USAID, the Millennium Challenge Corporation, UNDP, UNICEF, theFAO and the African Development Bank, are maintaining the impetus ofsector reform in the country initiated over the past decade.

LEBANON: EIB announces infrastructure fundingThe EIB announced at the PARIS III conference on support for theLebanon that the Bank will fund the recovery, reconstruction and reformplan drawn up by the Lebanese government with €960 million ($1,243million) in aid over the next five years, €400 million ($518 million) of whichwill go towards priority infrastructure including the wastewater sector.

PUERTO RICO: Authority announces major wastewater and potable waterinvestmentPuerto Rico’s Aqueduct and Sewerage authority has announced plans toinvest $1.95 billion over 15 years in wastewater treatment and potablewater projects. Some $945 million is earmarked for a project to be under-taken jointly with the island’s Health Ministry to improve potable waternetworks. The plans, which also improve rehabilitating water treatmentsystems, improving turbidity control and reconstruction of treatment plantsand storage, have been agreed and now have to go before a judicialtribunal to be approved. A $150 million, 5MGD reservoir is also plannedfor the country’s Rio Blanco region and scheduled for completion in 2008.

IWA Publishing is pleased toannounce the appointment of an

Editorial Advisory Panel for WaterUtility Management International.

The role of the panel is tosupport the editor in the ongoingdevelopment of the publication.Panel members will providestrategic input on the editorialdirection of WUMI, as well ashelping to identify and encouragepotential editorial items.

With these activities in mind, weare pleased to have secured thesupport of an outstanding group ofindividuals. Together they cover abroad range of interests and a widegeographical spread, meaning theyare well-placed to help us build onthe success of WUMI to date.

The panel members are:Dr Richard Franceys, Centre forWater Science, CranfieldUniversity, UK

Dr Bernhard Hoersgen, ExecutiveBoard Member, Gelsenwasser AG,GermanyDr David Johnstone, Oxford Centrefor Water Research, University ofOxford, UKProf Hamanth Kasan, GeneralManager - Scientific Services,Rand Water, South AfricaMr Khoo Teng Chye, ChiefExecutive, PUB, SingaporeMr Alejo Molinari, Quality of

Services Manager, ETOSS / ERAS,ArgentinaDr Renato Parena, Chief FinancialOfficer, Societa MetropolitanaAcque Torino SpA, ItalyMr Eric Rothstein, Vice President -Utility Management Solutions,CH2M Hill, USA

It is anticipated that there will be asmall number of additionalappointments. ●

Editorial Advisory Panel to support WUMI’s development


ANALYSIS

Combating corruption in infrastructure industries is a

topical issue, with recent movesincluding ADB/OECD anti-corruptioninitiatives, and the launch of theWater Integrity Network (part of anti-corruption crusaderTransparency International). TheWorld Bank has now joined the fraywith a major study titled ‘Measuringand reducing the impact of corruption in infrastructure’.

The report looks at both theextent and impact of corruption in infrastructure in developingcountries based on existing evidence, looking at the variousapproaches to estimating the extentof corruption and the results ofstudies that have been undertaken.

The report begins by noting thata low-end estimate suggests thefinancial costs of corruption ininfrastructure investment andmaintenance alone could be $18billion annually – shockingly, itclaims 5% to 20% of constructioncosts are lost to bribes. The report goes on to note: ‘There isconsiderable evidence of widespread petty corruption in thearea of infrastructure connection aswell as larger-scale corruption togain construction contracts andlicences, and even to changeregulatory and policy practices.

Some of the examples given referto other industries, but the parallelsare not lost. Instances of pettycorruption include ‘speed payments’ to get piped waterconnections in India, which workout at $2.64 per legal customer. In that same country, a 2004 report (Davis) suggested thatunaccounted-for water made up35% of total flows.

Grand corruption is also evident:a 2005 interview with a smallnumber of bidders on World Bank-financed projects found that‘all experienced bidders know thatthey must offer bribes in order not

just to win the contract, but alsosuccessfully to implement it.’ Theseare usually between 10% to 15% ofcontract value, and are oftenrecovered in the mark-up on theunit prices of procurement items.Data suggests that the averageperceived payoff for a governmentconstruction contract is around 7%of contract value.

Worryingly, the report goes on tosay that ‘at the same time many ofour existing measures appear to bevery weak proxies for the actualextent of corruption, and in particular grand corruption, in infrastructure.’

It cites TransparencyInternational’s CorruptionPerception Index as appearing tobe a ‘lagging, rather than leadingindicator of corruption scandals’ –that is, it is likely to under-estimaterather than over-estimate.

One problem in estimatingcorruption is that the findingssuggest levels of corruption aredifferent in construction firms thanother types, but that the nature ofthe differences varies by country,which suggests that even accurategeneral indicators of corruption at amacro level may not reflect sectoralrealities very well.

Even relying on bribes as anindicator of corruption might bewrong, the report suggests – forinstance a bribe paid to win acontract for well-selected projects that are subsequently well-constructed would be lessdamaging than corruption thatskews spending priorities or lowersconstruction standards. Such is the ‘smoke and mirrors’ world of corruption.

Other measures used, such aspeople’s perception of corruption,are also hampered by the fact thatthis is an ‘opaque, amorphous’subject, which tends to get entangled with general worriesabout weak governance, political

issues or other crises, the reportpoints out.

Other observations include ageneral finding of perceived similarlevels of petty corruption acrossinfrastructure sectors, includingwater, which is unlikely given theirvery different characteristics andprobably reflects a ‘commonperception driven by anchoredestimates’ – in other words, there is a general view of levels of corruption and this, rather thanreality, can drive the sort of datafound in reports.

For anyone wishing to constructinfrastructure, the report usefullypoints out that a 1999 surveyshowed that despite statisticalcaveats it was possible to say thatthe worst performer in terms ofcorruption was Azerbaijan, with thebest performers being Uzbekistan,Poland and Estonia.

Water-sector specific instances ofpetty corruption include theexample of those unconnected tothe water network, who often payten or more times the amount perlitre for water than connectedcustomers. Even the very poor inIndia were found to be willing to payas much as twice average waterbills to see improved service quality,which would explain the large bribeneeded for a legal or illegal connection to the supply. However,transfers to get the job done are, thereport says, ‘perhaps one of theleast harmful forms of corruption’ inthat they have less impact oneconomic outcomes.

The major impact of corruption,from a macro-economic point ofview, is usually going to be on ‘whatis built where, not how much is paidto build or connect it,’ the reportsuggests. Minimising the damagemeans finding ways to counter theincentives to build the wrong thing,and then operate it badly.

But how is it possible to changethings? Recommendations include

developing a focus on inputs andoutputs (objective data such asoverall budgeting, project selection,physical auditing of the status ofphysical capital, if O&M is properlycarried out and so on) which mightprovide better evidence of weakgovernance and high corruption ininfrastructure and in particular ofthe development impact of problems.

This focus would mean evaluating budgeting priorities andproject selection procedures as wellas the quality of construction ofselected projects at sector level.

The report concludes: ‘Thereremains an important place forfocused, well-designed largesurveys to evaluate modes andlevels of corruption in particularenvironments, and potential policy responses.

‘There also remains a place for improved procurement anddetection procedures at the projectlevel. But perhaps the most efficienttools for measuring and reducingthe development impact of corruption at the sectoral level willhave a broad governance focus.’

The World Bank is going to trialpublic expenditure tracking surveys, which follow the flow of resources through layers ofgovernment bureaucracy as apotential tool for measuring misappropriation of governmentfunds, combined with unit-cost andquality of service data on finaloutputs. It is to be hoped that thisinitiative, added to the others thathave begun, may have a significant,timely impact on what corruptionexists in the water sector. ●

‘Measuring and reducing the impact ofcorruption in infrastructure’. CharlesKenny, Senior Economist, World Bank.World Bank Policy Research WorkingPaper 4099, December 2006. Thepaper can be obtained from the WorldBank website, www.worldbank.org, viathe Data & Research section.

Corruption exists, but development of policies to address it requires fullerunderstanding of the issue. LIS STEDMAN reports on a World Bank study of the problem.

Evaluating the real impactof corruption


ANALYSIS

Global engineering companyBlack & Veatch has won a

challenging contract for the AsianDevelopment Bank, helping thegovernment of Indonesia to formu-late the framework for an investmentloan to help improve the country’surban sanitation services.

James Currie, regional director ofthe company’s Global DevelopmentAgency business, says that Black &Veatch has undertaken a significantamount of work previously with theADB and World Bank under itsGlobal Development Agencybanner. This has focused onChina,Vietnam and Asia where thecompany has traditionally done a lotof work and where it has a goodunderstanding of the issues andgood contacts with clients andpartners that it can team with.

He notes: ‘Indonesia is animportant part of our work here,and we are excited about thiscontract because it is the firstsanitation project we have beeninvolved in – the others were forwater resources and irrigation, andit is good to be involved in thesanitation side.’

In 2005, Indonesia’s urbanpopulation was estimated to be 101million people, or 48% of thecountry’s total population. By 2025,this is expected to grow to 60%, or160 million people, so sanitationhas risen quickly up the agenda.

The contract will involve what isknown as PPTA – project prepara-tion technical assistance – carryingout up-front studies and investiga-tions to identify subsequent projects for bank funding andimplementation. The contract is inits initial stages, beginning withmobilising the team, which has justcompleted an inception report. Thework will take less than a year in all,and will be finished in late 2007.

The inception report reviews allof the existing information currentlyavailable and identifies further datarequirements and detailed methodsfor undertaking full-scale workunder the PPTA.

The PPTA will have two phases,the first requiring Black & Veatch toselect a number of large urbanareas and prepare city sanitationstrategies. The inception report hassuggested a slight modification inthis phase to the preparation ofless-detailed conceptual city

sanitation strategies. This is largelybecause of the timescale andfunding available, but it is possiblethat the ADB may opt to have moredetailed strategies producedregardless.

Phase two will identify a smallernumber of cities, says Mr Currie,possibly three, for which moredetailed feasibility studies will becarried out. These will involve ‘fairlyextensive’ field surveys looking atsuch key areas as socio-economicissues and potential land acquisi-tion areas for which resettlementmay be required.

Traditionally, sanitation has beengiven a lower priority withinIndonesia, which has been focusedon becoming self-sufficient in rice,pumping a great deal of money intoirrigation schemes to achieve thisgoal. Even the capital, Jakarta, hasonly 5% of its urban area connect-ed to a structured wastewatertreatment and collection system.

Whether this type of approach istaken in the future projects remainsto be seen. If structured wastewatertreatment systems are required,then the establishment of organisa-tions to maintain them and ensure

they are sustainable will also be anissue, as will tariffs.

‘Who runs the systems will needto be studied under the PPTA,’ saysMr Currie. ‘During a PPTA it isnormally easier to set up andmanage the water supply side. It isan important issue. A lot of urbanareas have informal sanitationsystems and a key part of our workis institutional development toidentify appropriate agencies to beresponsible for a more structuredsystem.’

Once this work is finished, theintention will be to identify anumber of projects for the ADB tofinance, and this will roll into thenext stage of the project in 2008.One key feature of the project is thatit is intended to be highly consulta-tive. Mr Currie notes: ‘It is a require-ment of the Bank that we involvethe local community in developingappropriate solutions, and this issomething we are very supportiveof. It is important to have buy-infrom locals to ensure success –there is nothing worse than havingsystems that the locals don’t accept

or can’t afford.’ Therefore, thesurveys of the local residents are afundamental part of the work.

It is clear that different solutionsmay be appropriate in differentareas, Mr Currie points out. Therewill be some areas where well-structured waterborne systems areappropriate, and others whereindividual or communal septictanks are more suitable. Heexplains: ‘Even in the urban areasof Indonesia there is a great diversi-ty of intensity in development, andof income, so we have got toacknowledge the differences and

be appropriate to the context.’Black & Veatch would very much

like to be involved in the next stageof the project, he adds, but this isnot certain yet and at the momentthe company is focused on completing its current task. MrCurrie concludes: ‘It is a veryinteresting project, and to beinvolved in a task where we can dosomething of value for local communities, where they can beinvolved with the project and willbenefit from it, feels very good.’ ●

A new AsianDevelopment Bankcontract aims to helpIndonesia develop plansfor the country’s urbansanitation services. LIS STEDMAN spoke withJames Currie of Black &Veatch about thecontract.

A sanitation solution for Indonesia’s urban areas

If structured wastewater treatment systems are required,then the establishment of organisations

to maintain them and ensure they are sustainable will also be an issue, as will tariffs.

‘A lot of urban areas have informal sanitation systems and a key part of our work is institutional development to

identify appropriate agencies to be responsible for a more structured system.’James Currie, Black & Veatch

Within the general businesscommunity the need to

manage knowledge has emergedas a critical component of sustaining and improving businessperformance.The value of knowledge to workers was documented by the now famousbusiness consultant and authorPeter Drucker in the 1960s. In the1970s, the concept of knowledgebeing an ‘intellectual asset’ of anorganisation was promoted byArgyris and Schon.The term‘knowledge management’wasintroduced by Karl-Erik Sveiby inthe early 1990s. But in the newmillennium the importance ofmanaging knowledge within anorganisation has become widelyrecognised, as is evident in theinvestments being made to systematically manage intellectual assets.

Although the importance of knowledge management is now widely recognised within the businesscommunity, there is no universallyaccepted definition of the term.TheSAS Institute defines knowledgemanagement as ‘a system-basedapproach capable of capturing andleveraging institutional memory’.Levinson describes knowledge management as ‘the process through

which organisations generate valuefrom their intellectual and knowledgebased assets’. In an AwwaRF publication entitled ‘Application ofknowledge management to utilities’ itis described as ‘the processes and toolsthat allow businesses to increaseworkflow efficiency while reducingemployee workload and labour hours’.

Based on the literal definition of theterms knowledge and management –and put in context for the water andwastewater utility industry – it may alsobe defined as follows:knowledgemanagement is strategy that engagesthe people,processes and tools used byan organisation to systematicallycollect, store,organise, evaluate, andcommunicate the data, facts, under-standings, and information it needs tosustain or improve its operations.

To put it in context – knowledgemanagement is not something that canbe bought and installed within anorganisation. It is more than information management systems. Itcan be characterised more accurately asa strategy to be adopted by an organisation.When implemented in an effective manner,knowledgemanagement becomes a component of an organisation’s culture.

The intellectual assets of an organisation can be grouped in twobroad categories.Tacit knowledge is

Improving performance atwater and wastewaterutilities through effectiveknowledge managementKnowledge management is key to ensuring effective utility working. PETER VON ZWECK and ELISA SPERANZA look at some of the drivers of theincreased need to manage knowledge and outline the best practices for water and wastewater utilities.

Example of tacit knowledge at a utilityAn experienced operator responding to an alarm at a pump station knows the mostprobable causes of alarms at the station and the most efficient sequence of activitiesrequired to correct the situation before arriving on-site. Although detailed operations andprocedures manuals do not exist – the operator’s experience, gained over time andsimilar situations, has provided a deep understanding of likely causes of the alarm andrelationships between the event and current operating conditions.


MANAGEMENT

carried around in the heads of anorganization’s employees and is largelyunspoken and unrecorded. It includesthe understanding of why and howactivities occur and the relationshipsbetween events. It generally includesknowledge developed through experience and over time.This under-standing of activities, relationships, andresponses may represent 80 to 90% ofan organisation’s knowledge.This typeof tacit knowledge is generally notcaptured or codified in a formalmanner for the long-term benefit ofthe organisation.

The second category of knowledgeis explicit.Explicit knowledge is morereadily captured and recorded. Itincludes text,numbers, databases,documents, email, photos, and so on. Itmay be generated as paper documentsor stored electronically. It is generallythe focus of more formal informationor records management systems.

Information management systemscommonly used in the utility industryinclude customer information systems(CIS), computerised maintenancemanagement systems (CMMS),geographic information systems (GIS),laboratory information systems (LIS),and supervisory control and dataacquisition (SCADA).These systemsprovide a structure for collecting,organising and communicating largevolumes of a utility’s explicit knowledge.

Drivers for managing knowledgeIn the US, the increased interest informal knowledge managementprogrammes has been influenced bytwo seemingly unrelated issues - thelarge population of employees at orapproaching retirement (the babyboomers), and external pressures toreduce costs while improving theefficiency of their organisations.

Although evident in other locations,population dynamics within the USwere significantly affected by a periodof rapid economic growth followingthe Second World War.This surge inthe economy produced a correspondingincrease in birth rates (80 million inthe US) during the period between1946 and 1964.This timeframe isgenerally referred to as the BabyBoom.Now that many of this generation are nearing retirement, the

Knowledge management in the field

This article was presented at the IWA World Water Congress, Beijing, China, September 2006,at a special session organised by the Water Environment Federation.


MANAGEMENT

aging work force has produced asignificant challenge to sustainingbusiness.How do you transfer thelifetime of working knowledge andexperience from an aging workforce tothe next generation?

The second driver for improvementsin knowledge management within theutility industry is related to the pressure to ‘do more with less’, or tobecome more efficient.Most utilitiesare faced with the obligation tomanage a large collection of fixed ordistributed assets, to improve levels ofservice,reduce environmental impactsand to comply with complex regulations.

These obligations conflict with thechallenge to sustain existing budgetsand avoid significant rate increases.Thevolume of information related to theassets, customers and operations isimmense.The relationships betweenthe information collected by a utilityand its decision-making processes arecomplex.Therefore, efficient use of anorganisation’s explicit knowledgepresents one of the more promisingopportunities to meeting challengesrelated to efficiency and cost control.

Although measuring return oninvestment for most initiatives isdifficult, it is generally agreed thatsome of the major benefits related toknowledge management are due tocultural shifts and improved communications.This requires thatboth the human relationships andtechnological components of knowledge cycles be recognised by the organisation.

The costs related to fostering aneffective environment for the humaninteraction may not be large or readilymeasured,but these requirements arenot trivial.Creating an effective‘learning organisation’ requires a clearcommitment from leadership, trustthroughout the organisation, support,and opportunity.These opportunitiesneed to engage the organisation’s‘knowledge workers’ and to occur withsufficient frequency or structure to

Technologyframework forknowledge management

Uses for information technology• collect and communicate knowledge from and to a broad number of users• provide access to information across departmental boundaries• enforce compliance with business processes• connect disparate data to performance reporting and decision-making processes• support data mining• capitalise on the relationships between data throughout an organisation

transfer the large volume of tacitknowledge they possess.

Technological requirements relatedto managing explicit knowledge aregenerally easier to account for in termsof both scope and costs.When both thehuman and technological componentsare addressed,organisations benefitthrough the free flow of knowledgebetween individuals and across departmental boundaries.

The following examples describe the general benefits of knowledgemanagement initiatives, the explicitand tacit knowledge they may address,and the components of a utility organisation that benefit.

Geographic information systems canbe used to capture large volumes ofexplicit data (location, size, age,configuration and so on) on thedistributed assets (pipes, pumps,valvesetcetera) managed by an organisation.This data is frequently assembled froma systematic process utilising recorddrawings and/or field surveys.

However, a GIS can also be used as arepository for tacit knowledge held bylong-time office and field staff.Thesestaff frequently have knowledge of theactual state, condition,or history of theassets that is not documented or readily

accessed in any other manner.Anyknowledge used to improve theaccuracy of the data contained withinthe GIS may be used for the benefit offuture planning, engineering,operations or maintenance activities.

Mobile computing solutions canprovide field staff with access toelectronic forms,maps and infrastructure data typically availableonly to office staff.Use of electronicforms in lieu of paper-based recordstypically improves the quality ofinformation exchanged, reducestransaction costs and provides betterrecords related to reporting and performance metrics.Well-designedsystems support specific operations and maintenance-related businessobjectives and provide an opportunityto collect tacit knowledge from thefield staff for the benefit of futureplanning, engineering,operations ormaintenance activities.

Information portals and digitaldashboards can be used to collect,organise and communicate a broadvariety of information.Depending onthe audience they may focus oncommunicating items of generalinterest, or they may be tightly alignedwith the primary mission and metricsof the organisation.Portals are frequently used as a gateway to librariesof explicit information,data,or documents that exist throughout anorganisation.Portals can also bedesigned to support the communicationof tacit knowledge – through the use ofthreaded discussions.Depending on theaudience and design objectives –portals provide a mechanism formanaging knowledge throughout anorganisation,or a specific function.

Knowledge management is not something that can be bought and installed within an organisation… When implemented

in an effective manner, knowledge management becomes a component of

an organisation’s culture.

Performance Metrics, Best Practices

Value

Threshold

Network

Documents, Reports, MapsCharts, Graphs

Knowledge

Information

Data

Tacit & Explicit

Knowledge

Store

OrganizeCollect

Share Analyze

IT Infrastructure

Knowledge management life cycle


MANAGEMENT

About the authors:Peter von Zweck is senior project manager with CH2M HILL, Boston, Massachusetts, USA([email protected]). Elisa Speranza is global service team leader, CH2M HILL,New Orleans, Louisiana, USA ([email protected]).

Best practices for water and wastewater utilitiesBest practices for implementing moreformal knowledge managementpractices within a water or wastewaterutility can be organised according to athree step process:• align initiatives to the organisation’s

overall mission and goals• identify the ‘real’ knowledge needed

to support the success of the organisation.

• set up the people,processes and tools needed to collect, store,organise,analyse, and share the knowledge.

Alignment of knowledge managementinitiatives to an organisation’s goalshelps demonstrate its benefit within theorganisation.This is especially true when initiatives are prioritisedaccording to return on investment.Most utilities identify goals related tosafety, service, regulatory requirements,environmental issues, and finances.Whenever feasible it is recommendedthat metrics be established to track and report on progress related to anorganisation’s overall performance.

Similarly, the relationship betweenroutine activities (completed workorders, volumes of water pumped, leaksrepaired) should be aligned to theorganisation’s overall goals.The alignment of routine activities to the organisation’s overall mission isimportant in demonstrating the valueof individual contributions.Trackingthe performance of routine activities isa critical step toward demonstratingimprovements.

Knowledge management initiativesfrequently provide a mechanism foraligning both the daily activities and the organisation’s goals withperformance metrics.Knowledgemanagement initiatives also foster thecommunications needed to sustain orimprove performance.

Not all knowledge is worth the timeor expense that may be required tomanage it. Identifying the knowledgemost critical to an organisation and itsobjectives can be challenging. Initialefforts frequently focus on documentsand management systems related tofinance,operations, legal issues andhuman resources.Other needs todocument or communicate knowledgeare constrained by time.These time-dependent opportunities typicallyrelate to retirement-age workers.

Lastly, some needs for information or data involve sources outside theorganisation (weather,paving schedules

and so on).Regardless of the source ofthe knowledge, its form,or origin, it isimportant to evaluate its value andavailability toward meeting the organisation’s goals.

The third strategic componentconnected to implementing moreformal knowledge managementsystems relates to the people,processesand tools needed to collect, store,organise, analyse and share knowledge.As noted below, the approach tomanaging tacit and explicit knowledgecan be very different.But the need toincorporate knowledge managementactivities within existing businessprocesses as opposed to creating newand the culture of the organisation are universal.

Targets for efforts related to tacit knowledge generally includeretirement age and ‘knowledge workers’.These staff generally possess alevel of understanding and experiencethat are unique within an organisation.Methodologies for capturing andcommunicating this knowledge address human and social issues.Theyinclude mentoring, job shadowing,succession plans, joint problem solving and interviews.

Explicit knowledge is more readilymanaged though electronic informa-tion management systems.As mentioned in the introduction,withinthe utility industry these typicallyinclude customer information systems(CIS), computerised maintenancemanagement systems (CMMS),geographic information systems (GIS),laboratory information systems (LIS),and supervisory control and dataacquisition (SCADA).These systemsprovide a structure for collecting,organising and communicating large volumes of a utility’s explicitknowledge.

ConclusionsWater and wastewater utilities are faced with two considerable challengesthat can be addressed through theimplementation of formal systems formanaging intellectual assets.The first iscapturing and communicating thelarge volume of historical knowledgeand understandings developed byretirement-age workers.The second isrelated to growing pressures to improveservice while maintaining currentbudgets and rates – doing more with less.

Development of a knowledgemanagement culture and addressing thehuman or social aspects related to the

communication of knowledge,concepts, and ideas is an importantcomponent in an effective and sustainable solution.Use ofinformation technology can also play asignificant role in managing the largevolume of documents, data, lists,inventories, photographs and videoused in the management of a utility.Implementation of systems that alignwith the organisations goals andprovide access to information acrossnormal departmental boundaries iscritical to demonstrating the value ofinitiatives related to knowledge management.●

ReferencesAchtererg MA.Knowledge management defined.Verity Management Solutions,LLC.Green Bay,Wisconsin,US. www.verityms.com

Argyris C and Schon D (1978).Organizational learning: a theory of actionperspective.Addison-Wesley,Reading,MA,US.

Drucker P (1966).The effective executive.Harper and Row,New York City,New York,US.

Freundt R and Mainhard C (2004).Managing as if tomorrow mattered: building anorganization around learning, talent, andknowledge (an abstract of a forthcoming book).The Organizational Effectiveness Group,LLC.

Harris K and Berg T (2003).One moretime:what is knowledge management? Gartner –strategic analysis report.

Levinson M (2005).CIO Insight ResearchCenter:The ABCs of knowledge management.www.cio.com/research/knowledge/edit/kmabcs.html (accessed 30 January 2006)

Pietersen HJ (2001).The IC/KM movementand human system well-being. Journal ofKnowledge Management Practice,February2001.

SAS Institute (1999).SAS joins theInstitute for Knowledge Management.Pressrelease archive.

Score high on business scorecards.Monitorwhat matters (2005).Keynote service leveldirectory White paper.Keynote Systems.

Rosen JS,Miller DB,Stevens KB,Ergul Aand Sobrinho JAH (2003).Subect area: efficientand customer responsive organisation: applicationof knowledge management to utilities.AwwaResearch Foundation,Denver,Colorado,US.

The problem ofpaperwork


TRAINING

The Ecole PolytechniqueFédérale de Lausanne in

Switzerland is developing a uniquenew Master’s degree in urbanutilities management,with its firstedition beginning in January 2008.

Professor Matthias Finger,who isalso Dean of Continuing Education atthis university,will head the course asits executive director.He explains:‘Thereason for the Master’s is that all urbanutilities face now three major challenges.Liberalisation – privatisa-tion and private sector participation –which require new forms of manage-ment and new strategies. Secondly,urban utilities increasingly extend intolarger agglomerations, thus facing issuesof urban planning, environmentalprotection, as well as social and politicalproblems.Finally, technologies havesignificantly evolved in all sectors,witha particularly pervasive role played bythe information and communicationtechnologies.’

‘It is a niche – so far,no-one else isreally offering this,’Professor Fingernotes.The course is targeted at managers of urban utilities of largeagglomerations, specifically two typesof people – those that were in urbanutilities when they were ‘quiet, sleepy’public entities and need to be broughtup to date, and those moving in fromthe outside with MBAs but not yetmuch understanding of the specificitiesof utility management,he explains,such as for example the complicatedpolitical environment within whichurban utilities operate.

‘Both types of people have trainingneeds but they are very different.Thechallenge is to bring them together.These two groups can learn from each other.’

In terms of topics, the course coversthree areas, the first being technology,looking across the range of utilitiesfrom electricity distribution,water

distribution,waste management,transport and so on, and how these are evolving.

Another area is urban planning – thevast gamut of social and populationissues, and the third major area ismanagement,not so much as in anMBA,but from a strategy point ofview.‘The course will focus on strategies:how to develop them,howto expand them,how to strategise vis a vis regulators and in the publiccontext,’Professor Finger explains.

A lot of different actors will beinvolved – highly-renowned partnersand institutes around the world. It’s aglobetrotting Master’s, starting out inLausanne and moving to three differentlocations – South Africa,Mexico andprobably South Korea,providing anAsian perspective, an African perspective and a Latin/CentralAmerican perspective.‘When thestudents go, it is not just theoreticalwork they do.Half the training isacademic and the other half is fieldvisits, experience from practice, frommanagers who come to talk,’ProfessorFinger says.

Both the students and the teacherswill come from across the world in thismajor exercise in linking theory topractice, and management and societyto technology.‘Most business schoolsdon’t emphasise the technological caseenough,’Professor Finger notes.‘This isin the broad range of technologymanagement.’Technology is increasingly relevant,he says,particularly as information and communications technologies continue to develop their roles in othertechnological sectors.‘Computers are

used to better manage other infrastructure, for instance, in publictransport planning.They are pervasiveacross the whole area.’

The course consists of 11 contactweeks across the course of the year, sothe students are able to continue withtheir work while they study.The weekscome in blocks: first, three weeks inSwitzerland, then two in South Africa, afurther two in Mexico and probablySouth Korea, followed by a final twoweeks in Lausanne.

‘They continue to do their jobs, inparallel they write their Master’s thesisand an innovation project.They aretutored by email to do their work.’Theuniversity has other programmes thatwork in this way,Professor Fingerexplains, so we understand how thissort of training works.

The big challenge for the students isfinancial, because although the tuitionis affordable there are all the costs of

travelling to the various destinations totake into account.But Professor Fingeris convinced that seeing how the sameproblems across the world are faced willbe of definite value.‘They will see bestpractices and that there are things to be learned from developing andindustrialised countries.Generallythese people are specialists, and wewant to show how utilities can be more integrated – that there is abusiness model for integrating utilities and services.’

The outcome will be better ideas,future strategies for expansion andfulfilling market potential, he says.‘Theidea is to prosper and grow and bemore efficient. It is an original concept– there are bits and pieces out there butnothing comprehensive, so far.’

The university is currently develop-ing the curriculum with its partners isreceiving expressions of interest fromstudents in the 468 cities across theworld that contain more than a millioninhabitants – the course has targetedthe utilities in the cities rather thanindividuals.‘There is a market, and it isunder-developed in terms of training,’Professor Finger concludes. ●

Mastering utility management

Utility managers need to be able to respond to challenges such as liberalisation, urban expansion anddevelopments in technology. A new Master’s-level coursefrom the Ecole Polytechnique Fédérale de Lausanne inSwitzerland aims to equip managers to deal with suchchallenges. LIS STEDMAN reports.

‘There is a market, and it is under-developed in terms of training.’

‘Generally these people are specialists, and we want to show how utilities can be

more integrated – that there is a business model for integrating utilities and services.’

Financial sustainability as a foundation for infrastructure development and management: best practices


FINANCE

Across the globe, the projectedneed for additional capital

investment in water and wastewater systems is staggering.In developing countries, capitalexpenditure levels needed to meet the UN’s MillenniumDevelopment Goals for expandingaccess to safe drinking water andbasic sanitation may require morethan doubling the roughly $80billion a year currently spent onnew system construction, over the next 20 to 25 years (Winpenny, 2003).

In 2002, the US EnvironmentalProtection Agency estimated neededincreases in annual expenditures (forcombined capital and operations) of$14 billion (above then current levelsof $29.7 billion) for wastewater utilities, and from $38.4 billion to$51.4 billion for water utilities(Scharfenaker,2002).

The need to strengthen financialplanning and management as one ofthe strategies for addressing thesechallenges was highlighted recently atthe 2006 World Water Forum inMexico City.There, Jesus Campos,the chief official in charge of urbaninfrastructure for the MexicanNational Water Commission,noted:‘The population will have to pay thecost of what it takes to put water intheir house,’ pointing to Mexico City’shistorical practice of not providingadequate funding for its water infrastructure (Malkin,2006).

But raising tariffs is only part of thesolution.As customer expectations willalso increase as they are asked to paymore, so utilities will need to becomemore efficient and continue to exploreways to leverage local resources in

order to increase service levels forexisting customers,while also expanding service to new customers.

Sustainable financial managementAcross all stages of national develop-ment, effective financial management iscritical for sustainable infrastructuredevelopment and management.Avariety of considerations will typicallygovern the development of a financialmanagement programme, and thespecific activities and approachesincluded.

These considerations may relate tothe availability and quality of data, theconduct of fundamental businessprocesses and the institutional andregulatory framework within whichtariffs are considered and enforced.Fordeveloping nations, a key institutionalconsideration is the prospective andever-evolving nature of national andinternational support for sector development and reform.

Among developed nations,keyconsiderations are increasingly orientedtoward ensuring effective asset management and environmentalstewardship.While these considerationsmay vary dramatically between countries, particularly developed anddeveloping countries, there are anumber of fundamental financialplanning,management and tariffsetting practices that are profoundlydurable and important for achievingfinancial sustainability irrespective ofinstitutional context.

Figure 1 illustrates key financialmanagement activities that may beemployed to sustain and enhance utility operations.Alone, each of theseactivities may prove useful for strengthening a utility’s financialposition; together, they offer an integrated approach to financialmanagement designed to maximisefinancial and system performance.

At the core is development of the

financial plan.Developing a financialplan involves determining the mostappropriate balance of projected cashflows – forecast system expenses andrevenues – to meet utility objectivesand comply with established financialpolicies or targeted metrics.This mayinvolve planning a series of system-wide tariff increases to enhancerevenue generation,or improvingrevenue collection efficiencies.

Similarly, adjustments (either positive or negative) to projectedoperation and maintenance expensesmay be called for to ensure revenuesufficiency, and capital project investments may be accelerated,deferred or cancelled altogetherdepending on the availability of fundsto finance capital improvements.Alternative tariff structures may bedeveloped to support strategic utilityobjectives and ensure affordability ofutility services for basic human healthand sanitary needs. Irrespective of theeconomic maturation of the commu-nities served, it is essential for waterand wastewater utilities to develop acomprehensive financial programme to ensure financial sustainability.

Financial plan developmentThe typical and most intuitiveapproach for development of a financial plan is through the projectionof annual cash flows over a multi-yearforecast period, typically five to 10years.Over the forecast period,revenues from all sources includingtariffs, fees assessed to new connections, and other ancillarycharges are added to establish totalsources of funds for each year.Operation and maintenance expensesare then deducted from availablesources of funds to determine the levelof funds available for capital spending.

In the event that operating expensesexceed projected revenues, the difference between these projectedamounts represents the deficit to beaccrued in delivering utility servicesbefore consideration of capital financing requirements. If projectedrevenues,net of operating expenses,yield funds available for capital financing, the cash flow analysis may effectively articulate a capital-financing plan.

Whether operating in a developed or developing country context, well-run utilities are founded on being financially sustainable. ERIC ROTHSTEIN

and DEBORAH GALARDI set out some of the key principles representing bestpractices in this area, and provide examples drawn from the US, Egypt,eastern Europe and Asia.

This article was presented at the IWA WorldWater Congress, Beijing, China, September2006, at a special session organised by theWater Environment Federation.


FINANCE

Cost and revenue forecastingRevenues from all sources includingservice revenues, fees assessed to newconnections and other ancillarycharges are added to establish totalsources of funds for each year of theforecast period.Revenue projectionsmay be developed through a variety of techniques ranging from extrapolations of historical collectionsto analyses of customer account andusage data by customer class. (Moresophisticated techniques for revenueforecasting may also account forweather-induced variations,priceelasticity of demand, and a variety ofother factors.)

Expense projections will reflectanticipated operational requirements,and include adjustments for generalprice inflation.For many financialplans, these expenses are simplyforecast by application of a generalescalation rate to historical budgetedor actual expenditures.

In certain circumstances, generalprojections of operation and maintenance expenses will be appended with projections of anticipated extraordinary expenses.These may be one-time costs or reflectincreases in general operationalrequirements from, for example, thecommissioning of new facilities.

In developing projections of annualoperations and maintenance expenses,it may be useful to assess expenses thatvary with the number of connectionsserved, and those that vary with thevolume of water delivered or wastewater managed.To the extent thatthe number of customers (by class) isprojected to change at rates that differfrom assumed general escalation ratesfor operation and maintenance,projections of customer service relatedcosts may need to be adjusted.

Similarly, forecast volumes may elicitadjustments to projections of, forexample, electricity and chemical costs.These cost items in particular typicallyalso warrant special review insofar asthey represent a substantial share ofnon-personnel operating costs andthey are based on rates that oftenchange in ways that diverge from otheroperating expenses.

Capital planning and financingThe capital-intensive nature of waterand wastewater utilities places capitalfinancing at the heart of the development of sustainable utilityfinancial plans.A number of instruments are available to financeneeded capital improvements, rangingfrom use of current year revenues tovarious forms of long-term debt toexternal grants.Use of current yearrevenues is most appropriate for annualor regularly recurring, and relatively

small, capital expenses.For major system improvements, the

relative magnitude and long useful livesof these investments makes appropriatethe use of long-term debt financingsuch as revenue bonds and loans fromgovernmental agencies.Additionally,many utilities in the US requiredevelopers to make capital contributions of assets required toextend services to their properties.

Finally,many utilities have benefitedfrom governmental and InternationalFunding Institution (IFI) grant programmes,which have enableddelivery of major capital projectswithout requiring tariff revenuesupport for repayment of investments.Self-sufficient water and wastewaterutilities recover adequate revenues tosupport operations, finance all capitalinvestment needs, and provide foradequate renewal and replacement of system assets.

Financial policies and proceduresFinancial policy development is a keyaspect of effective utility financialmanagement, establishing parametersfor financial plan development andtariff design.Financial policies maydefine the extent that the utility willrely on various revenue sources (tariffs,connection fees, debt, and so on) tomeet system expenses,how long-termdebt will be structured and repaid, andthe extent that cash reserves will beplanned and maintained among other things.

The achievement of financialpolicies may be supported by thedevelopment of financial proceduresthat prescribe how certain financialactivities will be performed (Kavanagh,2004).Effective procedures related tobilling and collection practices areparticularly important in the context ofsustainable financial planning, as thesepractices must be culturally sensitive,

yet ensure needed revenue collections.Development of financial policies

and procedures can benefit a utility in anumber of ways, for instance byproviding a means to benchmarkperformance and promoting account-ability throughout the organisation,including elected officials.Adoption of effective financial policies andprocedures can also enhance access tofinancial markets or lending agencies,demonstrating that the utility is committed to continued viable opera-tion and maintenance of the system.

Tariff design and affordabilityTariff design considerations affordsector utilities and regulators opportunities to advance utilitystrategic objectives, ranging fromensuring the affordability of servicesfor basic human health and sanitaryneeds to the promotion of waterconservation.Tariff structures mayrange from system-wide application ofcharges to customers on the basis ofwater usage,meter size,or some other measure.

More complex tariff forms may bedeveloped to achieve greater equity, asin the case of cost-of-service structuresthat enable development of charges bycustomer class, reflecting the water orwastewater characteristics of each class.

A growing area of practice in theUS,particularly portions of the aridsouth and west, are tariff structures thatencourage efficient use of resources.Tosome extent,merely pricing utilityservices at their true cost and thenassessing charges based on actual usewill elicit some conservation response.However,more complex rate forms arealso used by many utilities to targetspecific use levels or seasons (forexample,outdoor irrigation use).Inclining block rates and seasonalperiod rates are examples of these tariff forms.

As utility rates increase, concernsabout the affordability of service, inparticular for low-income and otherpotentially vulnerable populations(senior citizens and the disabled), areprevalent.However, the question ofaffordability is particularly difficult toaddress in the context of establishingsystem-wide or customer class rates.Low-income customers are generallynot readily identifiable from customerbilling records and therefore aregenerally not segregated into separatecustomer classes. In some utilities, the

Figure 1 Financial managementactivities

Financial Policies and Procedures Financial Plan Development Tariff Design and Affordability

*Cost and Revenue Forecasting

*Capital Planning and Financing

Across all stages of national development, effective financial management

is critical for sustainable infrastructuredevelopment and management. A variety of

considerations will typically govern thedevelopment of a financial management

programme, and the specific activities andapproaches included.


FINANCE

provision of affordable service has beenattempted through under-pricing oflow-volume use.While this may helpensure the affordability of minimumusage, it may run counter to other goalsrelated to conservation and equity.Prior to developing any rate form it isnecessary to consider all of the utility’spolicies and objectives, as well as dataavailability and billing capabilities.

Case studiesThe fundamental importance ofeffective financial planning and tariffsetting that balances affordabilityconsiderations with requirements forfinancially-sustainable operations andinvestment practices is demonstrated bytwo recent successes in countries withvastly different institutional settings.

Department of WatershedManagement, City of Atlanta,Georgia, USIn 2001, the City of Atlanta’s newlyelected mayor sought to address a broadspectrum of challenges related to waterutility service delivery and waterresource management.Seeking topromote a holistic approach, theDepartment of WatershedManagement was created in October2002 to treat ‘all things water’ through asingle overarching entity rather than asseparate municipal departmentsgoverning stormwater,drinking waterand wastewater.

Atlanta’s Department of WatershedManagement is one of the first municipal utilities in the US to establish a governance structure,consistent with recent US EPA regulatory trends, that recognises theinterconnectivity an area’s waterresources – from green space to impervious surfaces, from rainwater to sewage.

Atlanta’s embracing of an integratedutility governance model was, in part, aresponse to an acute set of challengesincluding the need to fund expenditures in excess of $3.9 billion.The city is also recovering from aplagued contract for private operationof its water system that was dissolved in2001, and is reinitiating efforts toestablish a stormwater utility after anearlier fee assessment was successfully challenged.

Clean Water Atlanta is the mayor’scomprehensive,multi-programmeinitiative to improve water quality inAtlanta through capital constructionand enhanced operation of the city’sdrinking and wastewater systems. InJanuary 2004, the city adopted a five-year 189% system-wide water andwastewater rate increase.

However, through subsequentpassage of a 1% municipal option salestax (MOST),with projected revenues

in excess of $80 million, the scheduled45% rate increase was reduced to 1% in2005.However, significant rate increases in the range of 10 to 15% perannum are contemplated in the city’sfinancial plan to 2010 despite theavailability of MOST revenues.

Recognising the potential impacts of these rate increases, programmeschedule relief on the basis of affordability considerations has beenrequested of the US EPA and,perhapsmore importantly, the city has established low-income bill assistance programmes.

Following traditional revenue bondissues of over $600 million in 2001 andnearly $800 million in 2004, capitalproject implementation has beensupported by the implementation of aTax-Exempt Commercial Paper(TECP) programme that provides theDepartment with a $1.2 billion line of credit.While this programmeeffectively enables cash flow projectfinancing, it involves considerably moreactive debt management than with thepreviously employed traditionalrevenue bonds.

Though mandated projects haveimposed a major financial and managerial challenge for the department, it is recognised that theseregulatory requirements must beaddressed in the context of enhance-ments to utility business systems andneeded renewal and rehabilitation ofsystem facilities.

Accordingly, the Department hasimplemented a strategic planningprocess and restructured its capitalimprovement planning and prioritisa-tion processes.Resumption of a publicwater service has been highlighted byfundamental enhancements to revenuebilling and collection practices andcustomer service functions.

Ministry of Housing, Utilities andUrban Development, Government ofEgyptThrough the Ministry of Housing,Utilities and Urban Development(MHUUD), the Government of Egypthas established a new governancestructure to facilitate the reform anddevelopment of the country’s waterand wastewater sector.The MHUUDdrafted decrees, promulgated by thepresident of the republic in April 2004,which established the Egyptian WaterRegulatory Agency (EWRA) as well as a national water sector holdingcompany, and transformed the 14largest utilities in the country intosubsidiaries of that holding company.

EWRA has responsibility for establishing and enforcing the nation’sregulatory structure, including reviewing utility financial performanceand tariff approval.The Holding

Company for Water and Wastewaterhas responsibility for development andimplementation of best managementpractices by the subsidiary utilities.

Critical levels of accumulated waterutility debt and operating deficit ledgovernment to initiate this reform. It isexpected that steps taken will reducereliance on IFI support, result in morerational utility tariff structures and thusenable financial sustainability of thecountry’s water and wastewater utilities.

Historically, these organisations have been characterised by poormanagement,overstaffing, inconsistentrevenue billing and collection practices, limited financial monitoringand planning, and deficit spending.Revenue collections have been insufficient to fully fund water andwastewater operations, requiringgovernment subsidy.Water and wastewater infrastructure investmentshave traditionally been handled by aseparate government agency andplanning and coordination withutilities has been sub-optimal.

The recent governance structurechanges have been implemented in thecontext of benchmark tariff increasesthat have signalled a commitment tothe sector’s financial sustainability.Tariff increases were implemented inAlexandria in January 2003 and Cairoin September 2004.

In addition,with USAID support,financial planning tools have beendeveloped and employed by all subsidiary utilities.These financialplanning tools are structured tofacilitate accurate revenue forecastingand demonstrate implications ofimproved revenue recovery; theyfacilitate the development of multi-year cash flow analyses and supportdevelopment of alternative tariffdesigns.

In addition, the holding companyhas developed a utility performancemonitoring system that requiresquarterly reports on management,technical and financial indicators.

Additional examples from literature

Financial planning: Eastern Europe,Caucasus and Central Asia (EECCA)In the policy brief,‘Feasible financing strategies for environmentallyrelated infrastructure’ (2003), the acutefinancial challenges of EECCA1

countries are discussed along withfinancing strategies.The countriesexamined face the pressing need tostrengthen financial support of existingsystem facilities,where deterioratinglevels of service drive increases inoperation and maintenance costs andthreaten customers’willingness to pay,and to address longer-term systemexpansion needs.

FINANCE

Solutions are being developedthrough application of a computerisedfinancial planning and decision toolcalled FEASIBLE (Financing forEnvironmental,Affordable andStrategic Investments that Bring onLarge-scale Expenditure).

Application of this planning tool inEECCA countries has highlighted anumber of areas where the previously-outlined financial programme activitiescan be used to help organisations meetinfrastructure maintenance anddevelopment goals.

Possibilities for revenue enhance-ment exist through strengthening tariffbilling and collection procedures,addressing service deficiencies andinefficiencies to improve customersatisfaction, and benchmarking tariffswith international guidelines onaffordability (generally 3 to 5%) ofhousehold income) to ensure thatcustomers are contributing at anoptimal level.The use of targetedassistance programmes is also advocat-ed as a way of minimising the subsidiesneeded. In addition, adoption of tariffstructures based on actual water use isencouraged as a means to both reduceoperating costs (such as power costsand chemicals), and provide customerswith greater control over their bills.

Tariff design and affordability: Thailandand Southeast AsiaIn the paper ‘Environmental financingstrategies:user charges in the wastewater sector in Thailand’(Simachaya 2003), the country’s recentintroduction of wastewater tariffs at alimited number of utilities followingthe ‘polluter pays’ principle is discussed.Under this approach,usersare charged rates based on the volumeused, as well as wastewater strength.

Customers are grouped into different classes with similar usecharacteristics (for instance residential,business, government, industry) andcosts allocated and tariffs designedaccordingly.This approach – which isused widely in the US for equityreasons – is also gaining favour in othercountries, particularly as a means ofaddressing affordability concerns forlower impact on residential customers.

The use of tariff design as a means ofaddressing affordability is also high-lighted in the report ‘Regional assess-ment survey and workshop on full costrecovery for water utilities in SoutheastAsia’ (2005). In this case, increasingblock water tariff design is suggested asa means of shifting greater cost recovery to larger system users, andtargeting assistance for smaller users.

ConclusionsAs demonstrated by the case studiesand literature review,while

institutional structures and relativefinancial capacities of communitiesserved may vary dramatically, effectivefinancial planning,management andtariff setting practices are fundamentalfor financial sustainability of utility services.

Financial planning provides a basisfor partnering with IFI’s for long-termcapital development or for leveragingfinancial resources through greateraccess to domestic financial markets,and provides a framework for prioritisation of capital improvementsto appropriately balance investment inexisting assets and system expansion.

Effective financial planning willdemonstrate the extent to which utilitytariffs and collection thereof areadequate to sustain water and waste-water operations and enable adequatecapital investment. In general, potablewater tariff structures based on actualconsumption (applied uniformly or asincreasing blocks) may both ensure theaffordability of service for basic healthand sanitary needs and encourage moreefficient use of water. Similarly,waste-water rates that enforce a ‘polluter pays’principle may shift costs to high impactusers and thereby increase the capacityof utilities to expand service at anaffordable tariff to lower impact users.In any event, irrespective of the economic capacity of the sector served,transition to water and wastewatertariffs that more accurately reflect thevalue of service provided is essential forlong-term financial sustainability.

This pending movement to full costpricing of water and wastewaterservices imposes a companion requirement on sector utilities anddecision-makers to address the potential impacts on affordability andaccess to service.There are manyoptions available.Those employed mustbe culturally sensitive, administrativelypractical and implemented with clearunderstanding of prospective impactson revenue collections as well astargeted populations.

Alternative tariff structures generallyare broad-brush in their impacts,withlimited ability to target specific populations. In contrast, focusedprogrammes targeting specific at-riskpopulations (such as fixed income ordisabled customers) typically imposesignificant administrative requirements.Perhaps the most promising trend

internationally with respect to waterand wastewater sector finance is theincreasing recognition of the need toset tariffs to adequately cover sectorcosts and to ensure adequate collectionof utility revenues. In some institutionalsettings, this may require policy enactment at central or regionalgovernment levels to empower localgovernments and utilities to developand collect tariffs. In other cases, it maysimply involve movement toward best management practices. ●

ReferencesEngineers feasibility report tax exempt commer-cial paper program (2005).Prepared by CH2MHILL for City of Atlanta,Georgia,US.

Financing and charges of wastewater systems(2005),Manual of Practice No 27.WaterEnvironment Federation,Alexandria,Virginia,US.

Feasible financing strategies for environmental-ly related infrastructure (2003).Organisation forEconomic Co-operation and Development,http://www.oecd.org/dataoecd/27/42/2955715.pdf (accessed 12 April 2006).

Kavanagh S,April 2004.Developingfinancial policies that work.Government FinanceReview,Volume 20 No 2.Chicago, Illinois,US.

Malkin E (2006).Once a vision of water,Mexico’s capital now thirsts for it, 16 Marchedition,2006.New York Times,New York,NewYork,US.

Rate development guidelines and tariff modelinstructions,water and wastewater sector policyreform project.Egypt Utility Management,USAID Task Order No 263-M-00-03-00031-00.

Regional assessment survey and workshop onfull cost recovery for water utilities in SoutheastAsia: sharing international experience and bestpractices (2005).USAID/Organisation forEconomic Co-operation and Development(OECD).

Scharfenaker M (2002).USEPA:3%solution can close infrastructure gap.RegulatoryWatch,American Water Works AssociationJournal,November 2002,Denver,Colorado,US.

Simachaya W,PhD (2003).Environmentalfinancing strategies: user charges in the wastewatersector in Thailand.Presented at the Financingurban water supply and sanitation in Asia,OEDC Emerging Asian Economies programme,Centre for Co-operation with Non-Members,Port Dickison,Malaysia,17-12 September,2003.

Winpenny, J (2003).Financing water for all.Report of the World Panel on Financing WaterInfrastructure,World Water Council/3rd WorldWater Forum/Global Water Partnership,March,2003.


About the authors:Eric Rothstein is Vice President – Utility Management Solutions, CH2M Hill, Chicago,Illinois, USA ([email protected]). Deborah Galardi is with Galardi Consulting, LLC,Portland, Oregon, USA ([email protected]).

1 EECCA countries include Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, KyrgyzRepublic, Moldova, Russian Federation, Ukraine, Turkmenistan, Taijikistan, Uzbekistan.


COMMUNICATIONS

‘When the well’s dry, we know the worth of water.’ Benjamin Franklin

Communications as a cornerstone of water utility leadership

In most developed countries, safewater is delivered clear and good

tasting for a relatively smallamount of money in comparisonto other essential resources such as food, fuel and housing. In fact,the ease with which people –particularly those in the US –receive and use water has createdsomething of a spirit of entitle-ment among many consumers.Citizens believe they have a rightto water – and not just water, butwater that is clean and cheap –whenever they turn on the tap.

The drinking water industry knowsthat the processes and systems requiredto finish raw water for public consumption are neither magical,accidental nor free of daily challenges.But, to the public, the challenges andsuccesses encountered by water utilitiesremain nearly invisible.Most waterutilities encourage that perception byproviding steady levels of service andshying away from direct communicationthat would change the public’s mind.

When a serious challenge comesalong such as a water main break, aperiod of drought, contamination orthe need to replace ageing infrastructure,the public can then be unforgiving andunsupportive.Water utilities havedownplayed their successes in providingsafe, affordable water, allowing a toughjob to seem simple, and now mostcustomers have settled into a complacentsatisfaction that will be hard to change.Utilities have a difficult task ahead:providing clear, palatable messages tothe public about the real costs of waterand doing it within a budget thatdoesn’t add measurably to the cost ofproviding water itself.

The real commitment the industrywill have to make is not toward amega-million dollar public perceptioncampaign.What’s most needed is acombination of hands-on leadershipfrom water utility managers in everycommunity and a communications

strategy to match.Just as the water production process

is invisible to most citizens, so are waterutility leaders in most communities.Water executives aren’t taking leadership roles in community participation regarding challenges that

could compromise public health andwelfare.Water is the only resource acommunity absolutely must have tosurvive from one day to the next, yetwater and the professionals that provideand manage it are not at the top ofpublic health officials’minds whentracking down the beginnings of adisease outbreak,nor for emergencypreparedness managers assembling atabletop exercise to prepare for adisaster.Because most communitiesdon’t expect water utilities to be at thecivic policy/management table,waterindustry leaders can’t wait to be invited– they will have to step up and activelyseek community leadership roles.

This leadership lag in the communitiesthey occupy is the external leadershipissue facing drinking water utilities.But water utilities are on the brink ofsuffering their own leadership crisisinternally as well, particularly in theUS,with the impending retirement ofmany in senior management whoseinstitutional knowledge and relationshipsacquired over decades of service havenot been documented to be passedalong. In too many water organisations,younger staff members have notalready been groomed to step intoleadership roles within the utility orwith the press, political stakeholders orthe community at large.

The need for out-front communityleadership now and in the future is

only part of the crisis toward whichwater utilities are moving. Increasingly,the ability of water utility executives todeliver water at a reasonable price isbecoming an increasing issue in theface of ageing lines and treatmentplants,global warming,weather-relateddisasters, increasing industrialisationand pollution, ineffective land usemanagement, security and the possibility of intentional contamina-tion by terrorists.Old approaches tocommunicating with customers,government officials and the generalpublic won’t work any longer.Waterutilities can no longer remain the ‘quietindustry’ that does its job outside thepublic spotlight.

The communications deficitWater utility executives in NorthAmerica have begun to recognise theneed for them to communicate theimportance of water – its safety,qualityand availability – to their stakeholders.Yet recent research on behalf of theAmerican Water Works AssociationResearch Foundation (AwwaRF)

showed that half of water utilities hadno communication plans or staffdedicated to communication work,and only 14% of water utilities had aformal strategic communication planintegrated into their organisation’soverall operational or business plans.These findings have an added impactwhen lined up with earlier AwwaRFresearch studies that connected better-informed customers with moresatisfied customers, even when theyhad experienced problems with theirwater utility.

Clearly, communication with today’scustomers has to be more than regularcustomer confidence reports and theoccasional ‘boil water’order communi-

The challenges water utilities face on issues such as resources and theneed to secure investment demand a greater level of leadership by utilityexecutives and managers when interacting with all stakeholders,including the communities they serve. JANE MOBLEY explains why acoherent approach to communications is needed to support thisinteraction.

‘Water utilities are on the brink of suffering their own leadership crisis internally.’

‘What’s most needed is a combination of hands-on leadership from water utility

managers in every community and acommunications strategy to match.’

About theauthor:Jane Mobley PhDheads JaneMobleyAssociates,Kansas City,Missouri, USA(www.janemobley.com).


UTILITY REFORMCOMMUNICATIONS

Successful public utilities are stillthe exception,’ notes a recent

report from the World Bank.‘Since most people in developingcountries are under the jurisdictionof public utilities,much of theworld’s population is still notadequately served,’ it continues.

It is this point, combined with thelimited extent to which the privatesector has moved to fill the globaldeficit in water services provision, thatprompted an evaluation by the bank ofthe characteristics of those public waterutilities that have been successful.

The challenge of turning aroundpublic utilities is daunting.The reportnotes that many utilities are ‘locked in avicious cycle’.‘This spiral combinesweak performance incentives, lowwillingness of customers to pay costrecovery tariffs, and insufficient funding for maintenance,ultimatelyleading to a deterioration of assets anda squandering of financial resources,’it states.

In order to identify a way of breaking this vicious cycle, the report’s authors evaluated ten utilitiesaround the world selected to give arepresentative sample of the conditionsand approaches that exist.The analytical framework used was basedon the concepts of ‘New PublicManagement’,which the reportsdescribes as being ‘a trend in publicsector reform that focuses on outputs(using management processes from theprivate sector) as an alternative totraditional,hierarchical, rule-boundsystems’.The framework on the onehand assesses the institutional, socialand economic context in which theutility works.On the other it looks atthe internal functioning of the utility,covering areas such as strategic planning,financing and human resources.

The report presents assessments ofeach case study, some broader lessons,and guidance on the wider environmentin which utilities exist,particularly withrespect to the ultimate owners of autility.While the report notes that allutilities will face their own particularset of circumstances,‘there is a broadprocess and some basic norms that are

fundamental to success or,by contrast,similar actions that have helped tocause organizations to fail.’ It showsthat ‘utilities must adopt good management practices to improveperformance’, but that ownership is‘the key function needed to create theappropriate incentive framework.’

Study structureBill Kingdom,one of the report’sauthors, explains that the case studieswere selected because they representeddifferent institutional arrangementswithin the range of public sectoroptions and because of their location.‘We wanted to have some kind ofspread around the world.So we havecountries in Latin America, in southeast Asia, in Europe, and so on,’hesays,adding:‘I have to admit we couldn’tfind a well-run company in south Asia,but there probably are some.’

Kingdom explains that the studyidentified four key areas when considering what constitutes a well-run utility – autonomy,accountability, customer orientationand market orientation.

He defines the first of these as beingwhether the utility is independent tomanage professionally without arbitrary interference by others.‘I thinkeverybody understands what thatmeans – politicians coming along andbasically telling the utility managerswhat to do and what not to do.’

Accountability,he explains, relatesthe utility being answerable to someother party and whether performanceand use of resources is being reported.With respect to customer orientation,Kingdom notes that utilities exist toserve customers.‘But actually howmany utilities report on this?’he asks.

The final area,market orientation, isimportant given the monopoly statusof most water companies.‘You canabuse that by increasing tariffs and notworrying about costs, or you can usethe market to try and guide you forefficient cost for service delivery,’says Kingdom.

‘This structure – autonomy,accountability, customer orientationand market orientation – was used

The secrets of a successfulpublic water utilityWhat are the key ingredients for a achieving a successfulpublic water utility? Last year the World Bank set out thefindings of a study looking at the just this. KEITH HAYWARD

reviews its recommendations.

cated to the local media. It is vital for water utilities to viewtwo-way communication with customers and other stake-holders as a critical element of operations and fundamentalto managing the utility – as important as getting waterthrough a pipe.

In response to member requests,AwwaRF has published aseries of communication studies,most recently ‘Strategiccommunication planning: a guide for water utilities’, to helpwater utilities develop a well-designed and effective strategyto create and deliver consistent, appropriate and managedmessages that produce results aligned with the utility’s overall goals.

In addition to the basic components of a strategic communication plan – situational analysis,mission state-ment, goals, objectives, strategies and tactics – the guide helpswater utilities understand how they can identify and planways to address communication about internal and externalcritical issues that can affect the utility’s policies and way ofdoing business.

Issues will vary from location to location, such as explosivepopulation growth or seasonal drought.But nearly everywater utility must be able to communicate effectively about overarching issues: risk, safety,quality, infrastructureand charging.Strategic communication planning must be tailored to people who control funding,policy and regulations, as well as ratepayers and the general public.Forexample,utility managers must be able to answer how theutility will communicate to the public about threats to thewater supply, such as drought,or the need to finance anexpensive new water treatment facility.

Consumer diversityStrategic communication planning can also help waterutilities address the challenges of a progressively more diverseconsumer environment.North American communities areexperiencing rapid changes in language, culture,political-social considerations and in how residents receive andunderstand information.Communication around local ornational water issues will be more successful when utilitymanagers take time to understand their audiences and determine the best messages for communicating with eachone of them.

After audiences are identified, each should be analysedthrough primary research to discover their preferred methods of communication,whom they trust,what types of messages resonate with them and barriers they face inreceiving and acting on messages.Message development isanother part of the equation – clear messages in formats thatfurther understanding of an issue and/or direct action.

For decades the water utility industry has provided acommunity’s most essential need with little or no fanfare as a community service.To succeed in the future, the industrywill need to approach water delivery as a partnership with its stakeholders who must come to see clean, tasty, affordablewater as a shared responsibility.To build such a public part-nership will require more community leadership by utilityexecutives and an escalating effort to communicate tomultiple audiences the challenges facing our water. Strategiccommunication planning certainly cannot fix these issues,but the lack of communication planning, specifically the lack of a strategic approach to communication,will intensify them.

With the backing and involvement of senior management,strategic communication efforts can help water utilitiesprepare for and anticipate potential problems before theyreach crisis proportions and can help direct the day-to-daywork that assures water remains a ready, reliable resource forall customers.Clear and directive communication can be theplatform for water utility executives and managers to takethe community leadership roles the water industry deservesand will require in the years ahead.●


UTILITY REFORM

throughout the study to assess the casestudies,’ says Kingdom.‘I think that aspractitioners it is actually a very niceframework in order to think aboutpublic companies.Maybe in the longerterm something more standardisedcould be developed here for professionals to try and rank utilitiesand also to track their performance.’

AccountabilityOne of the key problem areas forutilities can be accountability.‘Whathappens in many developing countriesis that the utility managers have a verystrong orientation to their local government,because the local government is the owner of the utility,’

explains Kingdom.‘So when the mayorsays jump, the management team jump.Whether that is to the benefit of thecustomer or not is irrelevant,becauseof the very strong orientation towardsthe owner.’

This, says Kingdom, is clearly not agood arrangement; the question is oneof how to change the situation and ofwhat might be the correct balance ofaccountability.‘As usual, each situationis different,’ he says, but adds that inbroad terms the response should be tospread the accountability of the parties.‘This isn’t something that will happenovernight,but one thing that came outof the case studies was that the betterrun companies all had accountability to

customers quite high on their agendas.’Similarly, in the long term,use of somesort of corporate private finance canalso enhance accountability for utilities.This, says Kingdom,provides ‘avery strong counterbalance to what isoften seen as the overemphasis placedon the power of the local government.’

One way of increasing accountabilityto customers is actually to raise tariffs.‘It’s a funny thing because so often fieldgroups will say raising tariffs is aproblem, [that] its going to adverselyaffect the customer. In reality raisingthe tariff makes the utility much moreaccountable to the customer… Soinstead of looking just to the owner,the utility manager has to look more tothe customer because they are payingmore and contributing more to therevenue of that utlity.’

Use of external financing alsoimproves accountability as a utilitythen has to service that debt withpayments to the bank,meaning theutility has another line of accountability.‘That weakens to some extent thisstrong pull that we see from the localgovernment,’ says Kingdom.‘And ifyou introduce some sort of regulatorthen there is another body which theutility is responsible to.And so it goeson.Conceptually I think this is a niceway of trying to figure out why utlitiesare far too narrowly focused… Soanything that can be done to spreadthis web of accountability is likely tobring an improvement.’

Delivering improvementsKingdom points out that implementingthis sort of reform doesn’t take placequickly.Also, the study made clear thatreform of a utility has to be accompaniedby reform of its wider operating environment.‘It sounds obvious,buthistorically in many ways there was farmore emphasis on reforming theutility.The utility is then operating in abad environment, a poor governanceenvironment, and it really wasn’t ableto capitalise on investments it made toimprove the performance of theutility… The poor environment inwhich it works will tend to drag itdown, so you have to think about thetwo going hand in hand.’

Here Kingdom cites the example ofUganda’s National Water and SewerageCorporation,where he says turmoil in the 1970s dragged the utility backwards with the result that servicedeteriorated.A new governmentsubsequently presented the utility with an opportunity to reform.Developments included developing acorporate plan,bringing a board in,indexing tariffs, and introducingperformance contracts with staff.‘Nowthe result speaks for itself in terms ofimprovements,’ says Kingdom.

AQUA (The Aqua Production-Trade-Service Enterprise Stock Corporation), Bielsko-Biata, PolandA joint stock company partly owned by private investors-operators.

Haiphong Provincial Water Supply Company, VietnamA ‘turnaround’ utility which adopted the ‘phuong’ model focusing on improvements inone ward at a time.

JNB Water (Johannesburg Water), Johannesburg, South AfricaA public utility using extensive public-private partnerships in which the municipal ownerhas gone to great lengths to clearly separate out all the roles and responsibilities withinthe utility and the external environment.

NWSC (National Water and Sewerage Corporation), UgandaA ‘turnaround’ utility with impressive performance improvements, using performancecontracts extensively and adopting a wide range of change management tools to improveperformance.

ONEA (National Water Supply and Sanitation Company), Burkina FasoUtility with a good track record over the past decades despite being in one of the poorestcountries in the world.

PUB (Public Utilities Board), SingaporeSuperior performing utility extensively involving the private sector by way of servicecontracts.

Philadelphia Water Department, Philadelphia, USRing-fenced department of the Philadelphia city government.

SANASA (Water Supply and Sanitation Company), Campinas, Brazil‘Turnaround’ utility, which strongly mimics the functioning of private sector companiesbut is owned by the municipality of Campinas.

Scottish Water, ScotlandUtility accountable to the Scottish Parliament and subject to an external, independenteconomic regulator.

SIMAPAG (Guanajuato Municipal Drinking Water and Sewerage System), Guanajuato,MexicoOne of five utilities operating in the same institutional environment in Mexico

SONEDE (National Water Supply Authority) TunisiaNational utility that mainstreams a two-pronged approach by delegating responsibilitiesto line managers and extensive contracting out to the private sector.

Source: Box 2, p6, ‘Characteristics of well-performing public water utilities’, World Bank 2006.

Significant features of the case study utilities


UTILITY REFORM

‘Coverage expanded,water lossesreduced, staffing issues were reduced…Now what’s interesting about thismodel is that it is like a beacon of goodpractice in the continent, and theutility has taken advantage of that. Itgets a lot of visits from other utilities inAfrica, and in fact has started selling itsservices to other utilities.’

Public sector structuresAnother aspect of reform relates towhat sort of entity might best deliverwater services.‘Corporatisationappears often in the reform jargon forpublic utilities, and one of the thingsthis study tried to do was develop thistaxonomy of different public utilityorganisations,’ explains Kingdom.

Kingdom identifies a spectrum ofpublic entities, each with its owncharacteristics.At one extreme is whatmight be described as a typical publicwater department.‘With the publicworks unit, the owner, the corporateoversight, the service provider, they areall mixed together, and there is noclarity of the relationships that existbetween the different activities.’ It ishowever possible to attempt toringfence service provision, so thatthere is clearer separation of the assetbase, costs and management.‘But theownership and the corporate oversightstill pretty much remain with the localgovernment, and they are not clear, sothese two roles get mixed up,’says Kingdom.

A further step might be to corporatisethe water services function.‘If youcorporatise you start to really break outthe ownership from the corporateoversight and the service provision,’says Kingdom. In this type of arrangement,which is like a standardpublicly-owned company, there are theowners, a corporate oversight boardacting on behalf of the owners, and theservice provider itself. Such anapproach can make use of a statutorybody operating under public law or agovernment-owned plc operatingunder private law.This brings differences with respect to transparency and fiduciary controls.‘Ifyou are under a statutory body youprobably follow government rules,government guidelines,whereas as agovernment-owned plc you will berequired to produce independentaudits of your financial statements,things like that, so it increases thetransparency,’ says Kingdom.

Kingdom notes that for some people corporatisation has a tarnishedreputation in that attempts in the late1980s and early 1990s either didn’twork or didn’t deliver what wasexpected.His response to this is thatthose attempts should not necessarilybe regarded as corporatisations if you

consider the details, especially thecomposition and mandates of thecorporate oversight board.‘If you justfill up the board with cronies, politicalcronies, that corporate entitity is stillbasically going to be interfered with ona routine basis by politicians.But if yousay no politicians can participate on theboard, and you set out criteria that theyhave to meet, and you set out thecriteria on the basis on which they areelected and the basis on which they aredismissed… you start of get a muchbetter corporatised model in place.’

Other areas for attentionAlongside these points are a number ofother useful lessons highlighted by thestudy.Transparency and disclosure areimportant and in this respect actionsmight be as straightforward as delivering accounts within a fixedperiod of the end of the financial year.‘These are just common good practiceissues that will help any corporateentity,’ says Kingdom.

The use of agreements between thedifferent parties is also important.‘These range from informal businessplans through to very clear agreements,’ says Kingdom.‘They maybe between the local government andthe utility, they may be within theutility – employees having performance agreements, and also thegovernment itself can introducecontracts that provide incentives for reform – for example centralgovernment can reform by makinggrants to local governments if theutility improves its performance.

Kingdom notes as an exampleEthiopia,not one of the main casestudies set out in the report.‘This had asort of staged approach to reform,andessentially said, if you do this you get agrant, if you do that, you get a grant…This was quite a successful way toincentivise local governments andutilities to improve their performance.’

In the area of customer involvement,Kingdom comments:‘We found for thebetter-run companies the customer isking.’One approach is that taken bySIMAPAG, the utility serving themunicipality of Guanajuato in Mexico.This uses a balanced scorecardapproach to track good performance sothat it uses input from its customers toset priorities.

Finance is another area and a problem here can be that reforms arestarted but falter if there is a change of government.Ensuring strongagreements are in place can help in thisrespect.Kingdom points to the PhnomPenh Water Supply Authority servingthe capital of Cambodia, anotherexample that is not one of the maincase studies set out in the report.‘A whole series of reforms were

introduced, and really the company is a stellar performer in the way it haschanged, expanding service, improvingcollections, reducing non-revenuewater, and so on.’

Capacity building is still also needed.This again can be relativelystraightforward, such as the development of standard materials.‘Whilst there is a lot around on standard management contracts andaffermage contracts for the privatesector, there isn’t similar material easilyavailable on public-public contracts.’

The final examples Kingdom drawsattention to relate to performancemonitoring.One is Singapore’s utility,PUB.‘Everyone appreciates [PUB] is avery well-run company but it is apublic company. It has used a wholeseries of boards and mechanisms todeliver that performance.’

He also notes activity by SIMAPAGin this area.Utilities can if they wishchoose to seek accreditation underISO9001, through which operatingprocedures would be set down.‘This issomething SIMAPAG in Mexico isconsidering as a way to guard againstfuture political interference. If it hadISO9001 accreditation, its logic wasthat political interference would takeaway that ISO rating and people mightfeel that was unacceptable.’

ConclusionPreparation and publication of thereport, and Kingdom’s comments made alongside it, represent part of asignificant shift for the bank.‘Theprivate sector wasn’t the panacea thateverybody was looking for in terms ofturning around the global water sector.’This is not to say the bank is turning itsback on private sector involvement.‘Public reform isn’t the panacea either,’he adds.Rather, it is an acknowledge-ment of the reality of the extent towhich water services are in the handsof the public sector,meaning the bankhas to engage with public sectorreforms if it is to help promoteimprovements in the water sectoraround the world.‘They are our basicmaterial,’ says Kingdom.And it is notjust the bank which has to look at howto ensure the necessary incentives andresources are in place to turn aroundthe public water sector.‘If you areserious, and I think most countrieshave to be serious about public sectorreform, then there is a need for a lot ofthinking at the national level.’●

Characteristics of well-performing public waterutilities.Aldo Baietti,William Kingdom andMeike van Ginneken.Water Supply &Sanitation Working Notes.Note No 9,May2006.Available at www.worldbank.org.


PROJECTS

Uncontrolled industrial andmunicipal wastewater

discharges have caused the waterenvironment in the People’sRepublic of China (PRC) todeteriorate.Municipal wastewateris a major contributor to pollutionof the country’s rivers and lakes,with the most severe impacts in thewater-deficient northern region.

In cities at regional and administra-tively-higher levels, only 30% of riversmeet their designated water qualitystandards1 compared with the objectiveof 60% set by the government in theTenth Five-Year Plan (FYP) (2001 to2005). In seven major river basins (HaiRiver,Huai River,Liao River,YangtzeRiver,Zhu River,Songhua River, andYellow River), 52% of river courses donot meet the standard for potable waterresources.Eutrophication is occurringin all three prioritised freshwater lakes– Tai Lake,Chao Lake and DianchiLake.Surface water sources servingmunicipal water supply systems arepolluted to levels unacceptable underPRC water quality standards.

In addition to enacting environmentalprotection laws and implementingregulations that emphasise preventivemeasures, the polluter pays principleand decentralised environmental

management, the PRC governmenthas also undertaken numerous programmes, including ones involvingwastewater management. Industrieswere ordered to treat wastewater toacceptable standards by the end of2000;municipalities have beenrequired under successive FYPs toaddress wastewater collection,treatment and disposal; and pollutioncontrol plans have been developed andpartially implemented for the keywater basins.

In order to improve the situation,PRC government policy requires thaturban environmental pollution andecological damage be controlled by2010.PRC government guidelines(Notice 2000 (36)) require that majorcities with populations over 0.5 million, such as provincial capitals, havea wastewater treatment rate of not lessthan 60% by 2005 and 70% by 2010.

The Asian Development Bank(ADB) and World Bank have providedsignificant funds to the PRC in the lastdecade for infrastructure projects,which have been mainly focused onimproving the environment.Since localgovernments are not able to fund theseprojects, the international funds havebecome critical for those that have anurgent need for improved infrastructure.

Many PRC cities and municipalwastewater companies have come along way and are aware of the actionsneeded to deliver a successful projectthroughout its life.This paper intendsto summarise representative casestudies so that other cities can benefitfrom previous project experience andpossibly prevent unnecessary difficulties in future projects.

Case studies from different municipalities and regions, as well asvarious funding agencies,have shownthat infrastructure projects can beundertaken in a number of differentways.Nevertheless, sound planningand engineering can definitely makethe difference to the ultimate goal ofthe project: environmental protectionand improvement.Based on thetechnical assistance provided by theADB or World Bank, the differentapproaches to implementing projectscan cause heated discussions with thelocal government agencies or projectowners about ideas for the project thatconflict with their own.

In the last decade the PRC hasconstructed hundreds of municipalwastewater treatment plants, but afterplant commissioning and start-up, ithas been found that only a smallpercentage are being well operated(some are not even in operation) for avariety of reasons.This paper focuseson how successful project owners have learned to facilitate the project’smain objectives: environmentalimprovements that are socially-responsible and economically sound.

Any project using funds from theADB,World Bank or other international financial institution (IFI)can benefit from the experiences fromexisting projects, both those that havebeen successful and those that havemet with difficulties.As the ADB andWorld Bank have provided most of the loan funding for PRC infrastructure projects, this paper hasused projects funded by them asrepresentative examples.

The governments of Shanghai,Fuzhou,Tianjin,Wuhan and Harbinmunicipalities, and Anhui,Hebei,Henan,Shandong, Jilin and Guangxiprovinces have first-hand experienceof using ADB funds to facilitate their

Any utility embarking on a major project could learn fromthe experiences of other utilities and other projects. Here,XIU HUA ZHANG and CHI RONG HUANG look at Chinese projectsbacked by the World Bank and the Asian DevelopmentBank to see what lessons there are for the future onissues such as design, tendering, land acquisition andconstruction.

Capitalising on international fundingfor infrastructure projects in China –lessons from case studies

This article was prepared for a special session organised by the Water EnvironmentFederation during the IWA World Water Congress, Beijing, China, September 2006.


PROJECTS

projects.The governments ofShanghai,Tianjin,Chongqing andGuangzhou municipalities and Jiangsu,Hubei,Hebei, Shandong and Guangxiprovinces have used World Bank fundsto facilitate their projects.All of thesefaced similar situations:heavily-polluted water being abstracted bytheir water supply system intakes,orwater quality in water bodies withintheir jurisdiction not meeting nationalstandards.

Most projects using internationalfunds in the PRC need to go througha priority listing process undertaken bythe National Development andReform Commission (NDRC).Afterthe project has been identified anddiscussed with the IFIs, the projectowners begin preparing the projectproposal.After this is approved, theproject owners prepare the requiredreports.These include,but are notlimited to, an engineering feasibilitystudy (EFS), environmental impactassessment (EIA) and resettlementaction plan (RAP).The EFS and EIAreports must be reviewed by variousagencies, such as the NDRC, the StateEnvironmental ProtectionAdministration, and the Ministry ofConstruction.The RAP needs to beendorsed by the local government.

DiscussionThe use of international funding forinfrastructure projects should not onlydepend on foreign funds to supportproject financing,but should alsocapitalise on opportunities to aid theproject by using international experience and practice to undertakethe project more efficiently. Some ofthe lessons learned from the projectsare noted below.

Domestic approval proceduresversus international practiceThe PRC government requires thatany infrastructure projects usinginternational funds must submit aproject proposal for approval as a firststep.The NDRC is the agency designated to review the proposedproject scope and basic financing plan.Preparation and approval of the projectproposal typically takes a significantamount of time, as the project ownershave to prepare a well-scoped andreasonably-financed project.

This sometimes leads to the projectproposal requiring significant revisionsand causes delays in processing theloan, especially when internationalfunds also require an independentassessment of the project.Without anapproved project proposal, the EFS willnot be prepared.Since the EFS is thebackbone of the EIA and RAP, thetiming of EFS preparation dictateswhen the EIA and RAP are finalised.

In the PRC,every city has anapproved urban master plan that setsout its urban development, includingall infrastructure,up to 2020. In mostcases, the available sites for a waste-water treatment plant have dominatedthe design of the sewer networksystems so the project scope cannotinclude serving the areas of greatestneed. In addition, the approved masterplans were prepared in the mid-1990s,and have not been updated since.

Most master plans did not take intoaccount the high growth experiencedin many PRC cities.Apart from incities that have updated their masterplans, actual project implementationsometimes does not comply with themaster plans.This non-compliance canbe attributed to political decisions,rushed decisions,or decisions notsupported by good data.AchievingADB or World Bank funding requiresintensive, independent assessments,normally by a consultancy team, tobalance the different project objectives.

It is sometimes difficult for localproject owners to understand the IFIrequirements and to cooperate andaccept them.

In the PRC,once a project proposalis approved, the EFS will be preparedto match whatever has been chosen inthe project proposal. In reality changesdo occur,but most project owners andtheir design institutes are not keen toimplement these because it may causedifficulties with the review agenciesand make additional work for them. Ifthe assessments obtained by thefunding institutions require the projectowners to provide justifications for thedesign basis, this delays the project evenfurther.Whether there are anyapprovals or third party reviewsrequired for the project or not, theproject owner must plan the projectcomprehensively.

Design and specification preparationRushing to start projects without awell-planned scope and with insufficient basic data has led to delaysin starting and completing someprojects. In order to obtain a loan,some project owners have asked thedesign institutes to complete alternative analysis and cost estimateswithout sufficient support and data.

This rush for engineering plans andbudgets often negatively impacts onthe project, from its commencement to the operational stage.

In some cases, the basic design used for the tender has undergonesignificant changes and there have beenunexpected construction variations. Itis local practice that once the basicdesign has been approved by therelevant government agencies, projectowners are liable to start tendering. Insuch cases most of the quantities andtechnical specifications are relativelyrudimentary,unlike conventionaltendering, in which a detailed designwill be available.

Government cost indexes formaterials and equipment used for EFSand basic design are sometimes notcompatible with market prices, and inmost cases are higher than the bidprices.Procurement contract packagesshould be carefully and thoroughlydiscussed before a contract is tendered.This will allow project owners toevaluate their manpower and resourcesand to plan better for the mode andsize of the procurement packages,ensuring the coordination and management efforts for their staff.

The requirement to accept the mostcompetitive bid sometimes createsproblems when the bid is much lowerthan the estimate.This has subsequentlyled to claims based on inadequatedesigns or poorly-defined scopes.Although a contract award value thatfalls below the original budget is not abad result for the project owners,allowing them to save on constructioncosts,most international loans requireadvance payments, such as up-frontfees and/or commitment fees,whichwould be significantly lower if thebudget had been prepared based onmarket prices.

Overall, loan surpluses are not goodfor the financing plan. In most cases, aloan surplus can be used for additionalproject components.Typically, a mid-term adjustment for the projectcan be undertaken to use up a loansurplus with IFI approval.Again, theapproval process for the adjustmenttakes longer to gain both domesticapproval and international review, andoften results in additional delays tooverall project completion.Therefore, awell-planned design should minimiseany of these negative factors to ensurethat the project can be implementedwithin budget and does not createadditional burdens for the project owners.

Financing planInternational funds to support projectconstruction not only provide moneyfor building,but also cover the loan’sservice charges (up-front and commitment fees, and technical

IFIs do not necessarily need to force theadoption of practices that they believe to be best

for projects. Instead, good and generallyacceptable international practices should be

introduced to allow project owners to understandthe benefits of applying them.


assistance) as well as contingencies.Typically,physical and price contingencies are required in anyinternational projects. In the PRC, theexperience with loan surpluses inprevious projects has discouraged theinclusion of contingencies in loans.This does not always help some ownersat the end of their projects.As notedabove,using the basic design as thefoundation for tendering precludes theinclusion of contingencies, so anyunforeseen costs may have to becarried by the project owners.

Capitalising on low and variableinterest rates, the grace period and thelonger payback time are the mainreasons for obtaining loans from IFIs.Afive-year grace period is generallyoffered to project owners, but due toslow implementation of the preliminary work, is seldom fullyapplied.The preliminary work includesreceiving approvals for the EFS andEIA,endorsement for the RAP andpreparation of the basic design andpreliminary bidding documents.

After these are completed to anacceptable level, project implementa-tion can proceed at a pace more closelymatching the original schedule.Sources of local counterpart funds,whether from tariffs, grants or bonds,are not always available as planned.This limits the project financing plan,and affects implementation.Phasedconstruction for the treatment workssystem should be considered based onthe urgency of the project, thusoptimising the system and the financialburden on the government.

Contract tendering and awardingNormally,bidding documents fordifferent procurement packages,such as civil works and materials orequipment, are prepared based oninternational-standard applications and comply with the relevant PRCregulations. If necessary,prequalifica-tion is undertaken before the invitations to bid for the variousprocurement packages, such as civilworks, are opened for internationalcompetitive bidding.

After the required public announcement period for the bidinvitation, submitted bids will beopened in public and recorded.Thebids are then evaluated according tothe evaluation criteria stipulated in thebid documents.The bid evaluationprocess is designed to be fair, equal andtransparent, and a bid evaluationcommittee consisting of personnelfrom the government expert system isgenerally assembled for the final bidevaluation.Personal preferences orpolitical influence are not supposed toaffect the results.

Since the bid documents stipulate

the criteria and a bid evaluationcommittee exists, the final decision-making should be delegated to the bidevaluation committee.The committeeshould provide an equal, fair andprofessional judgment on all bids andrecommend the most qualified andcompetitive bid to the project owner.

After the bid award,but prior tocontract signing, some negotiationoccurs over goods and materials.Thenon-negotiable concept is not stronglyenforced,because most project ownersfeel they would like to maintain a goodrelationship with their contractors, sothat the project can be completed in anon-contentious manner.However,they do not realise that they lose theirstrong position if they accede to thecontractor’s demands during thecontract signing process, and createopportunities for other bidders toprotest about unfair or unequal treatment of their bids.

For each procurement,whether aninternational or local competitive bid,it has been proved that without veryclear and specific wording in the biddocument, there is little chance ofhaving a well-delivered contract.

Land acquisition and resettlementRecently, the land acquisition andresettlement activities relating toconstruction projects have drawnmuch attention, especially to the PRCgovernment,because the peopleaffected have expressed their unhappiness or dissatisfaction withtheir compensation or livelihoodsfollowing the project.

Most cases occur because localgovernment agencies do not providethe compensation packages stipulatedin the endorsed RAP,and sometimesuse the funds to acquire more land than is needed.Occasionally duringconstruction, a contractor cannot startor complete a project because landacquisition, either temporary orpermanent, is unsuccessful, furtherexposing the owners to claims by the contractor.

Internationally, land acquisition andresettlement issues are one of the mostcritical elements that need to beresolved before project constructioncan begin.There are different defini-tions and compensation rates related toland acquisition in the PRC frominternational practice.These differencescan still be resolved to meet the bestinterest of both the people affected andthe project.

After the endorsed RAP is publicised, all of the required actionsrelating to the project should beundertaken without any variations.Activities for the RAP tend to be moresensitive and somewhat more difficultfor project owners to implement

during the project.The budget for theRAP usually becomes a burden to theproject due to its scope and the fundsand extra effort involved.

A well-planned construction project that coordinates with otherurban development projects can easily mitigate land acquisition andredundant construction impacts on the environment and save costly landacquisition and resettlement compensations.

Construction activities and supervisionEnforcement of construction qualitycontrol and site safety are two majorareas likely to be new to most PRCproject owners and contractors.Although the government has introduced laws relating to workersafety and industrial hygiene, limitedattention has been given to construc-tion sites.There have been instances of insufficient safety training, inappro-priate mitigation measures and inadequate protection gear provided to construction site workers.

Construction supervision is normally carried out by a local company,which will be following localregulations to undertake its daily sitesupervision activities.Either because ofa lack of experience or insufficientbudget to support site inspection, theconstruction supervision team issometimes less effective than it shouldbe in providing professional services tothe project owners.

Supervisory companies shouldfunction as independent entities toensure that all required specificationsare met.Project owners should take theopportunity to ask contractors to applythe highest construction quality as perthe technical specifications and enforcesite safety, including adequate trainingand protection gear for constructionworkers. Supervisory companiesshould be responsible for qualityassurance and enforcing safety requirements based on PRC laws and regulations, at a minimum.

Capacity buildingTraditionally,wastewater companies areestablished in the PRC to implementgovernment infrastructure projects.These companies are mostly staffed bygovernment personnel and sometimesinitially operate under a bureau orgovernment department. It is theintention of the ADB and World Bankthat these companies become manage-rially and financially autonomous as faras their projects are concerned.

To equip new managers for theirtasks, training in construction, financialmanagement and modern manage-ment techniques is usually providedduring project implementation. In

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addition, all related staff developmentand training in company operations isarranged during project implementa-tion.Typical advisory services offeredto help the project owners includeassistance with working and liaisingwith the various departments andagencies of local government; assistancewith operation and maintenance ofproject facilities; and assistance withfinancial operations, including theresponsibility for repaying all loans.Project owners should use the opportunity to increase the capabilitiesand capacities of their staff.

OperationsMost wastewater treatment works builtin the PRC over the last decade facesimilar problems: low wastewaterquantities and weak wastewaterstrength in the initial start-up period;unstable wastewater characteristics dueto the high percentage of industrialwastewater; inadequate sewer collection systems; a shortage of long-term wastewater monitoring data tosupport operations; inexperiencedoperational staff; and low wastewatertariffs and collection rates.

Insufficient historical data forwastewater generation leads to designing-in excess treatment workscapacity.More long-term monitoringprogrammes need to be developed anddata collected in the early stages ofprojects not only to support the designbut also plant operation.Althoughhaving a separate sewer system is thegoal of most urban master plans,achieving this target takes a long timeand is too costly for most of the PRC.Because of this,weak wastewaterstrengths are expected,but designscannot accommodate this.

The country needs to enforce pre-treatment of industrial wastewaterto ensure the long-term safety of itssewer networks and treatment works’operations.Coordination of government enforcement agencies is a critical task that needs to beemphasised, especially of the environmental protection and urbanconstruction bureaux.Operational staffshould be trained prior to the treat-ment works commissioning,preferablyduring the equipment installationand/or construction periods.Lack of funding for operations and maintenance is a genuine problem formost treatment works built so far.Cities may have increased tariffs tomeet the need to pay back their loanand fund operations and maintenance,

but because of low collection rates orinsufficient transfer of tariff funds fromthe collection agency, regular plantoperation can become inefficient orsometimes fall idle.

Conclusions and recommendationsAny infrastructure project can beimplemented in accordance with localcodes and regulations to achieve theirintended purpose,whether using localfinancing, foreign aid or loans.Thereare advantages and disadvantages in thevarious funding sources. IFIs do notnecessarily need to force the adoptionof practices that they believe to be bestfor projects. Instead,good and generallyacceptable international practicesshould be introduced to allow projectowners to understand the benefits ofapplying them.

This paper has focused on projectcities that have used international loansto construct infrastructure projects andthere is a hope that the lessons theyhave learned can be used in subsequentprojects, so that they can more easilyand smoothly achieve their objectives.

It is hoped that the conclusions andrecommendations summarised below,which are based on generally acceptedinternational standards and practices,will be useful and constructive forfuture projects, and will smooth projectimplementation.

Project timing, from project proposalto implementation, should be wellplanned in advance, so that fewer issuesdelay project implementation,whetherthrough domestic approval proceduresor the requirements of internationalpractice.

After the project is identified by thegovernment and accepted by the IFIs,the project proposal should be preparedbased on the best available knowledgeof the project.Project proposals shouldnot be prepared purely based on masterplans or to meet unsupported expectations.Afterwards, the EFS andEIA should be prepared by certifieddesign institutes and receive approvalsfrom the related agencies.

Master plans should be updatedbased on the growth and developmentof the service areas to provide up-to-date urban planning.This would meanthat inappropriate siting of sewerpumping stations or treatment workswould not lead to the construction ofover or under-capacity systems.Phasedconstruction should also be consideredto meet actual requirements andfinancial affordability.

Design guidelines and specifications

should be more flexible and practicalin order to meet the different projectconditions or requirements.Lessonslearned should be used in futuredesigns and long-term monitoringdata should be acquired to supportsystem modifications or upgrades.

Cost indices should be used forreference only and should not be useddirectly for budgeting.Market pricesfor goods,materials and equipmentshould be collected more frequentlyand comprehensively to serve as abackup for the budget estimates.

Discharge permits should be classified into more levels to suit theactual conditions in protected waterbodies.Total quantity control or wasteload allocation methods can be used for the permit setup and for the water bodies.

Land acquisition and resettlementissues should be settled prior to projectimplementation to minimise theextent of revisions or schedule delaysbecause of objections from the people affected.

Technical assistance, either offeredwith the grant or loan, should be usedas a resource for project owners toimprove and enhance their experienceor remedy inadequate manpower, tohelp with project preparation,designreviews, tendering and advice duringproject implementation, in order tomitigate differences between localrequirements and international standard practice.

Operator training should be given inthe early stages, even during construc-tion.Funds for treatment works’operation and maintenance should beavailable and provided in a timelymanner by the agencies responsible ordirectly by the wastewater companies.

Post-project evaluation should beundertaken to justify what was plannedand what has been achieved, and whatcan be done to improve future projects, particularly in the use of international practice for thedomestic preparation and execution of projects.●

About the authors:Ms Xiu Hua Zhang is Assistant Director,Northern China Municipal EngineeringDesign and Research Institute, HexiDistrict, Tianjin, China([email protected]). Mr ChiRong Huang, PE, is Associate, CDMInternational, Shanghai, China([email protected]).

1The PRC Environmental Quality Standards have five classes for surface water quality based on their use. Class I is for water resources and nationally protected bodiesof water. Class II is for high-value fish production areas, Category A protection areas, and spawning habitats for fish. Class III is for potable water resources, Category Bprotection areas, general fish protection areas, and swimming areas. Class IV is for general industrial water sources and non-contact recreation areas. Class I watersources are the best in quality and Class V are the worst.


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In public discussions aboutprivatisation and globalisation,

the topic of what alternativemodels can be used to deliversolutions, especially in the environmental engineering sector,still receives limited attention.Theuse of what are very shallowdescriptions causes reluctance andfear within municipalities.Also theprevailing political view in thecurrent and future countries of theEuropean Union regarding grantsis aligned somewhat againstalternative approaches.Despite agreat need and the prevailingproblems of the municipalities,only some sort of ‘black and whitepainting’ is practised withoutclarifying the real advantages anddisadvantages of the approaches.In the end, it is a political discussion.

The figure shows a number ofalternative organisation models.Theseare generic and have to be adjusted to every individual project.The

organisational models represented arenot a ‘privatisation’of the municipalservice, such as seen in England orFrance. Instead they are based around apure service which the private partnerprovides according to the request of the municipality.

The public needs to consider thefollowing advantages offered by thevarious models, especially the Design,Build and Operate (DBO) model:• delivery of a design that can be built

more readily• innovative solution to design issues,• better value for money, in particular

over the life cycle of the works,• better risk allocation, and• greater certainty regarding

construction and operational costs.

Typical examples where the DBOapproach to procurement is becomingmore popular are major service plantssuch as water and sewage treatment, aswell as other infrastructure projects,where the contractor is not only

responsible for the design and construction of the facility,but has afurther responsibility to operate thatfacility for 20-30 years before handingit over to the employer.

The base of these models is thepartnership between the public and theprivate sector.Partnership means acontract between the public contractorand a private party to design,build, andoperate a facility for a defined period,after which the facility is handed backto the public sector.The facility isfinanced by the public sector andremains in public ownership through-out the contract.The key driver is thetransfer of operating risk in addition todesign and construction risk.

At the present time, since suitableforms of contract are not available,DBO contracts tend to be based on anamended version of standard contractconditions such as the FIDIC Yellow or Grey Book.However,whilst standard contracts cover the design andbuild elements of a DBO contract,there is a lack of a standardised document which addresses the risksand responsibilities associated with the long term ‘operation’phase of such a contract.

Similarly,procurement proceduresshould be adjusted to cover the ‘opera-tion’ element of DBO,especially withrespect to the risks and responsibilitiesof the parties. It should be noted thatthere are a lot of positive experiencesto date in tendering such contracts.

Adding financing creates a model,called the DBFO Model,where acontract to design,build,operate andfinance a facility lasts for a definedperiod.All EU grants have the restriction that the public subvention

Partnership insteadof privatisationMany people have a negative view of privatisation, whilefor others the term suggests a narrow range of optionswhen applied to municipal water and wastewater servicesprovision. MANFRED RAUCH argues that a wider range ofalternatives needs to be considered, and that successfulexamples are available.

Design

Construction

Operation

Financing} } }

Design-Build Model

Design-Build-Operate Model

Design-Build-Finance-Operate Model

Treatment plantserving PivovarnaLasko, Slovenia’slargest brewery.WTE built theturnkey anaerobicpretreatmentsystem in combination withthe WTE DesignBuild Operate ModelWWTP of the city ofLasko.


PROCUREMENT

belongs to the public.Therefore thefacility should not necessarily beowned by the private sector for thecontract period,but the private partnercares for the co-financing.A key driver is the utilisation of private co-financing in addition to the transferof design, construction and operatingrisk.The contracts can be more

complex and tendering process cantake longer than for DBO or DBModels, but there more opportunitiesfor optimisation too.

For these reasons, and because of thegreat need that exists at a time whengrants are running short, the EU andseveral countries have been attendingto this topic for several months.

Unfortunately,discussion is only veryshallow again. In the foreground ofthese so-called PPP-models standmodels for motorway construction,where it is primarily a matter ofconcession models.One hardly everdwells on the special requirements ofthe environmental engineering sector(social aspects, security of supply anddisposal, law of grants, law of fees,municipal law,etc.).

Instead the success of already realisedprojects should be used and theseprojects should be enhanced.There is atendency to invent a ‘new’model withnew failures, but things can also go theother way, as the reference projects ofWTE Wassertechnik GmbH havebeen showing for more than 15 years.In different countries, so-called DesignBuild Operate models (planning,construction,operation over 15 up to30 years) have been realised in thewater supply and sewage disposalsector.This has only been possiblethanks to the interest of a few municipal representatives,who usedthe opportunity for competition tocontract the investment and theoperation and financing in one tenderprocedure for their municipalities and,in turn, for the citizens.

WTE can refer to a lot of successfulDBO and DBFO projects in the waterand wastewater sector (see box). Inthese cases the partnership between thepublic and private sectors led to hightechnical and environmental standardsand an optimized whole life costing approach.●

About the author:Dipl.-Ing. Manfred Rauch is with WTEWassertechnik GmbH, Niederlassung,Austria. Email: [email protected]

The WTE Group is a leading serviceprovider in the area of drinking watersupply and wastewater treatment. It is acompany of EVN, a leading Austriansupplier of energy, water and infrastruc-ture services. With its establishments inEssen and Heckingen (technical andadministrative management company forall plants in Europe), WTE is known withinthe branch as ‘co-creator’ of different PPPmodels. WTE plans, builds, finances andoperates municipal and industrial waterand wastewater installations for cities,municipalities and industrial companies.In addition to Germany, Denmark andAustria, WTE operates in eight high-growth Central and Eastern Europeanmarkets. Together with all subsidiaries, thecompany has 350 employees. WTE hasalready completed more than 70 wastewater purification plants for aroundten million people. Of these plants, 23 arealso being managed by WTE.

ZagrebClient: City of Zagreb, CroatiaCapacity: 1.5 million population equivalentsInvestment: >€200 millionDescription: Planning, construction, financing and 30 years operational management of the waste water treatment plant including administration and operation buildings. Construction and financing of the maindrainage channel and main collecting pipeline, road connection and bridge.

LaskoClient: Pivovarna Lasko, SloveniaCapacity: 0.5 Mm3/year industrial wastewaterInvestment: €4 millionDescription: Pivovarna Lasko is Slovenia’s largest brewery. WTE built the turnkey anaerobic pretreatment systemin combination with the WTE DBO Model WWTP of the city of Lasko.

South-west MoscowClient: City of Moscow, RussiaCapacity: 250,000 m3/d drinking waterInvestment: €200 millionPeriod of planning and construction / operation: 2003-2006 / 2007-2016Description: WTE is the first foreign company actively participating in the water supply of Moscow. The drinkingwater plant Moscow South-West will supply a large part of the city of Moscow’s 12 million inhabitants with freshdrinking water and is built on a DBFO Model basis, with a contract period of 10 years after completion.

Further referencesDesign-Build-Operate model sewage disposal Windeck (Germany)Design-Build-Operate model sewage disposal Kranjska Gora (Slovenia)Design-Build-Operate model sewage disposal Bled (Slovenia)Design-Build-Operate model sewage disposal Lasko (Slovenia)Design-Build-Operate model sewage disposal Kötschach - Mauthen (Austria)Design-Build-Operate model Waste Water Treatment Plant Zell am See (Austria)Design-Build-Operate model Waste Water Treatment Plant South Butowo (Russia, Moscow)Design-Build-Operate model Waste Water Treatment Plant Zelenograd (Russia, Moscow)All these projects mentioned above have been successfully realised.

Ongoing projectsDesign-Build-Operate model Waste Water Treatment Plant Nikosia - Anthoupolis (Cyprus)Design-Build-Finance-Operate model sewage disposal Zistersdorf (Austria)

Alternative approaches to private sector involvement

The south-west Moscow (TOP) andZagreb treatment plants