Last week I had to give the WRc Open Innovation Day 2013 a miss due to a heavy workload. I was looking forward to it, after really enjoying it last year. Happily this disappointment was made up for by Andrew Beaver, Director of Strategy at Ofwat, kindly being able to give a fascinating guest lecture, on the practicalities and challenges of reforming the England and Wales water regulation framework, to close out our water and sanitation teaching this year:
Course leader Prof. Dale Whittington had had a great idea to juxtapose this England and Wales regulatory reform discussion with one of the few water sector success stories from developing countries – the dramatic turnaround of the Phnom Penh Water Supply Authority (PPWSA) that serves Cambodia’s capital city. NB. If you’re unfamiliar with it, there’s a highly watchable video summary here:
For the PPWSA case, emerging out of two decades of ‘social, political, economic and institutional turmoil’ – in the words of a report by Asit Biswas and Cecilia Tortajada we read before class (a version of it is available here) – one struggles to imagine a worse situation to start out from in turning around a water utility (except, as Andrew observed, had it happened in a desert setting, given that, at least, Phnom Penh has ample water resources). The early-1990s PPWSA had no access to onsite or offsite trained human resources, abysmal finances, no customer records, no infrastructure records, rampant illegal connections and copious leakage, and widespread utility staff corruption and low morale. This was set against a backdrop of breathtakingly rapid re-population/re-urbanisation of its capital city. All in all, it marked a highly unenviable position to be in.
Via a combination of factors that Dale, frankly, described as still a ‘puzzle’ to many observers, the PPWSA did manage to turn things around to achieve (in 2008) 90% water supply coverage, 24-hour service, an 85% drop in staff per 1,000 connections (an efficiency indicator), 100% metering (up from 12% in 1993) and a staggering drop in ‘non-revenue water’ (illegal connections, leakage) from 72% to 6% (1993 to 2008). Dale, Andrew and the class suggested a combination of factors that led to these remarkable achievements:
- Freedom from political interference for the PPWSA and autonomy over its own water tariffs and water resource planning – and at the same time, a consciously politically-savvy, pro-poor approach to connecting more people to the water system, and ensuring all people, both high and low, paid their water bills;
- Strong, charismatic and uncorrupt leadership – by General Director Ek Sonn Chan, who literally had a gun put to his head in the course of his duties, and yet carried on to get the timing and sequencing of his reforms right;
- Culture change in PPWSA – with new staff accountability systems, proper pay and incentive structures, and immediate penalties for corrupt behaviours;
- A ‘moment in history’, as Dale put it, and a sense of shared responsibility and ambition as Cambodia began to recover from its many years of horror – and all in a setting where it is comparatively cheap to supply piped water, given amenable ground conditions and nearby plentiful water resources;
- High economic growth for many years – wedded to an atypical situation where people were already paying quite high prices to water vendors so were willing and able to pay for piped water if it could be made available cheaper;
- Support from international donors – including conditional loans that may have helped the General Director achieve some political leverage to maintain the PPWSA’s autonomy; and
- A ‘manageable’ city scale to operate within (rather than a much larger city, whole region or country) and available economies of scale in water provision.
From this rather long list I guess it’s clear the PPWSA is not necessarily generalisable or repeatable elsewhere. Many things came together and the absence of one or more factors could have lead to another outcome (there is also the issue that the turnaround did not include creating a sanitation system).
After going through this case, and having just heard about the England and Wales situation where reforms have taken place over a much slower timescale bar the break at 1989 for privatisation, it was interesting to reflect on what could be taken away from each example. For England and Wales, political and regulatory stability have helped to attract huge sums of capital into the privatised water sector. And yet conditions increasingly attached to that massive capital investment, as debt-financing has overtaken equity-financing, have also brought risk aversion and, over the years, have embedded a sort of political-regulatory-investor nexus that has, so far, rejected outright the idea of universal metering, of disconnection for non-payment in spite of record levels of customer bad debt, and has increased resistance to culture change, and to new and innovative ways of working and technologies.
At the same time the England and Wales story – especially as it’s now reached a point where people are openly talking about an ‘old model’ that is well into diminishing returns in terms of performance against even recent service indicators, versus a ‘new model’ that will need to be more proactive and customer/outcomes-focused – provides a cautionary example to ponder the ‘life cycle’, as it were, of any regulatory framework.
Next year we’ll be into the 25th year of England and Wales water sector privatisation, and of its attendant regulatory framework. Looking comparatively across the two, UK and Cambodia cases, I’m pretty sure the next challenges for the PPWSA will be to maintain its rate of progress achieved in its early days (not to mention tackling sanitation). In the UK, whatever gains its water framework has brought over the years now seem largely spent. An infusion of fresh ideas, incentives and models seems inevitable – and is, in my view, what Ofwat seems to seek with its current and future regulatory reforms.
In a nutshell, against a ‘dynamic baseline’ – as Dale likes to describe it – no set of policies, regulations, incentives, cultures and practices are immune to becoming obsolete or ineffective. My knowledge of the Cambodia case, in spite of this fascinating first exposure, is so minimal that I’m totally unqualified to extrapolate what might happen there. But for the UK case, my hope is that the positive aspects of current deliberations can make it through to implementation sooner rather than later, and that we’ll soon be talking about the England and Wales water sector in terms of a distant ‘old’ and a promising ‘new’.