The COVID-19 pandemic has added a layer of complexity to the already difficult balance between protecting consumer rights to safe drinking water and sanitation services and maintaining the financial health of service providers. Unfortunately, the impacts of COVID-19 are making it increasingly difficult for water utilities to recover their costs, thereby threatening service delivery, drinking water quality and jobs. To delve deeper on this issue, the SWA partner – Water Institute at the University of North Carolina (UNC) at Chapel Hill organized a virtual forum to discuss how to balance the need to protect consumers, particularly the vulnerable, and ensure they have access to water to combat the disease and the financial sustainability of utilities that provide services.
The Virtual Forum started with a global perspective and a cross-constituency panel highlighted the current challenges being faced by service providers and its long-term financial impact:
- Al-Hassam Adam from the civil society network End Water Poverty (EWP) discussed the importance of protecting vulnerable consumers, but also expressed concern about the financial health of utilities. Through a global petition, EWP is calling on governments to urgently realise people’s human rights “to safe, physically accessible and affordable water”, to refrain from disconnecting anyone from water services, to pay the water bills of people who cannot afford to pay for water services and to pay for water at public institutions during the pandemic.
- Jabulile Mashwana pointed out that even before COVID hit, Eswatini Water Service Corporation was experiencing difficulty in collecting revenue because, as Mrs Mashwana put it “people have the notion that water is supposed to be free…our bottom line was already stressed”. However, she pointed out that as a public utility “we are mandated to ensure that we continue to provide services”. The Eswatini Water Service Corporation has not implemented any tariff increases for the last three months and is ensuring all users can access services by collaborating with the national disaster management agency to provide free water in rural remote areas via tanker trucks. They recognise that water is a human right, but also that it has to be delivered in a cost- effective way; “water is not free but it has to be affordable and accessible”. In response to a question about the role of government, Mrs Mashwana replied that government must continue to invest in infrastructure and encourage utilities to be cost-effective. Mr Gatel pointed out that the government is the duty bearer in terms of the right to water, and must make sure people have the means to pay their water bills.
- Dominique Gatel of the French Federation of Water Enterprises (FP2E), representing the private sector, discussed the impact of the crisis on utility revenue streams. Under French law, access and affordability of water are mandatory. Municipalities are required to fully recover their costs through tariffs and either operate services themselves (in which case revenues are “ringfenced” and cannot be used for other purposes), or they can outsource through transparent tenders. Almost 40% of the utilities’ cost is for capital expenditure (CapEx), 30% is for staff and the remaining 30% is for supplies. There is an impact of the pandemic on revenues. Due to their legal obligations, utilities cannot reduce their staff or the supplies they used, so the only solution is for utilities is to reduce capital investment when finances are under pressure, which has an impact on the future.
- Jorge Werneck, who heads the Regulatory Agency for Water, Energy and Basic Sanitation in the Federal District of Brazil explained that it is difficult to keep the regulatory triangle of government, society and the companies, with the regulator equidistant in the middle, balanced at the moment. Companies are experiencing reductions in their revenues right now; he described areas in Brazil where 50% of users are not paying their bills as they are unemployed during the pandemic. Regulators must keep informed, analyse and negotiate with utilities to ensure water is supplied. The challenge after the pandemic will be to recover the costs. It will be a difficult discussion: markets, tariffs and the government will have to play a role to fill this gap.
- Dale Whittington, an economist and professor at UNC at Chapel Hill suggested we look at the bigger picture - how the losses are going to be allocated and who will bear them. Most people would agree that owners of capital should be the first to bear these losses and not labour. It is difficult for water utilities in the Global South to allocate losses to capital because they are publicly owned and they don’t have debt. They cannot cut CapEx, because almost all their revenues go to labour and supplies. Utilities can’t borrow right now from the capital market, so there are only three possibilities for allocating loses- 1) funds could come from higher-level government or international donors 2) payments to labour could be reduced and 3) most customers have to keep paying their water bills. The question then is: how to targets subsidies so that the majority of customers keep paying the tariff?
- According to Luis Andres, the Lead Economist at the Water Global Practice of the World Bank, it is first necessary to quantify the funding gap that is being created right now, and then to come up with a liquidity facility to fund utilities. There have to be rules of the game for the government to support utilities, and we have to be smarter in using subsidies to target those who need them. Experience shows most subsidies go to the non-poor, so we need better data and better targeting. A simple geographical targeting method would work, for instance, to support people living in slums.
- Dale Whittington reiterated that “it is too simple to ask the state to step in to make losses whole” as all parts of the economy are looking for this relief. He also stressed that not everyone needs to get their water for free and that free water for all has several problems – it is expensive, it makes things worse as people use more water, and it is hard to reverse. “We will pay a heavy price if we go on a tariff holiday for long”.
- In closing, several of the panellists spoke to the fact that the COVID-19 pandemic is not only a challenge (to ensure the solutions we find do not have lasting negative consequences) but an opportunity. It is an opportunity to find new ways to work together, to make water service providers more efficient, to use data and technology better, and to learn.
The virtual Forum continued with an in-depth examination of the experience in Ghana. Clifford Braimah of the Ghana Water Company stated that even before COVID, his utility was not providing 24/7 water supply. Now, they “have so much on their hands”. The big worry for utilities is the recovery of the costs, and concern about how reimbursement would be done, and whether the government would have sufficient funds. Joseph Antwi of the Ministry of Finance of Ghana explained that the government has established a dedicated fund, and water service providers are being reimbursed from it. However, Clifford Braimah pointed out that instead of the estimated 10% increase in water consumption, it has gone up by 25%, so the estimates of the amounts needed to cover losses are too low. Vida Duti of IRC Ghana spoke of the complexity of governance in the WASH sector as one of the key challenges in solving equity issues in rural and peri-urban service provision. Water systems fall under many different administrations and are highly fragmented. There is a lack of proper records and it is difficult to provide reliable information to allow rural water providers to be reimbursed. Lack of clarity about how the reimbursement would work has led to water vendors and private operators simply suspending their services.
As with the global panel, the conclusion from Ghana is that the pandemic is an opportunity: in this case to see clearly the fragmentation of the sector. It will be a missed opportunity if it is not used to illustrate the ways the sector could be better structured, with proper oversight, consistent information and improved accountability.