Corporatising a Public Water Supply and Sanitation Provider

1. Corporatising a Public Water Supply and Sanitation Provider By Dr. William T Muhairwe World Bank Institute

2. Outline • What is Corporatization? • Attributes of Corporatization • Why Corporatize? The Corporatization Framework & Process • Key Ingredients of a Corporatisation Framework • Benefits of Corporatization • Challenges of Corporatization • Key Lessons

3. What is Corporatisation? Dfn: Corporatisation refers to the transformation of state assets or agencies intostate-owned corporationsin order to introduce corporate management techniques to their administration. • Aim is to bring private sector management style of doing business that allows continuous productive efficiencies • Ownership however is retained wholly by the Central Government or majority ownership • Corporatisation differs from Privatisation

4. Attributes of Corporatization • Autonomy in conducting operations • Existence of a Board of Directors, Management and Shareholders (Gov’t) • Incentive Structure; to drive innovative performance • Accountability; the Corporation/Utility should be independently accountable for achievements and failures

5. Why Corporatize? • To improve the efficiency and effectiveness of water and sanitation service delivery • Do away with the menacing inefficiencies in service delivery • Do away with bureaucracy

6. Why Corporatize? • The guiding principle of corporatization is the intent to capture the advantages of a privately run company — including efficiency, productivity, and financial sustainability— while retaining government accountability.!

7. The Corporatization Framework and Process

8. Key Ingredients of a Corporatisation Framework 1. Legislation • Should provide for justifiable, logical reasons for establishment of a Corporate WSS Utility • Provide Statutory and legal structures to establish and Operationalize the WSS Utility, for example, Acts of Parliament or Statutes • NWSC Case – established by Decree no 34 of 1972 • Water Act • NWSC Act • Establish Mandate of WSS Provider

9. Key Ingredients of a Corporatisation Framework 2. Institutional Framework • Choice of whether the Utility should be supervised under a Water Ministry or Independent • Board of Directors • Management – CEO • Clear Reporting Channels • Mandate of WSS provider • Asset Ownership – is by Government

10. Key Ingredients of a Corporatisation Framework 3. Regulation • Corporatisation provides for either Government Regulation since assets are held by Government or • An independent Regulator – to minimise conflict of interest by Government

11. Key Ingredients of a Corporatisation Framework 4. The Executive Board of Directors • Independent Board highest organ of the utility • Acts independently from the controlling shareholders /Government, in the best interest of ensuring the long term sustainability and value of the company • Provides guidance and oversight to utility management without infringing on management’s autonomy and prerogatives • Vets all key decisions • Represents key stakeholders from different constituents: consumers, city council, unions, NGOs, private sector, etc

12. Key Ingredients of a Corporatisation Framework 4. The Executive Board of Directors… • Legislation advocating independence. • Different stakeholders represented. • Transparency, Accountability, Integrity. • Open meetings • Annual Reports typically detail performance against Corporate Plan or indicators, financial performance, and highlight shortcomings.

13. Key Ingredients of a Corporatisation Framework 5. Contractualization • Performance Contract with Government to drive performance over a period, outlining roles and obligations of each party • Provides for WSS targets • Provides for an incentive/ penalty structure based on performance

14. Key Ingredients of a Corporatisation Framework • Contractualization • Delegated Management Contracts with Operational Areas • NWSC Case: SEREP, APCs, IDAMCs, PACE Contract • Individual Management Contracts • NWSC Case: One Minute Management Concept

15. Key Ingredients of a Corporatisation Framework 6. Commercialisation • Emphasis is put on increasing water production and sales • Minimising NRW • Adopting Private sector principles of Profitability and Revenue Growth • Enhancing Customer Care • Cost reduction • Restoring Customer confidence in the Utility and stakeholder engagement

16. Key Ingredients of a Corporatisation Framework 7. Financial Management & Accounting • Adopting International Financial Reporting Standards (IFRS) • A documented and demonstrated commitment to achieving (long term) financial sustainability. " • Revenue generated through core services as a key source of financing" • Goals defined to recover, at least, O&M and possibly investment costs, depreciation, and debt service. "

17. Key Ingredients of a Corporatisation Framework • Financial Management & Accounting… • Service levels established with consideration of the financial resources available to the utility (including customer revenue, loans, and government subsidies).

18. Key Ingredients of a Corporatisation Framework • Financial Management & Accounting… • Tariff Review & Reforms • Channels to ensure that tariff setting and approval process is appropriate to the overall business, investment, and financing plans. • Ensuring Tariff Pricing principles of Affordability and Efficiency • Reduction of connection and reconnection fees • NWSC Case: Tariff Review & Tariff Indexation • Global Credit Rating; to determine the credit worthiness of a Utility

19. Key Ingredients of a Corporatisation Framework 8. Undertaking Reforms • All utilities must be ready to undertake reforms in the Corporatisation Process • Reforms should consider • Technical Performance • Financial Management • Staffing and Human Resource Issues • Behaviour and Attitude Change • Customer care etc • Explore possibility of feasible PPPs

20. Key Ingredients of a Corporatisation Framework 9. Corporate Governance Principles • WSS Providers ought to embrace principles of Integrity, Accountability, Fairness & Transparency, Stakeholder engagement, Gender etc

21. Benefits of Corporatisation • Commercial focus and decision-making, especially for investments & pricing. • Effective internal governance structure. • Business-like planning and performance monitoring. • Impetus for cultural change. • Flexibility in employment / remuneration arrangements. • Separation of policy / regulatory functions from (commercial) service delivery.

22. Challenges of Corporatisation • The process of corporatization can be costly and time consuming. • There can be a negative impact on labor relations. • LG may not have the capacity to properly govern / oversee corporatized water utilities. • High levels of managerial autonomy can lead to over engineering or gold-plating, especially where staff are strongly engineering-oriented. • Utility managers can be captured by political interests. • Depending on the manner in which they are established, this can have a negative impact on access to investment capital.

23. Key Lessons • Corporatisation is critical for improved performance and service delivery • Follow a sequential process and involve all stakeholders • A hardworking and committed Board of Directors with a good mix of skills is necessary • Committed, transparent, competent top leadership • Tailor made procedures to suit home situation paramount • Laws, decrees are not sufficient, enabling conditions – goodwill agreements are more essential • WSS Providers should be ready to withstand challenges that come with change.

24. Conclusion We Must Either Find a Way or Make One (Hannibal) Thank You