A new report “Getting Investments Right” have been elaborated for the CEWP Business Program by the Danish Consultancy Company, COWI.
How to make sure you get value for money when investing in new pipes, pumps and filters in the water sector? How to choose between different options when it comes to, for instance, an enlargement of the network? How to get long-term economic and environmental perspectives into decision-making? How to secure stable and reliable financing? How to avoid the prevailing paradoxes in the water sector, such as substantial water losses in areas characterized by water scarcity? These are the key questions that this report addresses.
A major precondition for prober investment planning is that the Water Service Provider may manage and operate its utility and, hence, has an incentive to operate with a long-term economic and environmental perspective. Among others, it shall know its revenue stream many years ahead. The framework conditions shall ensure this.
There are three possible revenue sources. These are Tariffs (levied on consumers), Taxes (levied on wage earners, companies and others) and Transfers (provided by donors in terms of development aid). Only, Tariffs may provide a stable and reliable revenue stream for the Water Service Providers. The reason being that Taxes and Transfers, if the country is eligible for Transfers at all, may easily change substantially from year to year. Hence, Tariffs should ideally cover both capital expenditure and operating expenses.
Hereby the report analyses and presents the key structural reasons, why the water sector at present holds astonishing paradoxes, e.g. where water leakage rates are immense in a huge number of places, even places severely affected by water scarcity, and the uptake of the potentials of digitalization as a leaver to improve efficiency of the water sector is, at best, very unevenly distributed. The demand-supply gap seems to be widening, rather than being closed. In quite a number of cases, observations indicate that an important root cause of matters is the inefficient tender procedures, leading to “buy cheap” being promoted at the expense of “buy clever”.
The report can be downloaded [here].