Reducing non-revenue water by improving billing and collection: Case study of micro-private sector participation in Madaba, Jordan
The total number of water customers in Madaba Governorate is 19,500, of which up to 94 percent have been household customers (large consumers in Madaba are small in number). The Madaba WAJ had deep problems in terms of customer management: customers were lost due to a faulty application processes; bad estimates often resulted in incorrect billing; bills were not distributed due to poor information systems; and collection was ineffective. All of this led very high ratios of non-revenue water (NRW). Ten years before the Micro-PSP started, NRW ranged from 49 percent to 66 percent. Total revenue improvement potential was estimated at approximately JAD 1.9 million.
WAJ decided to follow a Micro-PSP approach in managing the billing and water revenues in Madaba. On December 11, 2003, WAJ announced in the local newspapers its intention to implement Micro-PSP for billing and revenue collection in Madaba. Interested companies were invited to submit company profiles and information about their relevant experience. Based on this information, companies were invited to a preparatory workshop, which took place in February 2004. This two-day workshop was attended by representatives from four companies. In addition to providing information via this workshop, the companies were also encouraged to digest the topics discussed after the workshop and formulate questions that they could forward to the Governorates Support Director. A contract was awarded to Engicon on November 9, 2005, which started on January 1, 2006.
The contract is divided into two phases. Phase 1 (the preparatory phase) was the basis for the reengineering of the business processes. During this phase, the necessary systems and equipment were put in place, the databases were refined, and staff was trained. The remuneration for Phase 1 is in effect a fixed fee. Phase 2 (the performance management period) is when the private company takes over performance-based operations—e.g. meter reading, billing, collecting, handling bill disputes, technical and financial inspections and follow-up, service disconnection, and prevention of illegal use. These activities are motivated by an incentive fee equivalent to 14 percent of the difference between the new, higher level and the baseline revenues.
WAJ Madaba used to face serious problems regarding revenue collection problems from customers, most of which are households: customers were lost due to faulty application processes, the billing was often incorrect due to estimations, bills were not distributed due to poor information systems, and collection was ineffective. As a result, NRW ratios were extremely high, ranging from 49 percent to 66 percent. While some of this was due to network loss or leakage, a large part of it was related to customer service problems.
WAJ decided to follow a Micro-PSP approach in managing billing and water revenues in Madaba. Following a procedure of applications and consultations, the PSP contract was awarded to Engicon on November 9, 2005, and the contract started on January 1, 2006.
The contract was divided into two phases. Phase 1 (preparatory phase) was the basis for reengineering the business processes. In Phase 1, the necessary systems and equipment were put in place, the databases were refined, and staff was trained. The remuneration for Phase 1 is in effect a fixed fee. Phase 2 (the performance management period) is when the private company takes over performance-based operations, e.g. meter reading, billing, collecting, handling bill disputes, technical and financial inspections and follow-up, service disconnection and prevention of illegal use. This activity is motivated by an incentive fee equivalent to 14 percent of the difference between the new, higher level and the baseline revenues.
The Micro-PSP provided a good management tool for monitoring, controlling and assessing the NRW reduction through different activities, such as building capacity, awareness and incentives. The institutionalisation of such a system was noted in changes of behaviour both from staff and customers. The new communication style between the company and the customers paved the way for confidence building, which was very important in changing the attitude of the customers regarding illegal tapping, which in turn reduced illegal water consumption.
Several measures were introduced by the private partner, such as:
- conducting digital mapping and base data surveys as preparatory measures;
- water-meter reading, billing and collection;
- leak detection and repair;
- procurement and installation of the required equipment;
- business re-engineering of customer services;
- training of staff.
At the beginning, it was deemed that the performance risks of the Micro-PSP lay in the capability of the company itself, since the necessary framework conditions regarding the institutional settings were in place. Nonetheless, the outcomes of the contract were very positive, such as:
- introduction of an efficient, transparent and reliable billing and collection procedure (digitalisation of routes has been introduced);
- establishment of more professional processes through enhancement of equipment and training of staff, securing the sustainability of results;
- increased responsibility and accountability of local staff towards their customers through the new computer-aided billing system and decentralisation of part of the responsibilities from the central WAJ to the Water Administration in Madaba;
- improved staff motivation due to the incentive system and capacity development activities;
- better customer care and customer satisfaction as a result of professionalised services; and
- enhancement of a reliable customer base by increasing customer numbers and reducing illegal users.
The PSP approach resulted in increased billed amounts with respect to the base year, as shown in the table (See table)
- The private partner managed to decrease considerably the high NRW and, by collecting additional cash, to significantly improve the financial situation of WAJ.
- Both the net billed and net collected amounts have increased remarkably: the billed amount increased by almost 80 percent between 2005 and 2008, while the amount collected increased by 84 percent.
- Outstanding invoices (or accounts receivable) as a percentage of the billed amount were cut by almost half.
- These results are also important from the perspective of water demand management. Once invoices are issued, delivered and collected, the incentive to reduce consumption suddenly becomes much stronger.
- Political will and commitment
- Stakeholder acceptance of a win-win scenario
- Establishment of benchmarks for achievements
- Billed amounts in Madaba water administration
- Amount of illegal water use
- Number of water meters replaced and re-sealed
As a result of its success, the Micro-PSP contract, which was first implemented in Madaba, has not only been extended for another three years, but was also expanded in terms of outsourced tasks. At the national level, it has been replicated in the Karak and Balqa governorates. Ultimately, the upscaling might also take place on a region-wide basis: already, some water sector authorities from other countries in the Middle East and the Gulf States are investigating the Micro-PSP pilot study in Madaba in terms of how to apply it within their own reform processes.
- The total cost of the contract was JAD 900,000. This amount included the cost of equipment procurement and software. In addition, the contractor was eligible for an incentive of 14 percent from the supplemental collected revenues, as compared to the revenues of the base year. These costs, however, were balanced by increased revenues.
- Dieter Rothenberger (2009). “Improving Water Utility Performance through Local Private Sector Participation Lessons Learned from the Micro-PSP in Madaba”, Discussion Paper Series, Jordan. German-Jordanian Programme Management of Water Resources.
- SWIM (2012). “SWIM Support Mechanism — Documentation of Best Practices in Non-Revenue Water Management in Selected Mediterranean Countries: Algeria, Israel, Jordan and Morocco”, February 2013.