Public–private partnerships

In the major towns and cities of Ethiopia water is supplied by water utilities (also known as Town Water Supply Enterprises) but public–private partnerships (PPPs) can be helpful. A public–private partnership is any collaboration between public bodies, such as a municipality or even the government, and private companies. The belief is that private companies are more efficient and better run than bureaucratic public bodies, and the management skills and financial acumen that they bring will create better value for money for customers. The incentive for the private companies is the profit that can be generated. PPPs have become popular, to the extent that the number of people served by private water operators in developing and former Communist countries increased from 94 million in 2000 to more than 160 million in 2007 (Marin, 2009). Philippe Marin’s report, Public–Private Partnerships for Urban Water Utilities, which was a review of PPPs in urban water utilities in developing countries, was undertaken because of the interest generated in these arrangements. At the time of the report (2009), about 7% of the urban population in the developing world was served by private water operators. There are different ways in which PPPs can be set up (described later in this study session) but the sections that follow now briefly consider the factors that Marin covered in his report.

Access

Marin found that where most of the investment for expansion of access was provided by the public partner rather than the private operator, access to piped water increased. The finance provided by the public partner is thus crucial if the aim is to increase the number of people with access to water.

Quality of service

Marin reported that often water PPPs substantially improved service quality, in particular by reducing water rationing (for example, in Guinea, Gabon, Niger and Senegal). This had the advantage of improving drinking water quality because a constant flow of water through the piping system reduces the risk of infiltration of unclean water from the soil around the pipelines.

Operational efficiency

The three main indicators of operational efficiency (water losses through leakage, etc., payment collection and labour productivity) were also studied by Marin.

Water losses

Any water lost is a loss in income, and so, perhaps predictably, Marin found (in line with other researchers) that private operators were effective in reducing water losses, some reducing non-revenue water to less than 15% (which Marin states is similar to that of some of the best-performing water utilities in more developed countries).

Can you recall what non-revenue water is?

Show answer

In Study Session 7 you learned that it is water from which no income accrues to the water utility.

Payment collection

Not surprisingly, because of the financial benefits to the private partner, it was found that the introduction of a private operator markedly improved the payment collection rate.

Labour productivity

There was strong evidence that the introduction of private operators resulted in an improvement in labour productivity. This is the amount of work undertaken by each employee. Many of the public water utilities studied were over-staffed, and the PPPs when set up were followed by significant redundancies, ranging from 20% to 65% of the labour force. Besides the over-staffing issue, layoffs were often motivated by a need to change the overall profile of the workforce and to hire more skilled people (Marin, 2009).

Marin concludes by saying that the biggest contribution that private operators can make in a PPP is in improving operational efficiency and service quality. Improving service quality results in customers becoming more willing to pay their bills, and increasing operational efficiency results in increased income. Both of these factors lead to more money being available for investment in expansion of services. In turn, expansion of services results in more customers and consequently increased income, which again can be invested to bring access to water to even more people.

Last modified: Friday, 29 July 2016, 11:35 AM