The Process of Cost Recovery for Water in Namibia: Is there a role for the private sector in water supply

• Vaino P Shivute

• Chief Executive Officer

• Namibia Water Corporation

• Namibia

TABLE OF CONTENT

Introduction

Water Scarcity

Water Supply at Independence

Progress in Water Supply Sector

The Case for Cost Recovery

Is there a role for the Private Sector in

Water Supply?

Conclusion

INTRODUCTION

Water is:

Life

An economic good

A human right

A pre-condition for development

At the center of food-water-energy

nexus

Featuring on the top five global risks

WATER WITHIN THE SADC REGION

SADC Region has a number of river basins.

Rainfall from good to poor in member states.

Access to quality water vary within and

between countries.

There is need to increase investments in

water supply infrastructure.

Access to fund such infrastructure not easy.

To increase funding for water infrastructure,

cost recovery must be considered.

WATER SCARCITY

RAINFALL MAP OF NAMIBIA

WATER: HUMAN RIGHT VS COMMODITY

Some argue that water is a human right and

must be provided free of charge.

Govt. and NamWater taken to court by NGO’s

for not providing free water.

Position of Govt. & NamWater is that water is

a commodity to be paid for.

It cost money to supply water.

Govt./NamWater can’t afford free water.

Hence principle to pay for water.

WATER SUPPLY AT INDEPENDENCE

At Independence:

Only 45% of rural areas had access to

clean water.

Water subsidised heavily in both urban and

rural areas.

Govt. decided to roll out water supply

infrastructure to rural areas.

Govt. established the principle of payment

for water supplied.

PROGRESS IN WATER SUPPLY SECTOR

The census of 2011 showed that:

80% of population had access to clean

drinking water.

98% of urban population had access to

clean drinking water.

63% of Rural Population had access to

clean drinking water.

Water quality in Namibia is good.

Maintain principle to pay for water.

NAMWATER DAMS AND WATER

PURIFICATION PLANTS

EXTENT OF NW INFRASTRUCTURE

Boreholes 823

production 574

monitoring 249

Canals 422 km

Dams 19

Pipelines 4 210km (var. diam.)

Treatment plants 17

Reservoirs 377

FULL COST RECOVERY PRINCIPLES IN

NAMIBIA

Total ops. cost, plus taxation, plus asset

replacement reserves, excl. any profit.

Depreciation on dams (govt.) and mining

infrastr. (mines), not included in total cost.

Rural customers get lower tariff.

Cost of rural schemes funded by govt. & not

charged to customers but used to reduce

rural tariffs across board.

Tariffs will not be decreased.

PRINCIPLES OF FULL COST RECOVERY:

APPLICABLE TO LOCAL AUTHORITIES

NamWater sell water to Local Authorities.

Local Authorities (LA’s) sell water to

customers within their area of jurisdiction.

LA’s add a mark-up to cover for their capital

and operational costs.

Some LA’s struggle to collect from

customers.

Most LA’s lose high volumes of water they

buy from NW, increasing risk of failure to pay

their accounts.

JUSTIFICATION OF COST RECOVERY

NW commercialized at establishment but

received minimal infrastructure subsidies.

It cost money to supply water.

Cost recovery extend life of water infrastr.

It instill sense of responsibility in consumers.

Customers value water more if they pay for it.

Assist govt. in paying for water infrastructure.

Help with maintenance of infrastructure.

Experience: free water prone to wastage.

DRAWBACKS OF FULL COST RECOVERY

The poor cannot afford to pay.

NGO’s/CBO’s fight against full cost recovery.

Negative public perception against Utility.

Difficult to collect from rural communities.

High poverty levels against cost recovery.

Discourage new settlements on new land as

initial cost is very high.

Difficult to accommodate new developments

established on incremental basis.

COST OF WATER IN NAMIBIA

Cost of water in Namibia range from US$0.60

to US$1.1 bulk tariff at latest exchange rate of

N$15.2 for US$1.00.

Retail tariff of LA’s higher. Block tariffs, up to

US$4.00 as deterrent for wastage.

Since not all can pay for water, govt. agreed

to provide subsidy to poor Households.

Mechanism to subsidise still to be worked out

but will be targeted at poor households only.

COST OF WATER IN NAMIBIA: SUPPORT

PROVIDED BY GOVERNMENT SO FAR

Free raw water used by NW (In some

jurisdictions raw water is bought).

Most rural water infrastructure funded by

government.

All infrastructure of NW “donated” to new

company by government in return for equity.

Bulk tariffs subsidised across regions to

reduce tariffs in high cost areas.

Private sector may change all the above.

IS THERE ROLE FOR PRIVATE SECTOR

IN WATER SUPPLY IN NAMIBIA

NamWater Act (12 of 1997) silent on other

players in the supply of water.

Water Resources Management (WRM) (Act

11 of 2013), make provision for other players

with permission from Minister (discretion).

Regulator for water is currently cabinet.

WRM Act make provision for new regulator.

To allow other players, current regulation

regime will have to change.

IS THERE A ROLE FOR PRIVATE SECTOR

IN WATER SUPPLY IN NAMIBIA

If regulation is to be based on investments

made. This will increase cost further.

NW not allowed currently to recover all the

cost. Public too price sensitive.

Private sector known for its efficiency.

If allowed, it can improve efficiencies.

Such efficiencies may not reduce price

sufficiently to be acceptable to public.

IS THERE ROLE FOR PRIVATE SECTOR

IN WATER SUPPLY IN NAMIBIA

Govt. not amenable to divide country into

areas for other players to enter.

Sharing of infrastr. between areas a complication

Only player so far: AREVA. Permit given for

desalination plant to supply own mine.

Due to history, some towns supply own water

Lucrative areas under control of NW.

Govt. may not be keen to open up these

areas for competition.

IS THERE ROLE FOR PRIVATE SECTOR

IN WATER SUPPLY IN NAMIBIA

Low population, long distances & high

investment cost act as deterrent.

NW advantaged for having inherited infrastructure

Govt. subsidies kept tariffs low in Regions,

which private sector may not be able to do.

Challenge:

public perception that cost of water is high

Investment that will allow low tariffs to be charged

Current tariffs do not recover all costs.

Yet in the public eye, cost of water is too high.

CONCLUSION: COST OF WATER

Rainfall in Namibia low and variable.

All perennial rivers shared with neighbours.

Towns far from water which increases cost.

Investment cost high due to scarcity of water,

low population & long distances.

NW wish to recover all investment cost, but

not yet there. Only ops. cost is fully

recovered.

Public attitude on payment of water is hostile.

Govt. agreed to subsidise water for poor HH.

CONCLUSION: ROLE OF PRIVATE

SECTOR

NamWater has been pushing for full cost

recovery i.e. higher tariffs.

Resistance to grant NW higher tariffs due to

political sensitivities.

Private sector must be allowed to recover full

cost plus profit, if not they won’t invest.

Legislative framework make provision for

private sector, but political env. appear not

ready for private sector involvement.

THE END