Knowledge for Development Conference Edition Improving the Performance of Electricity and Water and Sanitation Utilities in Sub-Saharan Africa October 2016 Water Global Practice A Growing Need for Better-Performing they often have a responsibility to provide ser- Energy and Extractives Utilities in Sub-Saharan Africa vices nationally to urban and rural c­ onsumers. Global Practice Two trends are shaping the future of eco- To have modern access to water1 and electric- nomic growth in Sub-Saharan Africa. Rural to ity entails an affordable connection to the urban migration is expected to rise steeply. ­ service, and continuous and affordable supply The urban population still comprises only of sufficient quantity and quality. Utilities need 37 percent of the total population, despite to perform their operational and financial tripling since 1990. And while poverty reduc- functions efficiently enough to provide such tion efforts have been effective in decreasing services. the proportion of people living on less than $1.90 per day, the number of poor people What Makes a Well-Performing Utility? in Sub-Saharan African continues to grow There are many ways to define a well-​ alongside population increases. ­performing utility, from one that is financially The growth potential of cities across Sub- sustainable to one that provides a reliable Saharan Africa thus hinges on better progress supply. Each utility prioritizes its goals based toward reducing poverty in the face of rapid on sector objectives and the enabling envi- urbanization. One effective antidote to pov- ronment set by the government. Varied ways erty is more and better infrastructure, yet of measuring utility performance require Africa’s infrastructure networks lag increas- ­ different types of data and observation, ingly behind those of other developing coun- which yield quite subjective conclusions tries in providing telecom, electricity, and about the level of performance. This topic is water supply and sanitation services. Those discussed in three Water and Energy Global people and industries that do have services Practice studies published in 2016.2 These pay twice as much as those outside Africa and regional analyses looked at operational, receive fairly low quality service, further reduc- financial, and commercial/­ customer perfor- ing regional competitiveness and growth. As mance of utilities. While a case study cities continue to flood with migrants looking approach was used to dive deep into the for better economic opportunities, power and main determinants of well-­ performing water water utilities are being challenged to improve and power utilities and progress in reform, the services offered to existing and new users. additional benchmarking analysis for water For power utilities, the added challenge is that utilities used the International Benchmarking This paper is a synthesis of the findings of reports that look at the drivers of performance in energy and water utilities in Sub-Saharan Africa. This paper also provides other insights on issues that complement the findings of these reports. The following people contributed to this summary note: Caroline van den Berg, Pedro Antmann, Christiaan Heymans, Alexander Danilenko, Luis Andres, Sameer Shukla, Amanda McMahon Goksu, William Kingdom, Richard Damania, Alexander Bakalian, Jonathan Kamkwalala, Aroha Bahuguna, Joeri Frederik de Wit, and Diana Cubas. The authors also greatly appreciate the guidance of Jamal Saghir, Jennifer Sara, Jyoti Shukla, Lucio Monari, and the leadership team in the Energy and Extractive, and Water Global Practices. 1  Hereafter water refers to water and sanitation utilities. 2   These are: “Performance of Water Utilities in Africa: A Status Report,” led by Caroline van den Berg and Alexander Danilenko; “Improving the Performance of Sub-Saharan Africa Electricity Utilities,” led by Pedro Antmann; and “Providing Water to Poor People in African Cities Effectively: Lessons from Utility Reforms,” led by Christiaan Heymans. 1 Main Message 1 The operation and management of utilities in Sub-Saharan Africa are characterized by big similarities in several business areas, but sig- nificant differences in others. Commercial operations and customer ­service activities, which are inherent to a ­utility retail business, are essentially identical in elec- tricity and water, as well as in other networked infrastructure services. In managing account- ing, finances, human resources, ­ procurement © jaffrey bagge. and logistics, information technology, and other corporate resources, well-­ performing utilities use state-of-the-art support tools. Both electricity and water utilities are respon- Network for Water and Sanitation Utilities sible for the expansion, rehabilitation, and (IBNET) to give a more general view of ­utilities’ upgrade of the infrastructure they operate. In performance across Sub-Saharan African the power sector, overall sector ­ planning—in countries. particular, expansion of the generation and Additional data and evidence were har- transmission segments at least cost for the vested from the analysis of water and elec- country—can sometimes be under the respon- tricity utilities in all three reports, which sibility of other government entities. enabled a broader perspective on the ­ sector-​ In a number of Sub-Saharan African coun- wide variables impacting performance, tries, electricity regulation is the responsibility beyond internal variables for specific utilities. of an independent regulatory body. While pric- The two water studies provide guidance on ing is politically sensitive in both water and how to provide good quality services to electricity sectors, in water, the objective customers, including the poor. In contrast, ­ often is for prices to cover operations and because of data constraints, the energy maintenance. In electricity, prices are expected study was limited to a narrower but deeper to cover both operating and capital expendi- assessment of operational performance in tures, in part to ensure that e ­lectricity ser- Burkina Faso, Côte d’Ivoire, Kenya, Senegal, vices can be maintained and expanded in and Uganda. The reports fill a gap in the future. The electricity sector is also exposed literature of the utilities’ performance in ­ to external factors such as international oil Sub-Saharan Africa and expand on the ­ price volatility and currency depreciation. determinants for performance, identify the There are significant differences in the busi- traditional and nontraditional mechanisms ness structure of these sectors. The largest for reaching the poor, and highlight the criti- cost item for energy is power generation, while cal elements for turning bad-­ performing for water it is network infrastructure (rather utilities around. The reports did not aim to than potable water generation). Additionally, in systematically collect new performance indi- a majority of Sub-Saharan Africa countries, cators for the utilities or to scientifically new generation investment is expected to assess institutional designs beyond the lim- come mainly from the private sector, which in ited case studies relating determinants to turn has implications for the electricity utility sector performance. While the three back- and sector. Another key difference could be in ground reports provide a significant step the mix of consumers—in Sub-Saharan Africa, ahead (as they serve mainly as a mirror for 40 percent of electricity consumption is by res- performance assessment at the country and idential consumers, whereas about 31 percent utility level), the reports also aimed at pro- of consumption is by industries and an addi- viding direction in the region for sector-wide tional 22 percent by commercial consumers. improvement, as further discussed at the Both sectors have to deal with technical and end of this summary. nontechnical losses. Reducing technical losses The combined result is a heterogeneous in water requires investments in network sample of utilities with varied experiences. ­ rehabilitation—the economic and financial via- Despite the differences between these stud- bility of which depends on a comparison of ies, there are some common messages that the investment costs versus costs savings can help both sectors advance in Sub-Saharan from reduced amounts of water produced, or Africa. in the case of electricity, a comparison of costs 2 versus additional revenues from electricity Main Message 2 sales. The optimal level of technical losses is in Overall, the performance of utilities is low, general quite far from zero. Nontechnical or but there are some relatively well-performing commercial losses can be reduced by improv- utilities on par with the best performers in ing the metering, billing and collection systems, other regions. monitoring consumption regularly, particularly Sub-Saharan African water utilities have of the high-value consumers, and by enforce- been able to slowly improve water coverage, ment of payment discipline among consumers. but overall coverage stands at only 60 per- Supply of potable water has direct impli- cent. The level of service, however, varies cations on human health, and customers of greatly, with only 15 percent of the total pop- water utilities are extremely sensitive to ulation having access to piped supply (Figure 1). the quality of the product they receive. In The average number disguises an important electricity, the quality of the product (volt- ­ point—that the well-performing water utili- age, ­frequency, etc.) does not carry the same ties have shown that these piped connections implications for public health, although par- (stand posts and to the premise) can get to ticularly for some kinds of industry, as well as well over 90 percent, if the basic aspects of for hospitals and other essential services, the efficiency and political support get worked quality of electricity supply can be a very through. Access to sewer services is in its important factor. Similarly, the fact that infancy in Africa, with very few utilities pro- some customers will have water storage at viding such services. Nonrevenue water3 the household level and access to alternative decreased almost 15 percent from 30 per- water sources gives the utilities some flexi- cent to 25 percent from 2005 to 2014 in the bility in how rapidly they respond to disrup- region, and staff productivity (measured by tions in service or water quality complaints. the number of employees per 1,000 connec- Electricity utilities do not have that flexibility, tions) improved from around 7.8 to 5.6. The and have to balance supply and demand in average number of hours of service per day real time—this is perhaps one of the key dif- for water supply also increased 7 percent ferences between the water and electricity from 18.7 hours to 20 hours per day in the sectors. They must respond immediately to same period. incidents affecting supply to their customers, A well-performing utility provides ser- which in general are full outages. Water utili- vices that are efficient, affordable, sustainable, ties are often limited to urban areas whereas and provide a minimum quality of service. Well- electricity utilities in most countries in Sub- performing utilities are generally doing well in Saharan Africa have a national mandate. terms of operational and financial perfor- Therefore, one of the key challenges facing mance and the top performing water utilities Sub-Saharan Africa electricity utilities is that of expanding access across countries in an   Non-revenue water is water that has been produced 3 affordable way. and is “lost” before it reaches the customer. Figure 1. Water and Electricity Coverage a. Africa piped access b. Africa electricity coverage 45 70 Population with piped access (%) 40 Population with access (%) 60 35 50 30 25 40 20 30 15 20 10 5 10 0 0 20 0 20 04 2008 20 9 2010 20 14 04 14 2002 2003 2006 2012 20 3 00 02 06 08 10 12 20 01 2005 20 11 15 2007 0 1 0 20 20 20 20 20 20 20 20 20 Urban population Total population Urban population Total population Source: WHO-UNICEF Joint Monitoring Programme and World Development Indicators. 3 Table 1. Benchmarking Sub-Sahara African Water Utilities with Global Utilities Africa Global Bottom Middle Top Bottom Middle Top 2012 10% 80% 10% 10% 80% 10% Non-Revenue Water (%) 61.2 35.0 10.5 63.2 30.8 9.7 Operational Cost Recovery (revenue/costs) 0.34 1.09 1.77 0.15 1.09 2.15 Staff Productivity (Staff/1000 Connections) 43.0 11.0 1.4 35.6 6.5 1.3 Continuity of Service (hrs/day) 6.0 15.6 24.0 8.7 22.6 24.0 Required Chlorine Test Compliance (%) 72.3 94.0 100.0 77.0 94.7 100.0 Total Water Consumption (Litres/Person/Day) 27.1 71.1 207.8 52.9 171.6 342.5 Source: World Bank calculations based on IBNET data (www.ib-net.org). Note: i) Figures are based on unweighted observations; and ii) number of utilities represented in Sub-Saharan Africa is 344 and globally is 5,174. Table 2. Benchmarking Sub-Sahara African Power Utilities with Global Utilities Sub-Saharan Africa Global (excl. high income) Bottom Middle Bottom Middle Indicator / Average of: All 10% 80% Top 10% All 10% 80% Top 10% Access to electricity (%)1 – 2012 36 7.5 34 83 69 12 64 100 Access to electricity, rural (%)1 – 2012 19 1.4 15 64 58 3.3 51 100 Access to electricity, urban (%)1 – 2012 66 20 68 100 84 36 83 100 Time required to establish a connection (days)2 – 2015 137 413 110 50 110 287 97 37 Number of electrical outages in a typical month3 – various years 8.6 27 7.0 0.94 7.4 37 4.3 0.23 If there were outages, average duration (hours)3 – various years 6.3 18 5.3 2.0 5.0 17 3.9 1.6 Transmission and distribution losses (%)4,5 – 2014 for SSA, 2012 for Global 23 49 21 8.5 19 44 17 7.7 Bill collection rate (%)4, 6 – 2014 87 59 88 99 90 60 92 100 Utility transparency and monitoring6 – 2014 49 1.4 46 93 66 6.0 66 100 Notes: World Bank; International Energy Agency. 2014. Sustainable Energy for All 2013-2014: Global Tracking Framework. Sustainable Energy   1 for All, World Bank, Washington D.C. © World Bank. https://openknowledge.worldbank.org/handle/10986/16537 License: CC BY 3.0 IGO. 2 World Bank. (2016, 9 28). Getting Electricity. Retrieved from Doing Business: http://www.doingbusiness.org/data/exploretopics​   /getting- electricity. 3   World Bank. (2016, 9 28). Retrieved from Enterprise Surveys: http://www.enterprisesurveys.org/. 4 Trimble, Christopher Philip; Kojima, Masami; Perez Arroyo, Ines; Mohammadzadeh, Farah. 2016. Financial viability of electricity sectors   in Sub-Saharan Africa: quasi-fiscal deficits and hidden costs. Policy Research working paper; no. WPS 7788. World Bank Group, Washington D.C. http://documents.worldbank.org/curated/en/182071470748085038/Financial-viability-of-electricity-sectors-in-Sub​ -Saharan​-Africa-quasi-fiscal-deficits-and-hidden-costs. 5   International Energy Agency (2015) IEA Statistics. Retrieved from: http://www.iea.org/stats/index.asp. 6   World Bank. (Forthcoming). Readiness for Investment in Sustainable Energy 2016; World Bank, Washington D.C. are even able to achieve global benchmarks ing costs with cash collections. Utilities also of operational and financial performance. continue to suffer from low operational per- The top 10 percent of performers in Sub- formance, with high technical and nontechni- Saharan Africa are better than the global mid- cal losses, on average about 23 percent (the dle 80 percent in all indicators. bottom 10 percent of countries face losses as A recent study4 found that of 39 electricity high as 49 percent)—refer to Table 2. utilities examined in Sub-Saharan Africa, only But good performance varies widely two fully covered operating and capital costs between countries—irrespective of income in 2014 with their cash collections. Nineteen level or political regime or sector structure— countries out of the sample cover operat- and even within countries. Variation in local circumstances can include the availability of alternative sources, spatial patterns and 4   “Making Power Affordable for Africa and Viable for Its Utilities,” Masami Kojima and Chris Trimble, 2016. levels of economic development that affect ­ 4 the cost of infrastructure and service ­delivery, the type of consumers, the willingness of users to connect and pay for utility services, the quality of sector and utility management, and the general level of governance and insti- tutions in the country. Unfortunately, it was not possible to capture all these local partic- ularities in the data collection. Main Message 3 Even amongst the best-performing utilities, customer performance is relatively weak. © World Bank. Customer performance is not very well developed in Sub-Saharan African utilities. Most utilities provide less than 16 hours of water per customer interests. They are characterized by day. Water consumers in Sub-Saharan Africa efficient, decentralized o ­ perations that are cus- rely heavily on shared connections and public tomer-oriented to provide feedback mecha- standposts. Less convenient supply leads to nisms for continual improvements. Such less consumption. Only two of the five water utilities use incentivized contracts, both exter- utilities studied sold more than 50 liters per nal and internal, to meet key performance indi- capita per day (the minimum ­ volume of water cators. They are also relatively autonomous and set by the World Health Organization to guaran- free from political interference with regard to tee good health and hygiene). Low consumption decision ­ making on human resources and finan- is prevalent in low-income countries and pre- cial management. vents utilities—especially small ones—from At least in the five relatively better-­ operating having a strong revenue base. The cycle of poor electricity utilities studied, the structure and performance thus continues. ownership of the utility appears not to be an Sub-Saharan Africa still lags behind other important driver of performance as long as the regions in terms of generation capacity, elec- factors mentioned above are present. Of the tricity consumption and access. The total gen- five, three utilities are vertically integrated, while eration capacity in Sub-Saharan Africa, with two are unbundled d ­ istribution companies. Two a population of nearly 1 billion, is less than government-owned, two are private utilities are ­ 100 GW (less than that of Spain with a popula- concessions and one is a public-private partner- tion of 46 million). Only about 36 percent of ship with majority government ownership. the population had access to electricity in Generally speaking, as noted in Table 2, utilities 2012—69 percent in urban areas, and only in Sub-Saharan Africa rank quite low on an 15 percent in rural areas. Businesses and other index of transparency—49 on a scale of 100 consumers are severely affected by poor (as opposed to a global average of 66). ­ quality of electricity—as noted in Table 2, an However, while the technical, financial, and Enterprise Survey found that business in Sub- managerial techniques needed to meet these Saharan Africa on average face 8.6 outages per standards are quite well known and could month (­ compared with a global average of 7.4). often be applied elsewhere, context-specific More than 50 percent of them own generators application depends largely on factors in the (compared to 32 percent globally). Very few political economy. When alignment is achieved utilities measure performance at the consumer with other interests in a city or society, or level, which makes it harder to gauge whether along with finance and technical assistance investments and other measures aimed at from development partners, a utility can solve improving quality are having an impact. urgent problems while creating competence, strong stakeholder relations, and complemen- Main Message 4 tary institutional structures. This is the plat- Strong institutional frameworks and norms form for developing and sustaining good and policies that promote transparency and service to the poor. accountability are key determinants for success. Main Message 5 Well-performing utilities in Sub-Saharan Turning utilities around is possible, and a cat- Africa benefit from a strong institutional frame- alytic event can create a space for reform, work and norms and policies that ­ promote and savvy political and technical leaders transparency and accountability, protecting need to seize the opportunity. 5 Figure 2. Starting the Reform, Building Momentum, and Sustaining the Reform Starting the reform Building momentum Sustaining the reform Build Preserve Professional technical leader Internal cpability and culture Forge Embed Catalytic event or space for Alliances external to the utility reform Secure Create Strengthen political leader Formal rules and structures Source: “Providing water to poor people Providing water to poor people,” Chris Heymans, Rolfe Eberhard, David Ehrhardt, and Shannon Riley, May 2016. The findings from the cases in the study on O&M costs, controlling costs is a major ele- services to the poor highlight three distinct ment in making the service more affordable. but interrelated avenues of inquiry: how For water, O&M costs are highly variable, rang- reforms are started, how reform momentum ing from less than $0.23 to $2.07 per cubic is built, and how successful outcomes are sus- meter of water sold. The variance is due to tained (Figure 2). A catalytic event, such as a multiple local variables, which can include raw cholera outbreak or a change in the political water quality, energy subsidies, and labor laws. landscape,5 or an unsustainably large fiscal In electricity, Sub-Saharan Africa suffers from impact of the electricity sector, can create a very high generation costs and operational space for reform, but savvy political and tech- inefficiencies, and so improving the financial nical leaders need to seize the opportunity to viability of utilities will come in large part from formulate a mutually beneficial partnership. reducing costs. Kojima and Trimble (2016) Together they must help shape networks and found that 11 of the 39 countries studied could alliances for change and start to embed the achieve full O&M and capital cost recovery if reform legacy. Success is possible only if the costs could be reduced to efficient levels. In the balance of political economy pay-offs remains remaining countries, a combination of change in favor of reform, and—once achieved—in in fuel mix (for instance, away from high cost favor of sustained good service, even as the imported diesel) and price increases is needed. attractions of predation on the utility increase. Interestingly, while costs have risen in recent years, so has the affordability of services, par- ticularly in the water sector, thanks to new Main Message 6 innovations in utilities in Sub-Saharan Africa in Governments are finding innovative ways to helping the poor tackle barriers to access, balance financial performance with afford- including financial, legal, social and technical ability, especially for the poor. challenges. Several utilities have kept connec- tion costs down for low-income consumers For the average 80 percent of water utilities, and helped the poor manage their cash flow to operational cost recovery was positive for continue paying for service. Innovations like most years between 2006 and 2013; however, flow limiters, providing a “basic needs” quantity many utilities remain unable to recover opera- of water for free (as in Durban), a lifeline tariff tion and maintenance (O&M) costs. Because for electricity, or frequent meter readings and tariffs are almost always set on the basis of mobile payment mechanisms have helped in this regard. Cross-subsidizing has also enabled 5   For instance, the democratization of South Africa in governments to meet both equity and financial the 1990s opened a new agenda toward universal sustainability objectives. Some utilities cross- services that created a strong point of entry for subsidize among residential users based on better-performing municipalities and water service providers like Durban to drive reform and service income levels (as in Dakar and Kampala); oth- delivery improvements. ers utilities cross-subsidize between residential 6 and commercial users, as in Uganda, where customers and informal areas. Unfortunately, decreasing block tariffs have shown to be effec- some utilities have found that such units tive in increasing revenues. Particularly in elec- remain marginal to the core operations and tricity, where a large chunk of current electricity therefore have not had the desired impact of consumption is by consumers who can afford mainstreaming services to the poor. Dedicated electricity (industries, businesses, middle and pro-poor units are sometimes seen as neces- high income residential consumers), there may sary to counter a perceived lack of political be a possibility for additional cross-­ subsidies, will on the part of utility owners and/or man- provided utilities also embark on visible agers to serve the poor. Utilities also intend improvements in quality of service. using these units to house “one-stop” facili- Less obvious barriers to serving the poor ties that would make it easier for the resi- are legal, social, and technical in nature. These dents of these settlements to interface with issues require multisectoral solutions, includ- the utility on all service-related issues. Pro- ing provision of title to land and services to poor units have been established in such cit- plots, adequate transport for travel to jobs, ies as Dar es Salaam, Kampala, Lusaka, and and fairer tenancy laws. Utilities are using a Nairobi. These units can play an important variety of approaches to overcome these bar- role in catalyzing change, especially as a tran- riers in the short term, including pre-paying sitional mechanism in a utility reform process. water dispensers that cut the monopoly power The positive impacts these units had were of water vendors; using small providers to made possible by factors such as effective serve informal areas as utility agents; and political mobilization and coalition building ensuring access in hard-to-reach areas trough and sound utility management. water kiosks or providing a connection at a “meter bank” at the boundary of the commu- nity. Another key innovation taking place in Main Message 7 energy is the use of off-grid solutions to pro- Expanding water and electricity coverage is a vide energy access, particularly using solar priority and can be achieved by making utili- PV—as the price of solar PV technology con- ties more efficient and targeting investments tinue to drop, distributed generation by con- better. sumers is likely to increase. Regional coverage of piped water and elec- Finally, the utilities in the sample have had tricity is 15 and 33 percent, respectively. mixed experiences when creating a special Large utilities in low-income countries (which unit to help them adapt to serving poor to some degree can generate internal funds © Oxfam International. 7 to increase access) and utilities in middle-­ noticeably improve quality of service, and income countries seem to be able to relate avoid hardships on the poor can help win pub- improved financial performance to better lic acceptance and expand access without water coverage. For other utilities, the contri- compromising financial sustainability. Least bution of good financial performance to water cost expansion planning, competitive pro- coverage is still not clear. This suggests that curement of future generation, switch to many utilities find it difficult to improve cheaper and cleaner fuels and reduction in access through improved financial perfor- inefficiencies, can all help to reduce the need mance, but depend on external funds to do so. for large tariff increases. Transparent account- This does not imply an inevitable trade-off ability and governance frameworks, coupled between cost recovery on the one hand and with independence in utility commercial oper- affordability and service improvement on the ations could help utilities improve their per- other. The good utilities in the sample could formance. Improved focus on service quality transcend any such trade-off by providing improvement, customer management sys- lower tariffs for residential customers (or, as tems and revenue enhancement efforts, could in South Africa, free water for the poor), or by also help improve the financial condition of enabling customers to pay back connection the sector. costs over time. New technologies like cellp- hone meter readings and payments, and the introduction of prepaid meters, have also Main Message 8 opened ways for poor households to spread Africa needs substantial investments in out water payments into affordable portions. water and electricity, both for new infra- The net result has been that investment structure and for the upgrading of existing needs and operational costs have been proven facilities. not to be inevitably prohibitive to extending A combination of grants and conces- and improving water services to poor people. sional loans have assisted utilities that have Increasing access to electricity will require reached the poor, but the utilities have also a steady improvement in the financial health worked hard at improving operating efficiency, of utilities, a reduction in the high cost of elec- ­ especially reducing non-revenue water, improv- tricity generation and transmission, and a tar- ing productivity, and increasing collection rates. geted use of subsidies. Measures that reduce This made them able to raise new revenue, thus the magnitude of required tariff increases, providing more operating cash, which in turn © Jeremy Brooks. 8 has enabled them to pay back loans and a. More and better data are critical to assess finance more capital investment. Fiscal or performance and guide sector planning. lender incentives could aim at investment To properly assess utility performance selection criteria to encourage good practices, requires reliable and complete data, which such as: (a) more comprehensive processes is a major challenge for both the energy and methods to conduct technical, economic, and water sectors. It is hard to improve financial, and social due diligence; (b) adher- performance without having reliable data ence to competitive and transparent procure- and basic reporting mechanisms in place ment, particularly of new electricity generation that are available to the public (externally capacity,6 (c) sufficient attention to the com- audited financial statements are often mercial performance of the utility and its missing, for example). Utilities themselves capacity to operate and maintain its exist- do not always collect basic performance ing and new infrastructure so as to ensure data; this is especially challenging in the long-term sustainability and value for money; case of the energy sector, which does not (d) ensuring that investment expansion and report on service quality at the end-user institutional capacity to manage the new infra- level. Performance monitoring is most structure assets are in sync; and (e) putting in common in countries where a regulator place adequate and transparent sector financ- is active, and is generally underdeveloped ing policies (that is, tariff and subsidy policies in the absence of a regulator. Moreover, that ensure that the assets can be properly there is a huge demand from many pro- operated and maintained). fessionals for more data beyond the basic financial and operational data that was collected for this study. Focusing on a very The Way Forward to a More small set of indicators may result in a dis- Comprehensive Analysis of torted picture. For instance, O&M cost has Utility Needs become a major area of focus to measure Beyond the three background reports and this utility performance. Although, in theory, analysis, much more needs to be done to get a many utilities in Africa cover their O&M complete picture of the drivers of good perfor- costs, the actual cash flow performance of mance in electricity and water and sanitation utilities is insufficient to cover basic expen- in Sub-Saharan Africa. The two sectors can ditures, resulting in a decline in service lev- continue to be researched together, where els and slow progress in increasing access data permits, to learn from each other. to piped water supply. Data on collection However, reaching a more consistent under- efficiency are very often not reported or standing across both sectors would require are only partially reported. Thus on paper, progressing from a descriptive framework sup- but not in reality, a utility may be able to ported by detailed databases in the region to generate sufficient billed revenue to pay an analytical phase in order to learn from the for its O&M. Finally, most utilities have past, work within the present, and promote little insight into their customer profiles. a future of good sector performance. Thus, There are large discrepancies between the a future analytical phase is proposed to build a data provided by utilities on the access bridge from the “value added” of the previous to water supply services and those regis- studies and to answer important new ques- tered in household surveys. Utilities should tions that affect and may challenge the ability regularly calibrate their insights on cus- of utilities in the region to meet better sector tomers to better predict the demand for performance goals and successfully design their services and to draw up investment and implement reforms. The results available plans that are based on this demand. from the analytical work of this proposed pro- b. Different efficiency analysis instruments gram could generate a renewed credibility for need to be analyzed for their advantages reforms and innovative solutions to the pend- and disadvantages. The future analytical ing deficiencies facing energy and water sector phase would review the different efficiency performance. Some considerations for under- analysis instruments (data ­ envelope anal- taking such a new analytical phase, as well as ysis, stochastic frontier, new ­ engineering-​ potential research questions, follows: economic models), and analyze their advantage/disadvantages over simple benchmarking, as well as their data require- 6   “Independent Power Projects in Sub-Saharan Africa: ments. This would include a nontechni- Lessons from Five Key Countries,” Anton Eberhard, cal summary and a much more technical Katharine Gratwick, Elvira Morella, and Pedro Antmann. annex. This work would also present a new 9 generation of structured benchmarking (formal regulation), as well as the practice exercises for each sector. The output from informal regulation), on performance? (­ this phase of the research would guide the e. Management mechanisms that can cre- future analytical work of the World Bank ate incentives for improved performance Group and other researchers. should be identified and studied. A number c. Better determinants of performance of possible actions affecting budget alloca- across state-owned enterprises need to tions, compensation, and managerial inter- be specified. Notwithstanding the existing ventions can be provided so as to ­ create studies, there are still important questions incentives for improved performance. to be addressed in this regard. For instance, Likewise, identified performance indica- what correlations can be made between tors can be highly publicized so as to cre- performance and regulation, and between ate a context for change. The following are performance and specific characteristics questions to tackle: What have the boards of market reforms (such as the introduc- and the managers of the most competitive tion of wholesale markets and third-party and efficient utilities done and are currently access)? Does regulatory quality matter? doing to improve their governance? What What can be done to increase the efficiency have the governments that own utilities of state-owned enterprises? Is there a new done and what are they currently doing? model for utilities? What are the conditions What expectations do they have and what for success? What are the causes of lack of results have they already achieved? What cost recovery and inadequate regulation? is and has been their rationale for focus- d. The ways in which regulatory quality ing their efforts in this area? What have cannot just be used as a tool to improve been and are the measures they are taking sector performance need to be better and/or are planning to take? How are and understood. A number of possible actions have they been organized to perform this and models have been analyzed with task? What are the main legal difficulties regard to the impact of regulatory quality and other obstacles they face in this work? on sector performance. However, several How important is it to enjoy a good repu- important questions remain unanswered: tation and solid social support in carrying To what extent does regulatory quality out these types of reforms? Under which matter? Does regulation have any effect circumstances does solid social support on sector performance? Is the independent make reform easier? How does operating regulatory agency model still valid for the in regions characterized by challenging region? Are there better alternatives? Who social circumstances affect the chances of are the leaders in the region? What are the introducing these types of reforms? What effects of the procedures aimed at improv- are the main lessons so far? Is there any ing the governance of regulatory agencies difference across sectors? © 2016 International Bank for Reconstruction and Development / The World Bank. Some rights reserved. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. This work is subject to a CC BY 3.0 IGO license (https://creativecommons.org/licenses/by/3.0/igo). The World Bank does not necessarily own each component of the content. It is your responsibility to determine whether permission is needed for reuse and to obtain permission from the copyright owner. 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