If a shop owner gave away half of their products for free, it would be fair to say that (while their generosity might be applauded) their venture probably wouldn’t last very long.
Even if that shop were the only official supplier of a particular product, losing out on potential profit at such a rate would mean that it could not replenish its supplies, quality would drop and the shop would have to periodically shut down in order to cut costs, further eating away at its bottom line. Ultimately, customers would suffer.
Yet this is exactly the kind of situation in which many water utilities around the world find themselves – the cost of producing and supplying their primary ‘product’ (clean and safe water) is not recouped by many utilities, significantly impacting customer service and the provision of safe water. This phenomenon is referred to as ‘non-revenue water’ (NRW).
NRW is water that is produced by a utility for which no revenue is received. This could be due to physical losses from leaking pipes, or commercial losses such as malfunctioning meters that charge households too little, households that are not metered at all, poorly designed tariffs that don’t reflect water’s cost, and even theft (illegal connections to the water network, for example).
The gap between water supplied by utilities and revenue received from customers is significant: in 2010, more than 32 billion cubic meters of water was lost globally through leakage alone, while another 16 million cubic meters made it to consumers but was not paid for. Overall, this unbilled water was worth US $14 billion.
This kind of financial loss is unsustainable, particularly in developing countries suffering from water scarcity and undergoing rapid urbanisation, where utilities sorely need money to meet the demands of a growing population.
NRW has serious repercussions: utilities that perform poorly financially will have reduced capacity to repair pipes, will not be able to extend the network and increase treatment capacity to keep up with urban growth, and will have less water overall for customers.
This then becomes a self-sustaining negative loop, as utilities cannot collect the money they need to invest in their operations.
Read our guide to non-revenue water reduction
How WSUP is tackling urban NRW
Reducing rates of NRW is a no-brainer; for relatively low levels of investment, a well-designed programme mainstreamed into everyday operations will increase a utility’s amount of billable water, thus raising revenue and developing services.
WSUP works with utilities to improve their management and delivery capacities, and an important aspect of our approach to lowering NRW is to ensure that the benefits of doing so translate to better service and access for lower-income customers. This could be achieved through building new water kiosks in underserved areas, for example.
WSUP’s NRW work in Madagascar began in Antananarivo in 2010 and NRW rates have since declined significantly: for example, in the South zone of the city NRW reduced from 48% in 2012 to 39% in 2015. More detail on WSUP’s experience in Tana and its effects on the lives of the city’s poorer residents can be found here.
Read a short report about our NRW work in Madagascar
In Ghana, NRW made up 58% of the water supplied in the Accra-Tema area. After an NRW reduction strategy was put into place, NRW rates fell from around 24% in early 2015 to 19.6% by March 2016 in three areas of Greater Accra. The Ghana Water Company Ltd. now has an NRW department, and is ensuring that lessons learned from the programme are shared across Ghana.
The next step
NRW is an obvious starting point for a utility manager, and can result in impressive improvements in water supply and revenue for relatively low investment (compared with, for example, financing additional water treatment capacity). Initial reductions in NRW are rather like picking low-hanging fruit; but the financial dividends that it brings must be invested into continuing NRW management and improving key areas of operations.
NRW should be mainstreamed throughout the utility and supported by verifying and updating customer registrations and services through commercial and technical audits, designing and implementing an asset management plan, improving billings and revenue collection, delegating operational management, and improving financial management. Increasing the amount of billable water is the crucial first step in a long process of utility reform and improvement.