WASH Commercial Utilities in Zambia: Struggles, Shortcomings, and Solutions

Zambia aims to achieve universal access to safe and affordable water and sanitation services by 2030. However, with less than six years remaining, doubts persist about meeting the more ambitious Sustainable Development Goals (SDGs). The key to achieving this universal service access lies in Commercial Utilities (CUs) modeled after market-led systems for water supply and sanitation. Over the years, there was widespread optimism that the private sector's involvement would address most of the performance issues in CUs securing scarce financing for growth and expansion. While private sector engagement has increased, it has fallen significantly short of expectations in transforming the sector.

Despite receiving a substantial share of funding, CUs lack clear policy directives and robust governance structures. CUs grapple with Non-Revenue Water rates exceeding 50%, well above the acceptable NWASCO threshold of 25%. This challenge compounds several others, including deficient financial management, poor creditworthiness, inadequate service provision - particularly in sanitation, and substandard asset management.

According to the World Bank Diagnostic Report spanning from 2001 to 2017, Zambian CUs suffered estimated losses of US$858 million due to high non-revenue water levels and low bill collection efficiency. These inefficiencies, notably poor billing and revenue collection result in hidden expenses or implicit subsidies. Consequently, CUs reduced investments in asset maintenance and essential repairs, leading to deteriorating service quality and increased unit costs per service provided. The chronically inefficient CUs in Zambia, as noted by the World Bank, pose a fiscal burden, complicating government financing in the sector.

Water, Sanitation and Hygiene (WASH) is politically sensitive, and most politicians have not been able to effectively balance the trade-offs between affordability and expansion of coverage to poorer communities with the CUs’ need for financial viability. Policy makers pursue multiple unaligned objectives, often leaning toward the attainment of short-term political interests. Failure to discipline CUs to perform may appease the short-term interest of the political constituency but will ultimately deprive the same of better and more efficient services.

Nonetheless, there is still hope. The government should pivot its focus from exclusively financing large-scale infrastructure projects to investing in improving the efficiency and governance of CUs. This shift aims to enhance CU cash flows, enabling them to contribute to expanding water and sanitation access. Introducing a deliberate strategy to incentivize efficiency and implementing result-based financing could significantly enhance financial performance. This strategy could enable CUs to contribute to capital investments through improved cash flows, increased creditworthiness, and the potential to attract private capital.