Globally, governments have set ambitious targets for universal access to safe drinking water and improved sanitation by 2030. Yet, most water utilities struggle from under-investment resulting in poor service quality. This leads to a vicious cycle of persistently low-cost recovery and weak creditworthiness even as population and economic growth increase demand. To address these challenges, utility managers need to focus on customers, cost recovery, performance efficiency, and financial viability. A shift to business thinking can be a catalyst to achieve these goals, and a simple tool like a business plan is a good first step.
At a Business Plan Dissemination workshop held in Nepal earlier this year, USAID, through the Water, Sanitation and Hygiene Finance (WASH-FIN) project, partnered with the Ministry of Water Supply to disseminate the experience of a Nepalese water utility in preparing its business plan. Participants from Kenya and the Philippines also contributed and highlighted their experiences implementing national WASH business plan guidelines.
The Nepal Experience
In Nepal, USAID WASH-FIN is supporting the government to develop and test models for viable local/municipal WASH services in a new decentralized federal structure. The Surkhet Valley Water Supply Users’ Organization (SVWSUO) is representative of the challenges utilities are facing in Nepal and globally—a rapidly growing population, aging infrastructure, and increasing water scarcity. WASH-FIN supported SVWSUO in developing its five-year business plan to address these challenges.
The process began with a rigorous financial and operational review to serve as a baseline. WASH-FIN facilitated the implementation of the AWWA’s Effective Utility Management approach to help SVWSUO identify six priority capital investment projects. The capital plan leveraged SVWSUO’s growing revenue with blended finance from the Town Development Fund, mixing loans and grants to implement the projects. Customer outreach and a tariff review uncovered inefficiencies, which were quickly corrected, thus improving cost recovery and opening up additional capacity for repayable finance. To implement the plan, the utility board and management received capacity building in governance and asset management.
The result of the eight-month long process is more than a business plan—it is an improved model of service provision for Nepal that is oriented toward cost recovery, efficiency, professional management, good governance, and sustainability. The SVWSUO experience will be of value as the Government of Nepal embarks on a program to institutionalize business plans for more than 40,000 water schemes and 750 municipalities providing WASH services in Nepal. The government also presented its draft national water utility business plan guidelines at the workshop.
The Kenya Experience
In Kenya, an independent regulator, WASREB, oversees licensing, performance monitoring, and tariff setting for county-owned corporatized water service providers (WSPs), while the Water Sector Trust Fund supports increasing services to the poor. Despite the World Bank’s support of an earlier effort to develop business plan guidelines for WSPs, the adoption was slow, in part due to confusion about why they were needed. WASREB worked with WASH-FIN Kenya to update the guidelines as part of a more comprehensive approach to institutionalize business plans. The updated business planning guidelines focus on improving the process, increasing credibility of providers with financiers, and improved performance. WASH-FIN supported the launch and rollout to providers.
The Philippines Experience
Like Nepal and Kenya, subnational providers also play an important role in service delivery in the Philippines. In 2005, the USAID Philippines Water Revolving Fund (PWRF) supported development and implementation of comprehensive Business Plan guidelines for Local Government Unit providers. With generally good uptake, the PWRF mobilized more than US $200 million in commercial finance by 2013. The municipal-run utilities that were not targeted for business plans have been the worst performing. Having had limited success in encouraging municipal-run utilities to adopt business plans in the past, under the Unified Financing Framework program, the government is doubling down on incentives for municipalities—business plans will be required to be eligible for capital grants, and to conform to the tariff-setting methodology.
Replicability in Other Countries
In addition to Nepal and Kenya, WASH-FIN is working on business plans for water operators in Cambodia and sanitation service providers in Senegal; in each instance the activity has helped operators overcome barriers to access new sources of local finance. In general, countries that work hard to strengthen water sector governance, build professional water institutions, and mobilize new sources of finance see the most progress. Business plans are a proven and effective means to support these objectives and facilitate a country’s progress on the path to self-reliance in water service delivery.
By Stephen Sena and Farah Siddique, USAID WASH-FIN