Extraordinary makeover of PPWSA-
The Phnom Penh Water Supply Authority (PPWSA) is one of the best water utilities in Southeast Asia, outperforming its peers on most indicators. PPWSA’s network offers access to more than 90 per cent of the residents in the city, including the urban poor; supplies water 24 hours a day; loses only six drops per 100 drops of treated water produced; and generates a profit. Its achievement is quite a turn around from two decades ago when the utility could provide only half a day of service to only 20 per cent of the city’s residents and lost almost three-fourths of its water to leakages and theft. The utility has achieved this transformation by investing in human capital, rehabilitating and developing infrastructure, improving customer relationships, leveraging donor assistance, and securing autonomy.
Impressive transformation
The company’s tale of transformation is legendary in development circles. In 1993, when the utility changed from a government-owned enterprise to become an independent corporate entity, its operational indicators were at rock bottom. The piped water supply that was of poor quality was delivered at very low pressure for only 10 hours per day. Moreover, only one-fifth of the city’s residents received water. Non-revenue water (NRW) was extremely high due to illegal connections, the manipulation of bills, and physical leakage. Infrastructure was poor, as most of the pipes were over 70 years old. Only 12 per cent of the customers had water meters: the collection ratio stood at less than 50 per cent. In addition, the authority had a very high staff per connection ratio. As a result of poor operational performance, PPWSA’s bottom line was constantly in the red.
By 2005, the utility had undergone a complete turnaround with a substantial improvement in all its performance indicators. Connections increased to over 138,000 from just 26,000 in 1993. Collection efficiency surged to over 99 per cent. NRW declined to 8.5 per cent. Output increased to about 62 million cubic metres (cum) per annum. Treatment capacity expanded to over 85 million cum per annum.
The authority further strengthened its operational position during the 2005–10 period. One of the key indicators of improved operational performance is the number of connections. Between 2007 and 2010, the number of connections increased at a compound annual growth rate (CAGR) of 7.79 per cent, up from about 162,000 connections in 2007 to over 200,000 in 2010. By 2012, PPWSA had increased the number of connections to 235,111. Currently, over 90 per cent of the city’s residents have access to 24×7 high pressure water supply.
Water quality now meets standards set by the World Health Organization (WHO). All connections are metered. PPWSA has increased its production capacity by almost five times, while reducing NRW drastically to below 6 per cent. Moreover, it has trimmed the staff per connection, increased labour productivity, and improved collection efficiency.The utility serves more than 27,000 families (14 per cent of all customers) in over 123 urban poor communities at subsidised tariffs and connection fees, which can be paid in instalments. Table 1 offers an itemised breakdown of the utility’s performance based on specific indicators.
PPWSA has also remodelled itself financially: from being a heavily subsidised entity, the company now covers its costs fully and operates without any subsidies from the state. In fact, the utility made a profit as early as in 1995, which increased substantially after 2000. During 2005–12, revenues leapt at a CAGR of over 14 per cent. Based on the latest financial results, the company’s total revenues rose by 25 per cent year on year to reach $36.9 million in 2012. PPWSA projects that it would generate $37.5 million in revenue this year. The company’s net profit was $8.56 million in 2012, exceeding the $6.16 million recorded in the previous year by 39 per cent. Fig. 1 illustrates the growth in PPWSA’s total revenues.
In April 2012, PPWSA was listed on the newly launched Cambodian Securities Exchange, becoming the first domestically listed company on the bourse. About 15 per cent of the shares were offered to the public; the Ministry of Economy and Finance owns a stake of 85 per cent. The issue raised $20 million that was used to retire part of PPWSA’s corporate debt.
Contributors to PPWSA’s turnaround
One of the most crucial factors in PPWSA’s turnaround was the decision to turn the entity into an autonomous public utility with its own finances in 1996. This autonomy allowed the utility to apply a volume-based water tariff and retain any revenues in excess of operating costs to improve services. Tariffs were then restructured, increasing in 1997 and 2001. In addition, PPWSA was also allowed to recruit its own staff, which had not been possible previously when it had been part of the municipality, and pay salaries that were pegged to performance at market rates. The utility also benefited from not receiving a subsidy from the central government, as it was then able to distance itself from political pressures. Thus, after paying taxes to the government, PPWSA could channel its revenues back and divided into investment accounts.
With the attainment of functional and financial autonomy, PPWSA invested in both human resources and infrastructure for its revival. The entity undertook a complete overhaul of the organisational structure: it fired corrupt and incompetent staff and brought salaries up to market levels. At the same time, it provided training to increase skills and realigned incentive structures to reward performance.
Next, PPWSA conducted surveys to identify the actual number of households with connections, refurbished the distribution network between 1994 and 1999, and expanded it to increase coverage from 2000 onwards. Subsequently, it developed a customer database and information system that was operational in 1994 and completed the metering of all connections in 1997. Later, during 2004–06, PPWSA introduced subsidised connection fees for slum residents and established a revolving fund to finance connections in order to increase the number of connections and reach out to the urban poor.
It also adopted a strategy to improve its water accounting process. For this, PPWSA divided the distribution network into 41 zones; each zone was equipped with a pressure and flow rate data transmitter that provides online data and allows the utility to keep a check on leaks. A special team of men equipped with acoustic devices was added in 2000 to detect leaks in the network.
Once service quality improvements started becoming apparent, the utility launched an aggressive campaign on bill collection and imposed fines on illegal connections. PPWSA also introduced a computerised billing system and required payments to be made exclusively at its offices. Hence, it was able to reduce the opportunities for small-scale corruption that was rampant, as it used to issue bills manually and hire bill collectors to collect payments.
Donor support also played a vital role after the 1993 elections in Cambodia: the utility received about $165 million in external assistance between 1993 and 2009, on the condition that PPWSA institute the aforementioned reforms. One of the biggest contributors was Japan: it helped Cambodia to prepare a master plan for the country’s rehabilitation in 1993. France aided PPWSA in improving and expanding the water treatment plant and distribution network, as well as in computerising PPWSA’s operations. In providing concessional loans to the utility, the Asian Development Bank (ADB) and the World Bank attached the condition that PPWSA be made autonomous. Moreover, it would be allowed to set cost recovery tariffs.
Striving for better
Instead of resting on its laurels, PPSWA has embarked on an ambitious plan to expand its coverage from the current 90 per cent to the entire city of Phnom Penh, Takmao, and the surrounding areas to meet the increasing water demand by 2020, when the population in Phnom Penh is expected to increase to 2.2 million. PPWSA’s challenge will be to continue to supply water at the current rate and quality; in fact, it seeks to reduce the costs of supply to its customers. Moreover, the utility is also working to reduce its water loss further to 4 per cent by 2020, which would place it in the same league as Singapore and Tokyo. Finally, it will also continue to improve the efficiency of its staff by achieving a ratio of 2.5 staff per 1,000 connections.
