What is NRW and how can we reduce it? Should performance-based contacts be more widely used?
Around the world, some sources state that 126 billion litres of water are lost each year with an economic value of over US$40 billion per year.
However, a World Bank study puts the global estimate of physical water losses at 32 billion cubic meters each year , half of which occurs in developing countries. Water utilities suffer from the huge financial costs of treating and pumping water only to see it leak back into the ground, and the lost revenues from water that could have otherwise been sold and reinvested in new infrastructure or improvements and augmentation of existing infrastructure. Based on the World Bank figures, if the water losses in developing countries could be halved, the saved water would be enough to supply around 90 million people.
Water lost in the water distribution network is termed "non-revenue water" (NRW). It is lost or unaccounted for.
The need to better manage NRW and protect precious and scarce water resources has become increasingly important around the world. There have been water crises in major cities of Cape Town and Manila in recent times where "day zero" was spoken about.
Non-revenue water (NRW) management allows water owners to expand and improve their existing services, enhance financial performance/strength, make cities more attractive and liveable for their citizens. There is the flow of impacts of increased climate resilience and reduce energy consumption - particularly in countries that are facing increased energy prices.
Many continents suffer a water constrained environment (Africa, Asia, Australia), therefore NRW management often offers superior cost-effectiveness compared to supply augmentation such as the expensive option of desalination. At the same time, revenues from saved water improve a service providers’ bottom line whilst lower water abstraction increases city resilience.
All that considered, the benefits that arise from reducing NRW are yet to become driving forces behind tackling this monumental challenge in developing countries. Despite the benefits and decades of training and advocacy from international and industry organizations (such as International Water Association), NRW reduction still receives limited attention amongst the water utilities and governments who would most benefit from it – why is that?
The reason for many regions not making progress with their water leakage includes lack of appropriate skills , lack of incentives (from Government Ministers through to Field Staff), poor financial discipline and the effort required to find and fix leaks compared to building new treatment facilities. Resultantly, there have been as lack of enthusiasm which is now being shaken by pressures coming from the likes of climate change, water scarcity and increasing expectations of consumers.
In recent times the World Bank, in partnership with the Inter-American Development Bank (IDB) and the International Water Association (IWA), has hosted workshops to explore the political, financial, technical and market constraints of this under-utilized, but impactful task. Using case studies, the workshop explored how constraints have been overcome and brainstorm with water experts about a global initiative on scaling up non-revenue management.
Such workshops are part of a more formal partnership with IWA and forms part of a broader initiative within the World Bank Water Global Practice to help build sustainable urban utilities. This initiative is supported with funds from PPIAF and is focused on how to increase the use of Performance Based Contracting (PBC) as one way to address high levels of leakage.
Through performance based contracts, utilities can access the capacity and equipment that they lack – and with payments based on results the incentives to perform are high and the risk of non-performance by the contractor is reduced. A World Bank financed project in Ho Chi Minh City used a NRW PBC approach in a part of the city and saved half of the water that was previously being lost to leakage – 100,000m3/day (enough water to serve 500,000 people). A truly remarkable achievement which set a new benchmark for the NRW PBC model.
With the proof of concept now a given, the challenge is how to streamline and simplify the NRW PBC project preparation and contracting process. The World Bank and IWA are working together in collaboration with the IDB to advocate for the reduction of NRW and create more dynamic markets at national and international levels. Already we are working with several potential clients in all regions to introduce NRW PBC contracts as part of a program to improve the performance and sustainability of utilities.