Characteristics of well-performing public water utilities

Urban water supply and sanitation services have commonly been provided by state-owned, monolithic water organizations. As part of a general move to market-led systems in the 1980s and 1990s, a new paradigm emerged to transform utilities into more modern service delivery organizations that emphasize operational and financial sustainability. This report presents findings on attributes of well-run public utilities and attempts to identify important factors that influence their performance. The scope is also largely oriented to utilities that serve urban communities, but with varying characteristics and service objectives. Including the introduction, the paper is divided into four main sections as follows: Sections 2 and 3 deal primarily with the presentation of findings from the individual case studies. The findings are presented under a common analytical framework based on the concepts of New Public Management (NPM). The analytical framework incorporates two main perspectives. The first deals with the external environment, describing the institutional, social, and economic context in which providers operate. The second deals with the internal functioning of the utility, mostly oriented toward management practices and decision-making processes, and involves areas such as strategic planning, financing, human resource management, management information systems, and so forth. Section 4 draws lessons learned and additional observations from the case findings as well as from existing literature, one-on-one interviews and consultations at workshops. Finally, while the research does not purport to draw a comprehensive set of recommendations on reform of public sector water utilities, it does identify certain actions that are believed to be very helpful in improving the incentive framework for owners of utilities, whether they may be central agencies or local governments. Section 5 lists a number of these actions to improve the manner in which governments exercise their ownership function (ownership values) at both the central and local government levels. The study has shown that utilities must adopt good management practices to improve performance. But beyond that, it provides a better understanding of how the external environment influences the performance of public sector utilities in developing countries. The study points to ownership as the key function needed to create the appropriate incentive framework, because success is seldom achieved without it. Since owners of public utilities are often trading off various conflicting objectives, they themselves need to be motivated in a direction that will foster service expansion and performance improvements.