Water utility benchmarking for managerial and policy decisions: Lessons from developing countries.
Those responsible for utility operations can only manage what they measure, so having information on productivity trends and relative performance enables utility managers to direct attention to shortfalls. Similarly, policy-makers require quantitative analyses in order to identify utilities with strong and weak performance. Examples from Central America are used to illustrate key points. A recent IADB study reports that investments of $40 billion for water assets are needed to meet the United Nation's Millennium Development Goals; wastewater treatment would significantly raise that funding requirement ("Obstacles and Constraints, 2003). A survey of 400 stakeholders included in the study identified inappropriate pricing policy and lack of clarity in regulatory processes as the two major constraints for increasing investment in water and sanitation systems (WSS) in Latin America and the Caribbean. Private sector funding could play a role in expanding or improving urban water systems through either equity investments or the purchase of municipal bonds. However, external financial flows are required to increase significantly absent major improvements in system performance and to develop incentives for better WSS performance - in the sense of increased quality of service provision and cost efficiency of the utility system's operations. Expecting infrastructure investment to grow in Central America, the Inter- American Development Bank (IADB) funded a PURC study on Benchmarking Water Utilities in the region. The aim of IADB was to gauge the impact of loans on network expansion (coverage) and on service quality. In addition, water professionals at international organizations must be able to understand what utilities (and nations) are doing as "best practice" so that incentives can be developed to enhance performance (Baietti, et. al., 2006). The project involved conducting metric benchmarking analysis using data gathered from national regulators and utilities. This work complements and extends the Association of Water Regulators of the Americas' (ADERASA) recent empirical study on benchmarking Latin American water service providers.