“Piped water is a convenience”
29/12/2007 – by William Muhairwe
What has contributed to your success?
NWSC has implemented a series of innovative performance improvement initiatives that have continuously addressed weaknesses of the organisation. Good and strong top leadership has been central in all these undertakings. Consequently, we have established a good performance track record and best practices. In addition, we have invested a lot in strengthening staff capacities in the process of performance improvement. We believe in the philosophy that no organisation can be better than its employees. This orientation has compelled us to continuously create a good operating environment and incentives for our staff to use the best of their knowledge. We have also maintained a constructive dialogue with the government and donors. That has helped us to propel our innovative strategies. Last but not least, our constructive engagement with the media was also another success factor. We have kept close contact with the press in whatever we have been doing, well knowing that our cardinal partner – the customers and the public in general – cannot move with us if we are not open to the press.
There is a heated debate in the development community whether water utilities should be privatised, or not. Uganda did deliberately not privatise NWSC…
The issue is not whether one should privatise or not. It is all about how to perform and what strategy to apply. Performance transcends ideology and depends on how you incorporate sound managerial concepts of customer orientation, commercial orientation, staff empowerment, managerial incentives, innovation and so on. In our view, either private or public companies can deliver on this. It depends on the operating environment. Careful scrutiny is needed who can do best under what circumstances. In the case of NWSC, we have been moving along these principles not least thanks to the World Bank and indeed other donor agencies like KfW and GTZ which have been able to support us all along.
So privatisation was never a real option?
We gathered experience with two foreign private operators in Kampala from 1997 to 2004. They were responsible for system maintenance, billing, tariff collection and reducing unaccounted-for water. The first one, a German consultancy, was not as successful as we had all hoped. So when that contract expired, it was not renewed. The second contractor, from 2002 to 2004, was ONDEO, a French company. However, they themselves felt there was no need for privatisation. Most of the work was being done by our own staff with a few expatriates. One ONDEO expert even told me: “I don’t think you need our expertise: You have the people, and if you need money you can go to the bank. We are not bankers ourselves.” After two years, we asked them to renew the contract, but they were not interested.
I’ve been told that ONDEO wanted to change the contract to their benefit, and that you did not accept that.
Well, they said we were able to do the job on our own, and that they were not in position to give us money for investment. On the other hand, they demanded to be paid if we wanted them to continue. Indeed, they wanted their management fees to double. However, nobody was able to justify payment of additional fees, and that was it. Actually, we carried out an assessment of the performance of ONDEO, concluding that it did not make much sense to continue the contract. We informed the government and the donors that we were ready to try our own home-grown model, and they pledged support.
Besides financial support, what do you expect from donors?
I must confess I had some problems with GTZ in the beginning. They were always insisting on giving us technical assistance – in the sense of their experts telling our staff what to do. I did not think this was the right way to go. We already had a staff compliment of 1,800, many of them German-trained. So why did we need to bring in additional expatriate staff? What we needed was a good mix of hardware infrastructure and accompanying technical assistance. In this regard, I told GTZ to give us computers, the relevant software and one or two people to help us implement the project. Discussions were intense at that time, and finally the German Development Ministry said, okay, this is what our client wants, let’s go along. Today, GTZ is counted as a significant contributor to the immense modernisation of NWSC operations. In summary, what we expect from donors is flexibility and client-led assistance.
What are your current major challenges?
Our customer base is still growing rapidly. Moreover, people are getting better informed, and expectations are rising accordingly. We need to keep on improving our services. And to accomplish that, we need to train our workforce even more. Funding also matters very much. The debate on privatisation was fuelled by the hope that the private sector would bring investment finance, but that never happened. Major investments in water infrastructure, all over the world, must be supported by the state. The problem is that governments of developing countries often have no money, so it is always important to discuss possible other sources of funds, without compromising the customers’ willingness and ability to pay.
So you say that, in general, the state must stay engaged in the water sector?
Yes, you can delegate management of operations to the private sector, but be cautious with delegating responsibility for infrastructure investment. Pipe systems not only need to be expanded but, when they grow old, they also need rehabilitation. A private operator will not have the money for doing so apart from raising tariffs. In most cases the socio-economic situation of the citizens that constrain tariff adjustments are not a concern to the private operator. Consequently, the poor people we are trying to reach would then no longer be able to pay.
But that may happen even if you only privatise operations, and not the entire sector. Any inefficient company will be tempted to raise tariffs.
As I said, efficiency is not a question of private or public ownership. Some foreign-based private operators are fooling around in Africa and Asia. They are not operating efficiently. What really matters is having qualified staff. You need incentives to attract whoever can do the job best. In that sense, our two contracts with foreign operators from 1997 to 2004 were quite helpful. They gave us the time to build our own capacities, and to learn from the way they operate. For example, we introduced an incentive mechanism for all our branches in the towns we serve. If local managers perform well, they are rewarded. If not, they get nothing and sometimes even get penalised. In other words, safeguarding quality is not restricted to a certain type of operator.
So how does your company differ from a “real” private operator?
The incentive for private companies is to make profit for the shareholders. If there is no profit, they won’t come. In contrast, when we make profits, our staff get incentives, and the rest we reinvest in the system. No money is siphoned out of the economy.
Some donors are in favour of restructuring NWSC. The Kampala headquarters would then become a holding agency in charge of the network, and be separated from the operations of local branches. What are the pros and cons?
This proposal was part of the privatisation debate, but things have changed. Today, we work with what we call “Internally Delegated Management Contracts”. We are actually contracting our own people to run our operations – in a private-management manner. In my view this debate on separating or not separating is simplistic. We all know the ideals of meaningful autonomy – trust, accountability, commitment and risk-taking, among others. These are the issues we need to discuss before we can determine the extent of separation and what gets separated. We must avoid being driven by a multiplicity of untested ideologies. Separating for the sake of separating brings more challenges than solutions for service delivery. It is not a question of who is responsible for what but rather how you are utilising all possible synergies to improve services to the citizens.
There is also talk about listing NWSC on the stock market. Wouldn’t that change the character of the corporation? You would then have to benefit shareholders.
That’s true, and that is the reason why I think we still have a long way to go. In my view, operations might one day be listed on the stock market, because operations can indeed be run profitably. But, when it comes to the entire infrastructure, we must think again. There is no way you can borrow, say, $ 40 million for a new water treatment plant, and then to expect a profit for shareholders. Even in Europe, only the operations of water companies are traded on the stock market.
In Europe, we have more or less efficient public institutions to make sure that private water providers do not lose sight of their social responsibilities, like keeping water affordable, for instance. That is not necessarily the case in Africa. Under these circumstances, isn’t it too risky to even list operations on the stock market?
One has to weigh different interests. On food markets, prices for tomatoes, for example, do not vary depending on whether you are rich or poor. Tomatoes are tomatoes, no matter whether you go to market in a Mercedes or by bicycle. So what is the problem with water? Of course we must be aware that water is a basic good that can hardly be substituted. But this does not mean that we disregard all about market economics. And we should not forget that when it comes to the telephone sector, the poor even pre-pay airtime and spend even bigger amounts than for water. We need more research in the best ways to serve the poor.
So you do not approve of different water tariffs depending on the income of consumers?
Our current system is actually somewhat unfair. We have four different water tariffs, with commercial customers paying a higher rate than public institutions. In addition, there are domestic tariffs and tariffs for poor people who use public standpipes. In other words, those higher up on the ladder subsidise those lower down. We charge industrial customers four times more than we do to poor people. And the industrial customers may ask us: “Why should I pay more for water? Why do you want me to subsidise the poor, when on top of that I am paying my taxes regulary?” In my view, you should consider water a good like any other, like tomatoes, for instance. If you believe people cannot afford the good, you’ll have to subsidise it one way or another. The state must come up with some mechanism to help those who cannot afford the good, be it water or tomatoes. In some countries, like in South Africa, you have cheaper water tariffs for the poor. Those tariffs, however, are subsidised by the state, not by the utility.
Civil-society groups argue that providers are responsible for affordable tariffs as long as the state is unable – or unwilling – to pay for social security. The difference to tomatoes is that there is no substitute to water.
But they miss a point. We are talking of piped water, and there are alternatives to piped water. You can use rainwater, you can go for borehole water or shallow well water. Piped water is a convenience; it brings the water to your house. My grandfathers and grandmothers living in the villages have never seen piped water. They used alternative sources of water. Of course, matters are different for the urban poor who cannot use shallow well or borehole water, because in most cases that water is contaminated. I always say the poor man in Kampala is the poorest in the whole of Uganda. Only in this setting will I agree that piped water indeed is life.
Questions by Tillmann Elliesen
When William Muhairwe was appointed executive director of the National Water & Sewerage Corporation in 1998, the company was almost broke. The 1800 employees at company headquarters and regional offices were posting a loss of $ 300,000 per month. More than half of the treated water was leaking out of underground pipes into the soil or being stolen. The World Bank, which along with other donors had spent more than $ 100 million up to that point on Uganda's water pipes and water treatment stations, came to a sobering conclusion: the country on Lake Victoria might have enough water, a good infrastructure, and the right laws, but it was suffering from incapable management.
Muhairwe, 40 at the time, made the government an offer: if he couldn’t turn the company around within a hundred days, they should fire him. In return, he demanded free rein. Since, the NWSC’s annual revenue has almost tripled to roughly the equivalent of $ 34 million, water losses have dropped from 51 % to 28 %, and the number of new water connections grew from just over 3,000 per year to 28,000.
Today, National Water has just over a thousand employees. There are only seven employees per thousand water connections compared with 36 per thousand in 1998. Muhairwe lowered costs, collected fees, improved customer service, and gave local offices in the cities served more responsibility. The share of paid bills rose from 60 % to 96 %. In 2006, National Water made a profit of $ 2.5 million.
While the company is entirely government-owned, it sticks to private-sector management principles: costs are covered, the focus is on customers, and employee’s pay is based on performance. Since 2002, the GTZ has been assisting the reform of the state-run water supplier by giving advice on legal, technical, and institutional matters – to both NWSC and and local governments.
Today, National Water’s reputation is so good that staff from public utilities in other countries such as Kenya, Zambia, Tanzania and recently even India have come to Kampala to learn from NWSC. In 2005, the company even set up a division dedicated to such visitors: NWSC External Services. (ell)