Providing an adequate water supply is a major challenge facing many public water utilities in developing countries. A significant part of this challenge is non-revenue water (NRW), which is the difference between the volume of water put into a water distribution system and the volume that is billed to customers. It is estimated that water utilities in developing countries can lose 40-50% of the water they put into their systems and they are unable to bill their customers for this loss. high levels of NRW are damaging to the financial viability of water utilities, as well as to the quality of water service.  

NRW can occur through physical losses from leaking and broken pipes, which are caused by poor operations and maintenance, the lack of active leakage control, and poor quality of underground assets.  NRW can also come from commercial losses caused by the under-registration of customer meters, data handling errors, illegal connections and theft.  Another cause of NRW is unbilled authorized consumption, which includes water used by utilities for operational purposes, water used for firefighting, and water provided for free to certain consumer groups. Reducing NRW can significantly improve the performance of developing country public water utilities by:

• Increasing the amount of treated water in the system that can be available to service customers without having to look for new sources of water (new water treatment plants, dams, desalination plans, etc)
• Increasing the revenue collected
• Discouraging illegal connections which promotes fairness and improves the operational capacity of the system
• Improving service to existing customers, promoting economic growth with new business opportunities created through NRW reduction activities, and new job creation through labor intensive leakage reduction activities
   

Despite the potential benefits, NRW is not a simple matter for public utilities to implement.  New technical approaches need to be adopted and effective arrangements need to be established in the managerial and institutional environments.  Some of the reasons for insufficient NRW reductions efforts are lack of:

• Understanding the magnitude of the problem
• Capacity of skilled staff in various professions
• Management focus
• Most importantly, the enabling environment and incentives

This last point highlights the area where PPIAF support can help struggling utilities improve their NRW position through engaging the private sector.  Several recent studies suggest that the right incentives can be put in place in a public utility within a broader framework of encouraging autonomy, accountability, and market and customer orientation.  Private sector involvement in NRW reduction activities has often involved performance-based service contracts to improve services.

PPIAF has supported several governments to help reduce NRW. In 2005, PPIAF funded the first activity in this area to help the public water utility in Ho Chi Minh City, Vietnam, prepare a performance-based NRW reduction contract with the private sector.  Training modules based on international best experiences were prepared and presented at a workshop. The conference materials and the paper The Challenge of Reducing Non-Revenue Water (NRW) in Developing Countries – How the Private Sector Can Help: A Look at Performance-Based Service Contracting, are available below.  In 2007 the Ho Chi Minh City water utility decided to request private sector bids on NRW management in certain areas of the city and came to PPIAF for support to help train its staff in evaluation of bids and preparation for oversight of the NRW contract.

Also in Vietnam, the Hanoi water utility requested PPIAF support in 2006 to help prepare a report on the various PPP options available to the city to improve its network management, leakage reduction and NRW management activities.

PPIAF recently supported an activity with the Surabaya water utility in Indonesia to develop a NRW reduction strategy, assessing management options the utility could implement to achieve this including PPPs. The goal of the utility is to reduce the rate of NRW from 37% in 2007 to 30% or less by 2015.  The May 2011 final report is available below.

As an overall effort in implementing its Drinking Water and Sanitation Sector Framework Law, in 2008 the government of Honduras requested PPIAF support to assemble lessons from international best practices into the design of bidding contracts for PPPs in NRW. Based on the previously funded PPIAF activity in Hanoi, the report on The Challenge of Reducing Non-Revenue Water (NRW) in Developing Countries – How the Private Sector Can Help: A Look at Performance-Based Service Contracting is being translated in to Spanish and will shortly be available on the PPIAF website.  In addition a series of training events will take place to increase the capacity of the staff in the utility regarding NRW issues.

Please contact PPIAF at ppiaf@ppiaf.org if you wish to further discuss any possible NRW issues.