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Contributions from
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Water utilities: managing bottlenecks intelligently
Statistics for poverty reduction
02/2006 |
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[ Water utilities ]
Sensible constraint management
Whether an enterprise is privately run or under government control has little bearing on the quality of service it provides. What matters is how efficiently it harnesses the financial and human resources at its disposal. InWEnt helps municipal authorities develop adequate strategies.
[ By Michael Funcke-Bartz ]
Chimbote is a city of 400,000 on Peru’s northern coast. Its economy depends on fishing and on fish processing at various fishmeal and canning factories. In the early 1990s, a cholera epidemic made headlines worldwide. Nonetheless, drinking water provision remained poor – so poor that, a number of years ago, thousands of families in one suburb took to the streets in protest. They demanded to be connected to the water network of the municipal drinking water supplier Seda Chimbote. Like most water utilities in Peru, Seda Chimbote is publicly owned.
Public utilities are inefficient, we are often told; only private operators can sustainably improve service standards and mobilise the capital needed for crucial investment. Claims like that are made by politicians and business executives, putting municipal companies in many countries under pressure. However, one fact is regularly overlooked: efficiency does not hinge primarily on whether a company is publicly owned, privately owned or a public-private joint venture. What matters is that the financial and human resources available are harnessed effectively. In the final analysis, the key to many problems is strategy.
In Chimbote, the public protest escalated. Peru’s President Alejandro Toledo had to intervene to calm things down. When the president asked what the municipal utility needed to improve water supply, the chief executive at the time mentioned recommendations of a foreign consultancy. It had recently conducted a study on the subject and found that “the company needs an additional water treatment plant to meet the rising demand”. When Toledo agreed to fund the new facility, the problem seemed solved.
But subsequent planning soon showed that the money pledged would not be enough to finance the new water treatment plant and pay for the extra pipelines needed to extend the network. In the end, a better solution was found by some of the utility’s own staff – staff trained in “constraint management” by InWEnt.
Intelligent use
An analysis of the constraints on drinking water provision in the district showed that the capacity of the facilities already in place could be increased by a simple course of action. Instead of constructing a new treatment facility, the company merely needed to make more intelligent use of the existing infrastructure. So talks were held with the government and a request made to allow the pledged funds to be used in a different way. The alternative plan not only improved water quality and helped win back commercial customers in the fishmeal industry. It also made it possible to connect many poor families to the network and boost the municipal company’s revenues.
The authorities would have had to invest a great deal of money to supply the poorer parts of the city with water all day long in the conventional manner. But they decided not to create more reservoirs to upgrade the twelve facilities already in existence. Instead, suburban households were provided with polyethylene water storage tanks. This was done under a public-private partnership contract (PPP) with the private company Dalka. The rooftop tanks are now supplied from the main pipes on a rotating basis.
Doing so is an economical solution applying the principles of constraint management. The theory of constraints was developed in the mid-1980s by Israeli physicist Eliyahu Goldratt. It is a tool for managing complex systems. InWEnt has used it successfully for years – to promote management competencies at municipal water utilities in the Andes and, just recently, to develop the organisation of the Ecuadorian national bank (Banco del Estado).
As in any complex system, not everything at a public water company runs smoothly. Many utilities have to contend with constraints. What needs to be done is localise the weak points, weight them according to priority and then tackle them one by one. It is crucially important to get the sequence right: like a chain that always breaks at the weakest link, a system cannot be strengthened until its biggest weakness has been tackled – no matter how hard the company tries to improve other parts of the system.
This has far-reaching consequences for investment decisions. The impact of money spent is reduced to zero, or at any rate impaired, unless the principal constraint is addressed. In the case of Chimbote’s water supply, pipeline losses are around 50 percent. So the amount of water that needs to be treated and transported is double the volume that reaches the consumer.
Because of the high cost, the cash-strapped municipal company postponed investment in repairing/renewing the network of leaky pipes again and again – just as happened elsewhere in Peru. Any substantial loan would quickly exceed the level of debt a municipal company is allowed to carry. Therefore, water remains a scarce commodity throughout most of Peru’s coastal desert – especially in suburban communities, where the poorest families live. People thus still depend on drinking water delivered sporadically by pipeline or tanker – water which they then store in open drums or buckets. That is not just expensive; it also heightens the risk of infection.
Chimbote’s experience shows that considerable improvements can be achieved in supply quality through small but targeted investment. As a general rule, Peruvian municipalities lack the money to connect every household to the mains. But even such a connection is not always the answer. In Chimbote, even connected households only had water for an average of five-and-a-half hours a day. Indeed, supply actually fluctuated from two to fourteen hours per day.
The solution found with the help of constraint management harnessed the logic of creating strategic buffers at the consumer’s home or as close to the point of delivery as possible. Instead of spending a lot of money on expensive reservoirs, light- and dustproof polyethylene water tanks are filled from the mains once a day on a rotating basis.
The arrangement has many advantages. Thanks to low investment costs, large parts of the community can be quickly supplied with a whole day’s ration of drinking water for a fraction of the sum originally budgeted. The utility itself is better-off financially and can direct resources to other areas in need of urgent investment. Customer satisfaction has risen and, along with it, the readiness to pay. The supply failure rate in Chimbote is around 6%. People no longer need to get up at night, only to fill containers. With the improved payment morale, the utility enjoys better liquidity and has more scope for investment.
Apart from that, there is no need to spend money on installing water meters, with all the follow-up costs they entail. Maximum daily consumption is defined by the storage capacity of the tanks. In the project implemented by InWEnt in conjunction with Seda Chimbote and Dalka, a 650-litre tank was enough for a normal household.
Monitoring has shown a sharp drop in consumption per family. Residents are evidently very economical with the water at their disposal. They know they have a limited amount to see them through the day. More importantly, network losses are significantly reduced as pipes carry water for only a short time. The claim that distributing water just once a day heightens the risk of drinking water becoming contaminated did not hold true – unsurprisingly so. After all, pipes were under pressure for only a fraction of the day even under the old system.
The results of the pilot project have convinced sceptics. At a water sector conference hosted by Peru’s sanitation regulator SUNASS, water utility representatives in Lima recently praised the achievements of their colleagues in Chimbote. The house water tanks propagated there, they said, are a sensible contribution to achieving the Millennium Goals on water.
Dalka chief executive Alfonzo Vásquez was also happy. He now holds a prize for entrepreneurial creativity awarded by the Peruvian University for Applied Science, the daily newspaper El Comercio and other partner organisations.
Michael Funcke-Bartz
is a senior project manager in the Sustainable Technologies, Industrial and Urban Development division at InWEnt.
michael.funcke-bartz@inwent.org
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