COVID-19 and the Looming Financial Crisis for Water Utilities

USAID Water Team
Jul 29 · 9 min read
Image for post
Image for post
A water service provider marketer gets customer feedback from a residential caretaker. Photo credit: Rose Odengo, WASH-FIN

Water, sanitation, and hygiene (WASH) is the first line of defense against the spread of COVID-19. Safe WASH practices can help stop human-to-human transfer of the virus at the household- and community-level. Recognizing the crucial role of WASH services during a pandemic, national and county governments, especially in low- and middle-income countries, have deemed WASH as essential services and have directed water utilities to ensure uninterrupted supply to all consumers, regardless of their ability to pay. While important for public health, this directive can compromise the financial health of utilities over the long-term.

Averting Financial Crisis for Water Utilities During the COVID-19 Pandemic

The Nzoia Water Services Company Limited (NZOWASCO), a Kenyan utility organization providing water and sewerage services within the County Governments of Bungoma and Trans Nzoia, is one such utility that is facing a looming financial crisis due to the pandemic. “Our revenue collection is low, and customers are not paying for water. Following the directives given by the government, we cannot disconnect them. We have not paid our power bill for the last month as a result of this,” notes Mathew Wakhungu Maruti, Managing Director of NZOWASCO.

NZOWASCO’s experience is not unique. The Kenya Water Service Providers Association estimates that water utilities’ revenue collection has dropped from 94 percent to 30 percent since March. Based on Kenyan Water Services Regulatory Board projections of the primary financial impact of COVID-19 on two large WSPs, USAID estimates that collection efficiency will fall to 50 percent in a best-case scenario. The worst-case projection sees this number falling to 20 percent. When expenditure changes are required to meet the directive of providing free water, the worst-case scenario predicts a two-fold increase compared to pre-COVID-19 monthly expenditures. (For more details, see Water Service Provider COVID-19 Financial Stress Testing and Mitigation.)

“Immediate financial support is very much needed and will be critical for sustaining water and sanitation service provision that underpin public health measures in responding to the pandemic,” notes Barbara Kazimbaya-Senkwe, USAID WASH-FIN’s senior WASH governance advisor.

Image for post
Image for post
A MAWASCO customer shares an SMS notification about an outstanding balance. Photo credit: Rose Odengo, WASH-FIN

How USAID and Partners are Helping Water Utilities Keep the Lights On

Financial Stress Testing of WSPs in Kenya

The results of the analyses are stark. The three selected WSPs will require around KES 155 million (US$1.4 million) to sustain their operations through the next six months. If no action is taken, all three WSPs assessed are expected to run out of cash by September 2020 and, in some cases, even earlier. To continue to serve the public, the WSPs must, at a minimum, have enough cash to cover their most basic operational and maintenance costs. Given that they are presently unable to fully collect revenue from most of their customers, additional financial resources will be required to close the gap and ensure they can continue to provide essential services and support the government’s public health objectives.

To help mitigate financial stress, USAID is working closely with these WSPs to consider a mix of actions, such as increase in collection efficiency, internal cash preservation, liquidation of assets, and debt restructuring. Even with all of these mitigating factors, however, it will be critical to provide financial support to these WSPs. “Due to reduced revenue from water sale, we have accumulated debt to our suppliers, including those supplying water treatment chemicals,” notes David Ndumo, Corporate Manager of NYEWASCO.

USAID WASH-FIN is also performing a crucial coordination role for the Council of Governors (COG) concerning national-level dialogue and action following the onset of the COVID-19 pandemic in the WASH sector. Following the facilitation of a high-level meeting by USAID between COG and WASH development partners, UNICEF committed US$100,000 for the provision of water treatment chemicals for WSPs in 13 counties.

All of these efforts will be extremely beneficial to companies like NYEWASCO, which must meet their obligations not just for chemicals but also other inputs, including electricity and labor costs required to keep water and sanitation services flowing.

Financial Stress Testing of WSPs in Indonesia

Image for post
Image for post
Customers of the Surakarta water utility struggled to pay their water bills on time due to the COVID-19 pandemic. The Mayor of Surakarta, however, directed the utility to not charge any penalties for late payment. Photo credit: IUWASH PLUS

Using the World Bank’s financial assessment tool, USAID’s IUWASH PLUS (Indonesia Urban Water, Sanitation, and Hygiene Penyehatan Lingkungan Untuk Semua) project is conducting financial stress testing for its 25 local partner utilities. The results, which are expected by the end of July, will help to better focus the needed assistance, including getting reduced tax for the year of 2020. In the next quarter, USAID IUWASH PLUS will continue the analysis for all of the 32 assisted water utilities, while continuing to help them improve performance, reduce operational cost, and adjust their business plans to get operations going while expanding coverage. Additional data collection is ongoing to assess COVID-19’s impact on the operational activities of WSPs, which will in turn inform the local government’s planned investment in their utilities.

Three months’ worth of data from the Bogor District’s water utility are already projecting a 12.5 percent decrease in the utility’s revenue this year, which is largely attributed to commercial entities’ reduced water use. The billing collection rate is also down from 98 percent to 85 percent, and capital expenditure has been reduced by 70 percent.

Building on efforts in Kenya and Indonesia, USAID plans to further roll out the stress testing tool in Mozambique and Zambia, with the possibility of expanding to other countries.

Rapid Assessment of the Impacts of COVID-19 on WSPs and Business Continuity Planning in the Philippines

Image for post
Image for post
Legazpi City Water District (LCWD) staff join the information education communication campaign on handwashing. Photo credit: LCWD, Philippines

Short-Term Operating Cost Subsidies to Private Water Providers in Mozambique

Intervening at a Critical Juncture

Mobilizing resources to counter falling revenues and rising costs will require a concerted effort from governments, development partners, and water utilities themselves. “It’s clear that water is critical to mitigating the impact of COVID-19. As importantly, we also recognize that many of our service providers weren’t operating in a technically and financially viable manner, even before the crisis,” notes Joel Kolker, program manager for the World Bank’s Global Water Security and Sanitation Partnership. “Therefore, we must enhance our efforts to deal with the crisis and improve the long-term viability of the service providers.”

USAID is committed to using the results of financial stress tests and other approaches to not only keeping vital water supplies flowing but also ensuring water utilities remain operational now and well into the future. By supporting water utilities, USAID can ensure that the WASH sector not only maintains its critical role in fighting COVID-19, but is also on course to help countries achieve universal access in WASH by 2030.

By Ella Lazarte, USAID, and Farah Siddique, USAID WASH-FIN

Special thanks to Amanda Robertson (USAID/Kenya), Marian Cruz Navata (USAID/Philippines), and Trigeany Linggoatmodjo (USAID/Indonesia) for contributing to this story.

This article appears in Global Waters, Vol. 11, Issue 3; for past issues of the magazine, visit Global Waters’ homepage on Globalwaters.org.

Global Waters

Global Waters tells the story of USAID's water-related…

USAID Water Team

Written by

USAID and its partners improve access to clean water and safe sanitation to create a healthier and more #WaterSecureWorld. For more, visit Globalwaters.org.

Global Waters

Global Waters tells the story of USAID's water-related efforts around the globe, featuring in-depth articles exploring solutions to local as well as global water challenges, opinion pieces by development professionals, and first-hand accounts from stakeholders and beneficiaries.

USAID Water Team

Written by

USAID and its partners improve access to clean water and safe sanitation to create a healthier and more #WaterSecureWorld. For more, visit Globalwaters.org.

Global Waters

Global Waters tells the story of USAID's water-related efforts around the globe, featuring in-depth articles exploring solutions to local as well as global water challenges, opinion pieces by development professionals, and first-hand accounts from stakeholders and beneficiaries.

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Learn more

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. Explore

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic. Write on Medium

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store