1. Water Utility Performance
The role of innovation and politics
Jerson Kelman Brazil

2. Crisis, huge rehabilitation costs
Low tariffs, low collection
High usage and system
Losses drive up costs
Service deteriorates
Service provider lives off state subsidies
Efficiency keep dropping
Service provider can’t
pay wages, recurrent costs or extend system
System assets go
“down the drain”
Consumers use water
inefficiently
Investment, maintenance
are postponed
Customers are ever
Less willing to pay
Managers lose autonomy
and incentives
Subsidies often fail
to materialize
Motivation and service
deteriorates further
Most utilities in the developing countries are in a vicious path
Crisis, huge rehabilitation costs

3. A virtuous path is possible
Consumers use water
More efficiently
Investments in new access expand revenue base
More satisfied customers = more willing to pay
Staff and managers rewarded for improved performance
Subsidies for new access provided in transparent and targeted manner
Staff motivation improves
Tariffs increased to cover greater portion of efficient costs
Reduced losses: reduced costs
Service quality improves
Technical efficiency improves
Service providers fully
cover operating costs
System assets adequately maintained
Sustainable water sector
Private finance mobilized to increase investment capacity
A virtuous path is possible

4. Sabesp
28 million people
368 municipalities
5th largest company in the world in number of clients
% GDP Brazil = 33%
In the nineties, Governor of São Paulo challenged Sabesp’s staff:
Turnaround or Privatization

5. Corporate Governance
NYSE – Level III ADR
INVESTMENTS
Higher than US$ 1 billion/year
HALF FINANCED + PPPs
GOVERNAMENTAL SUBSIDIES? NO
CROSS SUBSIDIES AMONG CONSUMERS?
YES
Nowadays Government controls Sabesp owning only 50.3% of the shares

6. SABESP’S LONG TERM AND LOW COST FUNDING
DEBT BREAKDOWN
DEBT BY CURRENCY
1/3 of the debt was contracted in the capital market 9

7. FINANCING ALTERNATIVES6

8. The water sector has only two sources of predictable revenue
1. Direct User Payments
Paid by consumers/users
2. Subsidies
Paid by taxpayers and other consumers
International Grants
Not predictable and not sustainable

9. Direct user payments (tariffs)
Willingness to pay is much greater for water supply than for sanitation
Benefits: individual X collective

10. Should be transparent and targeted to:
Subsidies
Should be transparent and targeted to:
Help the low income families to pay the full cost of the service, including the connection of the household to the sewage collection system
Help the entire community to pay partially the cost of sewage collection and treatment

11. Capital investments need to be more efficient
Rationalize procurement and construction management, aligning the interests of utilities and contractors
Pay for results, not for the construction

12. Governance Managers should be chosen by professional capability
Internal and external auditing
Regulation (independent and technically capable agency)
Quality of the service
Tariff level
Tariff structure

13. Innovation
Currently, we use in sanitation the technology of the XIX How to avoid the high cost of moving wastewater?

14. Thank You