Performance Based Service Contracts for Reducing Non Revenue Water
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1 Performance Based Service Contracts for Reducing Non Revenue Water Roland Liemberger Regional Director, Asia
2 I like to thank for all the support during the last four years
3 Scale of the Problem: Global NRW Estimates ESTIMATES OF NRW Supplied Urban Popula tion (2002) System Input [l/c/d] Level of NRW [% of System Input] Physical Losses Ratio Commercial Losses Volume, billion m³/year Physical Losses Commercial Losses Total NRW Developed Countries % 80% 20% Eurasia (CIS) % 70% 30% Developing Countries 837 (out of 1,903) % 60% 40% Source: Water Supply and Sanitation Sector Board Discussion Paper Series No.8 TOTAL (W. Kingdom, R. Liemberger, P. Marin)
4 Scale of the Problem: Global NRW Estimates (Cost) Marginal Cost of Water (US$/m³) Average Tariff (US$/m³) Cost of Physical Losses Lost Revenue due to Commercial Losses Total cost of NRW Estimated Values, billion US$/year Developed Countries Eurasia (CIS) Developing Countries TOTAL
5 The Sad Reality 70% of the world wide water losses occur in low and middle income countries (LAMIC) NRW costs utilities in LAMIC 10 billion USD per year In most utilities: no serious efforts made to reduce NRW
6 Benefits of a 50% NRW Reduction in LAMIC 11 billion m3 water made available annually 130 million people can be supplied USD 4 billion self generated cash flow per year Fairness: reduction in pilferage and corruption Improved service from sustainable utilities Substantial job creation as NRW management is labor intensive Business opportunities for manufacturers, suppliers, contractors and service providers
7 Main Reasons for High NRW Lack of incentives on all levels management focus understanding the issues staff qualification and training No willingness to invest in NRW reduction Insufficient CAPEX and OPEX budgets Poor construction standards especially service connections Absence of Active Leakage Control
8 More Problems! Disbelieve and denial that physical losses are the main problem Absence of a NRW management strategy Absence of a powerful NRW management department Insufficient or incomplete network zoning Insufficient consequence with commercial loss reduction
9 April 27 30, 2009 Monday April 27: NRW Management CEO Forum
10 How to Introduce Change? Water Balance and Performance Indicators the starting point (%NRW is not good enough!) Calculate cost/value of NRW Estimate required budget for a comprehensive NRW management program Good first guess: US$ 300 per m3/day NRW reduction Establish powerful NRW management department provide incentives Secure CAPEX and OPEX budgets Consider outsourcing (performance contracts)
11 Examples of performance contracts In this study: São Paulo, Brazil Selangor, Malaysia Bangkok, Thailand Dublin, Ireland Since then (for example): Various contracts in Malaysia Ho Chi Minh City, Vietnam Bahamas Nashville, USA... and several others are under development
12 Critical design elements of performancebased NRW management contracts Scoping: what is the role of the private contractor? What are the NRW reduction targets? Incentives: how is the performance based element of the contract structured? Flexibility: to what extent does the contract allow creativity in design and implementation of NRW reduction activities? Performance indicators and measurement: How is NRW reduction measured? Procurement/Selection: how was the private contractor selected? Sustainability: what happen after contract completion?
13 The Ho Chi Minh City Project
14 Project Objectives Reduction of Non Revenue Water Leakage Reduction Improvement of customer metering and billing Comparing the efficiency of an outside contractor with in house crews Zone 1: All works undertaken by a contractor Zone 2: water utility supported by international specialists Distribution network restructuring
15 Establishment of District Meter Areas (DMAs) A zone has about 100,000 customers With the current infrastructure condition this is unmanageable Zone will be split into about 100 small zones (DMAs) Each has an inflow meter and a pressure control valve Consequence: the network will become manageable
16 The Performance Based Leakage Management Contract Scope: Detailed design, establishment and management of DMAs Leak detection and repair Leakage management (monitoring and maintaining the reductions) Other pipe laying and service connection installation works that become necessary Duration: 4 Years Leakage Reduction Phase 1 Year Maintenance Phase Contract signed in July 2008 (Manila Water)
17 Payment Mechanism DMA design and establishment (incl. all works and materials) paid by a lump sum rate per DMA established Leakage reduction and management: paid by a combination of fixed and performance fee fixed fee: maximum 30% of performance fee performance fee based on measured volumetric leakage reduction (m3/d) on DMA basis All other pipeline works (e.g. mains replacement): unit rates in the BoQ
18 Performance Incentives and Penalties Fixed fee relatively small contractor has all incentives to perform well; and Time schedule for DMA establishment Minimum leakage reduction targets Obligation to maintain leakage at low levels after repair A set of tools if things go wrong: Liquidated damages if targets not achieved Special retention for performance fee General performance security
19 Selection of successful bid Two envelope system Financial proposals opened only of technically responsive bids Technical evaluation: 10 pass/fail criteria 2 of 4 bidders met the 10 criteria Financial evaluation: cheapest responsive bid General Problems: Underbidding difficult to avoid Cheapest bid wins, even if technical proposal not as good, (even if only marginally cheaper).
20 Conclusions Most importantly: Performance based contracting with the private sector can successfully address the problem of NRW Problem identification and good baseline data (water balance!) of utmost importance Market has already started to move from being niche to being mainstream Enormous market More and different contracts More specialist contractors and competition Lower transaction costs and better contract documents
21 New Sources of Water 1. New Dams 2. River Sharing 3. Rain Water Harvesting 4. Desalination 5. Icebergs Source: Water and Sanitation Program (WSP) Calendar
22 You may download the original publication from the World Bank's webpage Or contact me at: water.com Thank you
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