Selling water and sanitation is like any other business. Managers need to keep the customers satisfied, increase market share and maximise revenues. However, water utilities currently fail to consider poor customers. Fixed managerial practices and engineering standards prevent consideration of how to extend coverage to people in informal settlements. Only limited progress has been achieved in implementing poverty reduction policies in the urban water sector.

A new publication from the Water, Engineering and Development Centre (WEDC) suggests how governments can help water utilities – both public and privately operated – to meet the needs and demands of all urban water consumers through a commercial or marketing approach.

Utilities generally price their water below its market price, a subsidy which benefits wealthier consumers who already have household connections. Poor people then have to pay more for a limited supply of poorer quality water, often delivered less conveniently by small water enterprises.

Traditionally utilities have offered consumers a conventional, full pressure, buried pipe household connection only if they live in legally-recognised areas and can afford an expensive connection fee. Utilities cannot capture a larger share of the water market if they maintain such a singular approach.

In recent years a number of utilities have demonstrated that it is possible to have different services and prices for poor people:

• In Durban, South Africa the public utility now offers customers a variety of options – from full-pressure 24-hour supply to neighbourhood kiosks where people can fill 20 litre containers.
• In Manila, the Philippines private operators have established schemes allowing neighbours to share connections, community groups to sell water on to users and individual houses to get connected even if they lack official tenure rights.
• In La Paz, Bolivia the private operator organises trips for children to visit water and sewerage treatment works, provides micro-credit to help poor families get connected and spreads connection payments over five years.
• In the Indian state of Andhra Pradesh bureaucratic obstacles and over-rigorous technical requirements which prevented poor people from getting household connections have been removed.

New tariff policies are needed which address both commercial and social welfare concerns. The authors recommend following AESCE principles – ensuring that tariffs are adequate, equitable, simple, conserving and enforceable. The authors argue there is no real reason why utilities cannot capture a larger share of the water markets at a fair price for each group of customers. They should be able to reduce the price that poor people currently have to pay for water and significantly improve services, whilst ensuring their long-term financial viability. However, governments must support them by:

• facilitating partnerships between utilities and small water enterprises
• assisting utilities to renegotiate loans they took out for infrastructure improvement
• soliciting more donor grants for water utilities and helping them negotiate soft loans from international banking institutions
• prioritising the use of debt relief funds, where possible, to improve service coverage to urban low-income settlements – these could be used for tertiary pipeline extensions, storage expansions, and subsidising house connections for low-income households
• assisting utilities and municipalities to develop binding performance contracts and ensuring they include mechanisms to track improvements to services in low-income areas
• ensuring that all public-private partnership contracts have specific provisions to encourage the operator to extend services to new areas and customers.

Source(s):
‘Serving All Urban Consumers: A marketing approach to water services in low and middle-income countries’ Book 1: Guidance for governments’ enabling role’ by Kevin Sansom, Sam Kayaga, Richard Franceys, Cyrus Njiru, Sue Coates and Srinivas Chary, Water, Engineering and Development Centre, Loughborough University, 2004 Full document.

Funded by: Department for International Development, UK

id21 Research Highlight: 23 November 2005

Further Information:
Kevin Sansom
Water, Engineering and Development Centre
Loughborough University
Leicestershire
LE11 3TU
UK

Tel: +44 (0) 1509 222617
Fax: +44 (0) 1509 211079
Contact the contributor: k.r.sansom@lboro.ac.uk

Water, Engineering and Development Centre (WEDC), University of Loughborough

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'Higher prices are not enough to improve Kenyan water services'

'Giving public water utilities a chance'

'Boosting water and sanitation services in Ecuador'

'Communities can create their own water supply and sanitation'

'Will water privatisation deliver the services?'