TOWARDS PERFORMANCE BASED UTILTY SECTOR IN ARMENIA: CASE OF DRINKING

WATER SUPPLY SERVICES

By Lianna Mkhitaryan

THE GOAL OF THE RESEARCH

The research :• Investigates how performance management

increased efficiency, effectiveness and overall quality of the water supply services;

• how input, activity level, output and outcome targets are used;

• identifies existing gaps in the coverage and implementation ;

• has gathered and analyzed citizen perception, satisfaction with services and citizens’ expectations met by service provision.

CONTEXT INFORMATION

Problems with water supply in urban and ruralcommunities:• shortage of water;• intermittent supply;• low pressure due to leakages in the

transmission and distribution networks;• poor quality of drinking water.

CONTEXT INFORMATION

Supply side of services:• technological backwardness of the mechanical and

electrical equipment;• old and worn infrastructure;• outdated system designs and standards.

Demand side of services:• low wages and pensions of the population.

WATER SECTOR REFORMS

• Reforms started in 2001 with the adoption of theDecree “On Reforms of Water System Management”and establishment of SCWS;• adoption of the new “Water Code” in 2002;• transfer of the tariff setting functions to PSRC;• legislative changes enabling private sector

involvement and water sector commercialization;• decentralization and privatization, development of

the investments policies.

SYSTEMS OF WATER SUPPLY

1) Centralized supply provided by five WSCs (80% of the population ):

• Yerevan-Jur CJSC (YWSC);• Armenian Water and Sewerage CJSC (AWSC); • Shirak Water and Sewage CJSC (SWSC);• Lori Water and Sewage CJSC (LWSC);• Nor Akunk CJSC.2) Municipal supply/rural areas.

PERFORMANCE MANAGEMENT

Objectives: to improve efficiency, effectiveness andoverall quality of the services and make monitoring andevaluation more precise and objective. It focuses onresults valued by citizens, measured in terms of citizensatisfaction and involves citizens in decision making process.Includes:• definition of performance objectives and targets;• measurement and reporting actual performance.Results:• improved control, increased accountability and savings.

PERFORMANCE INDICATORS

• 6 categories: physical, service quality, financial, operational, personnel and environmental.

• Are developed by the WB and IWA and serve as a basis for providers;

• WSCs develop their own lists of PIs taking into consideration their objectives and priorities and local contexts for monitoring and benchmarking purposes.

YWSC

• serves 1,3 million inhabitants (Yerevan and 32 rural communities );

• 50 % of the total water supply;• is managed under 10-year lease contract

awarded to the French company “Generale des Eaux”, Veolia Water;

• the investment projects are financed by loans provided by the WB and French Government.

1. PIs in YWSCPerformance

IndicatorBefore Private

Sector Involvement

At the End of the Management

Contract with ACEA –

A. Utilities

After 2.5 Years of Lease Contract with “Generale

des Eaux”, Véolia Water

Average duration of water supply

4-6 hours 18.4 hours 20.35 hours

Energy consumption

240.3 mln kWh 124.2 mln kWh 115.3 mln kWh

Installed water meters

3 856 379 580 401 100

Average water consumption

By norm 250 lcdActual 797 lcd

110 lcd 87.3 lcd

User fee collection rate

20.9% 79% 90.3%

Source: SCWR

AWSC

• Serves 37 urban and 264 rural communities (around 700,000 inhabitants in all 10 marzes);

• accounts for nearly 22 % of the total water supply;

• Is managed by the French company SAUR based on management contract;

• investment projects are financed by loans provided by the WB, EBRD, ADB, USAID, RA Government and company funds.

2. PIs in AWSCPerformance

Indicator

Before Private Sector Involvement, (2004)

After 5 years of Management

Contract with SAUR

Average duration of water supply

6.0 hours

12.20 hours

Energy consumption 0.43 kWh/m3 0.29 kWh/m3

Installed water meters 40.0% of subscribers 65.0% of subscribers

Average water consumption, lcd

Not used Not used

User fee collection rate 47.95% 78.2%

Number of customers paying

53,000 115,000

Average water bacteriological

safety compliance

61.0% 92.0%

Source: SCWR

SWSC, LWSC, Nor Akunk

• SWSC serves the population of Shirak marz (more than 280,000);• LWSC serves the population of Lori marz (more than

280,000);• Nor Akunk serves urban and rural communities in

Armavir marz (near 100,000);• companies are managed in the framework of

partnership agreement between the state and German KfW development bank;

• 51 % of state shareholding and 49% of community.

3. ENVISAGED PIs IN SWSCPerformance Indicators Project Area

Average duration of water supply Reconstructed areas -24h; other areas increase from 1h to 3h daily per year

Compliance to water quality standards

Maximum 6 tests p.a. do not comply with standards

Water losses 1st year - max. 80% 2nd year - new network: <35%; old network: max.75%3rd year - new network: <30%; old network: max.70%

Improvement of user fee collection rate

-in 2008 comprised 67%

1st year ≥ 70%2nd year ≥ 80%3rd year ≥ 90%

Source: SCWS

CITIZEN EXPECTATIONS MET BY SERVICE PROVISION?: MONITORING PROGRESS

Performance management focuses:• on results valued by citizens; • involve citizens in decision making process;• measures success in terms of citizens’ satisfaction.Evaluation criteria: access to information,transparency and accountability, accessibility,timeliness, availability, affordability of services , valuefor money, redress, responsiveness, conformation tostandards.

CITIZEN EXPECTATIONS MET BY SERVICEPROVISION?: MONITORING PROGRESS

Source: survey of 296 households in 37 communities in Shirak, Gegharkunik and Kotayk marzes (June – September 2009).

CITIZEN EXPECTATIONS MET BY SERVICEPROVISION?: SUMMARY OF FINDINGS

The research revealed:• still insufficient citizens’ access to information;• absence of redress mechanisms;• lack of citizens’ initiative, fear of possible adverse

consequences and underdeveloped participation mechanisms brings to inability to demand better services from the relevant agencies within the limit of available recourses.

SUMMARY OF FINDINGS

Established PPPs are managed in accordance with performance-based contracts that enabled :• to attract external financing and diminish dependence on state subsidies;• to increase efficiency and payment discipline.The PPPs:• have different level of service delivery efficiency and use combinations of different output and outcome targets identified on the basis of importance and practicality in implementation;• define and link expenditures to each output or outcome targets and sectoral strategic goals.

1.RESULTS OF PERFORMANCE MANAGEMENTObjectives Characteristics Results on Project

LevelResults on

Organizational Level

1. Efficiency and effectiveness and internal control and/or accountability

Focus on outputs and outcomes (results and effects);availability of performance information

Recovery of operation and maintenance for all projected urban and rural communities;improved access to safe, reliable and sustainable water supply;improved duration of supply

Improved technical, financial, and managerial capacity and operating efficiency of WSCs; rehabilitated, replaced, and/or extended WSS;optimized operation of the existing infrastructure;constructed new infrastructure; improved personnel working conditions; some increase in salaries; limited public satisfaction with the quality of services

2.RESULTS OF PERFORMANCE MANAGEMENT

Objectives Characteristics Results on Project Level

Results on Organizational

Level2.

Improved decision making in the budget process, and/or allocation of resources and external accountability

Focus on performance budgeting

Improved decision making in the budget process and internal allocation of resources

Commercially-oriented operations; increased financial autonomy;meters installed to bulk and domestic consumers;increased tariff collection efficiency;reduced non-revenue water

3-4. RESULTS OF PERFORMANCE MANAGEMENTObjectives Characteristics Results on Project

LevelResults on

Organizational Level

3. Improved external transparency and accountability to higher administrative levels and public

Focus on the public availability of information

Still insufficient public access to information

Citizens’ discontent with public access to information

4. Savings Focus on input side of operations

Technical and financial management training provided to personnel of WSCs and communities covered and not covered by WSCs

Enhanced workforce skills;decreased number of employees

Source: prepared by author

SUMMARY OF FINDINGS

PPPs. Used policy level PIs (average consumption, etc), financial Pis(collection efficiency, working ratio, etc), operational (UfW,average duration, coverage, etc) are:• well defined, measurable and achievable;• monitored and updated;• have been reached or shown continuous improvement.Absence of PIs measuring service improvement /pipe brakes(km/yr), reaction to major breakdowns (h/yr)/ and enhancingemployee motivation and performance gives mixed quality ofevaluation.LG providers. Demonstrate insufficient technical and managerialcapacity to implement performance management.

RECOMMENDATIONS

To better meet consumers’ expectations the WSC need toundertake more initiatives to treat service users as customersthrough:• increasing number of indicators related to water quality;• increasing information accessibility in marzes;• holding persons/organizations responsible at every level of

service provision;• ascertaining awareness about the real cost of services to

public;• national standards must be defined and published, so that

users can know what to expect from providers.