Four Strategies for Financing a Clean Water Supply in the Pacific

Many communities in the Pacific face severe shortages of drinking water. Photo: ADB
Many communities in the Pacific face severe shortages of drinking water. Photo: ADB

By Karl Galing, Bronwyn Powell, Sinéad Lehane

In the Pacific, governments and their partners must collaborate with utilities to ensure they can sustain their operations financially while delivering accessible, high-quality water services to everyone.

 Communities in the Pacific face some of the most severe shortages of safe, clean water in the world. Approximately half of the region’s population lives without access to basic drinking water, making them more vulnerable to the impacts of disasters and climate change.

To produce and deliver drinking water, and safely manage sanitation, governments and water utilities in the Pacific must grapple with financing, and the debate over how much water should cost and who should pay that bill.

Water utilities service most households in Pacific urban areas, but as informal settlements grow, they are tasked with the challenge of collecting sufficient income to deliver on agreed service standards to their customers, while providing affordable water to all.

To meet this challenge, governments, water utilities, and their partners should prioritize the following actions:

Develop workable regulatory and tariff frameworks. Utilities benefit from predictable revenue streams which help them deliver continuous services. Financing arrangements must account for future infrastructure needs and asset replacement, including measures to deal with risk and build resilience to climate change.

The regulatory and tariff framework of a utility determines its financial position, and the extent to which it is reliant on government subsidies or grants, cross-subsidy, or tariff collection. There is no one-size-fits-all approach to tariffs or regulatory models for water services, and while some will be tasked with full cost recovery, at least for operations and maintenance, others may operate under a public subsidy regime.

Cross-subsidizing is one approach to support operational sustainability – as in the case of the Federated States of Micronesia. The Chuuk Public Utility Corporation delivers both electricity and water services, with the electricity business subsidizing water and sanitation services.

A ‘best fit’ tariff and regulatory system is one that suits the country’s policy, institutional, and political economy context and includes poor inclusive strategies.

Adopt and expand financing strategies that include the poor.  Effective poor inclusive water financing strategies are crucial to meet public good objectives and these arrangements must ensure basic service levels are available to all – including vulnerable groups.

Equitable strategies must fit within the utilities’ broader revenue and cost-recovery objectives. Key entry points for these strategies include poor-inclusive tariffs and financing mechanisms, such as subsidized connection fees or free water allocations.

In Papua New Guinea, Water PNG Ltd. is trying innovative water supply systems, including water kiosks and meter farming, in informal settlements to find new ways to provide networked water supply to everyone. The Water Authority of Fiji provides a free water allowance to vulnerable households, benefitting over 150,000 people. 

Balancing the needs of everyone in the provision of water means ensuring the equitable access of water for all while making certain service providers are financially and operationally viable.

Engage and communicate on agreed levels of service. Agreed levels of service set the quality of water service a community can expect from their utilities. Defining an agreed level of service that can be met by the utility is important to managing customer satisfaction.

The Water Authority of Fiji noted that people have expressed a willingness to pay more for improved water services.  Improving services and effectively communicating to customers the value and benefits of connecting to a reliable water supply will enhance the willingness of customers to pay for these services.

Long-term utility communication and engagement strategies should focus on improving community water literacy. A community’s local knowledge of water and understanding about how their actions can affect water management (including network operations) is needed. As is increasing engagement on key issues like non-revenue water reduction, illegal connections, leaks, and bill payments.  

Address non-revenue water. Reducing non-revenue water – water that is produced and distributed but is physically lost due to leakages or theft, or commercially lost due to unbilled or unauthorized consumption and metering inaccuracies – is important for the financial viability of water service providers.

A well-performing utility may lose around 20% of its water to non-revenue streams. In the Pacific this figure can be as high as 85%, representing a significant loss of revenue and resourcing for utilities. Non-revenue water affects levels of service and quality of customers experiences, for example through loss of pressure, intermittent supply, and slow response to complaints and related grievances.

The Tonga Water Board established a non-revenue water management team, which improved their customer database, repaired broken water meters and visible leaks, dealt with asset and bill management as well as the recovery of illegal connections. Through these activities the utility saw over a five-year period authorized water consumption nearly double and non-revenue water cut in half.

 Balancing the needs of everyone in the provision of water means ensuring the equitable access to water for all while making certain service providers are financially and operationally viable.

All water utilities want to avoid the vicious cycle of declining service levels – both a symptom and cause of declining tariff payments - and move into the virtuous cycle of improved service levels to provide safe water for all.

Utilities must work collaboratively and transparently with governments and regulators to explore models that suit their context and afford them financial sustainability.

National leadership and enabling regulation are required. This must accompany serious conversations on how we value water, the true cost of delivering clean, safe water for all, and how we ensure no one is left behind.