WATER SERVICE PROVIDERS FACING COVID19, INSOLVENCY, AND OTHER CHALLENGES
By Dominique Schmachtel, SWIM (Solutions for Water Integrity and Management)
Delayed or non-payment of water bills by public entities is widespread in developing countries, and has significant impact on the bottom line of water service providers. A 2020 survey by the Water Integrity Network (WIN), End Water Poverty, Solutions for Water Integrity and Management (SWIM) and other partners showed that 95% of the utilities investigated in 18 countries, mostly from the Global South, reported cases of non-payment by public institutions and that collection rates for public customers are consistently lower than for private customers.
Access to water is a human right and yet, according to a 2019 UN analysis, 2.2 billion people worldwide do not have access to safely managed drinking water sources or are not connected to water networks, and 3 billion people even lack access to basic handwashing facilities. The situation is putting millions at even greater risk during the COVID-19 pandemic when it is paramount that services be delivered as effectively as possible.
Water service providers are on the front lines. They must maintain adequate service and ensure that new measures mandated to face the pandemic are implemented effectively. They must do this while facing shortfalls in revenue collection due to the crisis and without compromising their ability to improve and increase service provision in the long-term.
National and local governments must take action to ensure water is accessible to all and do so by supporting service providers to weather the crisis and ensure optimal service, for the long-term. The first steps are to prioritise the payment of public institutions’ outstanding water bills and to back up the promises made in response to COVID-19.
Arrears from public customers jeopardise financial stability of water service providers and ability to respond to crisis
The reasons for non-payment are varied but at least 10% of survey respondents claimed abuse of political power or undue interference are to blame.
In a number of cases, the arrears represent a high proportion of the total revenue of water service providers. And, survey results show that the situation is worsening during the pandemic crisis as arrears are increasing. Two out of five surveyed water utilities suffer from increasingly delayed payments or a reduction of their bill collection ratio from public institutions. The missing money is urgently needed to provide adequate services and to ensure that the human rights to water and sanitation are realised.
There are now reports of a growing number of water utilities facing financial distress in part because of these issues. In Ghana, for example, the Water Citizen Network, warned that the Ghana Water Company Limited “will not be able to sustain a regular supply of water or expansion to reach unserved communities if the debt situation of the company is not resolved“.
Financial stress is compounded by lower collection rates and increased losses due to the crisis
In addition to delays and missing payments from public institutions, many service providers are also suffering financially from losses and a decrease in water demand and associated revenues. Otherwise reliably paying customers with high consumption rates, such as industry or the hospitality sector, have been hit hard by the crisis.
Many private customers, who had paid their bills may also be struggling to cover costs as they are confronted with the effects of the pandemic. As reported by the World Bank, the Uganda National Water and Sewerage Corporation for example “only collected 39% of the revenue expected between February and June 2020“.
This is leading to a general decrease in the collection efficiency of payments and is putting a serious strain on the operations of many water utilities. A Zambian water service provider shared insight on collection efficiency for our survey and research, showing a notable decrease since the beginning of 2020, with collection rates now far below the sector benchmark.
These issues are major concerns for utilities worldwide, and not only on the short-term. In the United States, for example, it is unclear for many how accumulated debt will be paid and what the impact of the crisis will be on collection and delinquency rates when emergency measures expire.
Measures to respond to COVID-19 provide relief, but they must be effectively funded and sustainable
Measures are being taken by governments to support water users and to provide water and relief for people during the crisis. Various governments have pledged to make water free or cheaper, put a moratorium on disconnections, and reduced or waived fees and extra costs. Governments are also, in some cases, already supporting utilities with additional financing and other measures to improve monitoring and coordination, all in an effort to maintain continuity of service. These are necessary and important steps forward that highlight the crucial importance of the water and sanitation sector in times of crisis.
The issues are whether, in practice, these measures are adequately funded and what their impact will be on the long-term. From our research, a Kenyan utility worker reported that: “Free water supply to hand-washing points and informal settlements“ was mandated by government to fight against COVID. But to pay for these additional services, water service providers still need to maintain sufficient income. Another Kenyan utility worker added that “the Government announced there would be no disconnections for non-payment of water bills, yet no subsidies have been provided”.
Overall, the inability for water service providers to avoid losses in revenue in combination with non-payment from public entities and accumulated arrears increase the risk of severe financial stress and bankruptcy. Immediate as well as long-term actions must be taken to protect and sustain water and sanitation services that are indispensable to overcoming the pandemic.
Two streams of action are required:
Governments must support utilities, backing up their promises for COVID-19 relief with adequate subsidies that fit in to a longer-term strategy towards the realization of the human rights to water and sanitation
To ensure a sustainable financial basis for utilities, measures must be taken by governments to ensure that all public entities, at every level, pay their bills to water service providers in full and on time.
Without these actions, any progress to provide water and sanitation to all is being put at risk by the very governments that claim commitment to this target.