Dreampipe: Financing Investments to Cut Water Losses

An inordinately high level of water losses – up to 50 per cent of water entering the distribution system – burdens water companies and customers in many developing countries. The culprit is non-revenue water (NRW): both real losses such as leakage and bursts; and apparent losses from poor customer databases, meter inaccuracies and illegal connections.

In developing countries NRW is a huge problem. One World Bank study estimates that reducing water losses by 50 per cent would generate $2.9 billion annually, and provide an additional 90 million people with potable water without requiring new water resources. We already have many of the solutions to address water loss, so why aren’t we doing more about it? What are the barriers to success?

One significant obstacle is sustainable financing. Despite evidence that well-planned investments to reduce NRW can pay for themselves over 7–10 years, financing for water infrastructure investment in developing countries has been hard to mobilise for cash-strapped utilities and governments.

The Dreampipe Challenge is a new initiative that aims to shine a spotlight on the NRW problem. Dreampipe is an innovation prize funded by the UK Department for International Development (DFID). It offers attractive prizes for new or improved ideas – submitted by anyone – about ways to increase the financing for utility companies to enable them to reduce NRW.

It makes sense to focus on NRW when initiating a broader water utility reform programme. NRW is a good indicator of more general inefficiencies and poor management in the water company; and dealing effectively with NRW can set in motion a virtuous circle leading to further improvements.

There was a general consensus at the recent IWA Water Loss Conference in Bangalore, India, that although a high level of technical and managerial expertise is needed to plan and carry out an optimal NRW reduction-and-control programme, this is not the binding constraint. The skills and know-how are available. Experts at the conference instead spoke about the need for a “change in mind-set” by politicians and utility managers.

True enough, but what does that mean in terms of concrete action? The present mind-set is mainly a symptom, not a root cause of the problem.

 

It’s true that water utilities can do much on their own. One expert at the conference said that the best leakage detection method (in terms of benefit-cost ratio) is visual inspection. Many utility companies in developing countries are lagging even in simple measures like that. Some utilities, however, have made great strides with the cash available and are ready to move forward. These utilities need external financing to undertake a serious NRW-reduction programme.

Multilateral development banks and development finance institutions do not have unlimited resources, and their procedures can be slow. As for the local bank down the road, it will be reluctant to lend without collateral in the form of a physical asset; it cannot dig up pipes and sell them if the water company doesn’t repay the loan.

The advantage of an innovation prize is that new and exciting ideas can come from anyone, anywhere in the world – outside the usual community of consulting firms – and focuses on solutions that are scaleable and replicable. This is especially useful when it is not easy to specify in advance what a winning solution would look like, even in broad terms. In addition, the prize process can give greater publicity to the issues, thus raising public awareness.

In principle, NRW-reduction programmes (including the cost of financing) should be able to pay for themselves from the cash flow generated by cost reduction and additional revenue. The payback period for the first, highest value, set of interventions could be just five to seven years. At the Bangalore conference, Ronnie McKenzie, Chair of the IWA Water Loss Specialist Group, put it bluntly: “Your leakage should be your next source of water.”

Writing recently on this blog, Dr. Ger Bergkamp stated: “The sheer magnitude and scale of global water challenges requires us to think and act differently.” The Dreampipe Challenge seeks to stimulate the very innovation that would allow us to do so.

Further details are available at the Dreampipe website. The deadline for submissions for Stage One, where all that is required is a short concept note, is 17 April 2016. So start putting your ideas down on paper!

 

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Chris Shugart is an independent consultant specializing in water-sector economics, financing and contracting, and the Dreampipe Prize Manager

Chris Shugart

Independent Consultant