Implementation of a structured Investment and Business Planning methodology and model that will assess the performance and sustainability of the Water Utility based on its current condition and the effect of various interventions to be carried out through a proposed Investment Plan
Water Utilities are experiencing greater than ever pressure to improve their overall efficiency and cost-effectiveness. The industry is being regulated at an increasing tempo, while at the same time, funding is becoming more difficult to come by. Water Utilities are left with little choice – as a minimum they will have to improve the quality and reliability of the water they supply; more likely they will be required to become less dependent on external funding and eventually self-sufficient and economically viable. However, Utilities face significant challenges in achieving such objectives. They need to:
- Implement Asset management programs and manage their assets in an efficient, and accountable manner; in many cases having an infrastructure that has suffered from years of neglect and abuse, with supply systems that have been allowed to deteriorate due to an acute shortage of funds, inefficient over-regulation and/ or mis-management.
- Ensure financial viability and long-term sustainability of services provision by finding ways to finance AM investments many times against a tariff level over which they have limited influence.
- Develop adequate institutional capacity to implement new investments
To assist Public Utilities Hydro-Comp Enterprises has developed an Investment and Business Planning model and methodology that assess the performance and sustainability of the Public Utility’s future operation. The initial implementation of the model and resulting Investment and Business Plan can be followed up (optionally) with a capacity building program and an Investment and Business Plan monitoring program.
Business Planning as a Decision Support Tool
Various activities, as part of integrated asset management, should be carried out at the Utility. Such activities provide input for formulating proposed interventions that form part of the Investment Plan. Deciding which of these interventions should be included in the Investment Plan depends on both the risk of service failure and the cost effectiveness of such interventions.
To carry out the proposed Investment Plan the Utility will require funding and to be able to raise such funding it should be able to formulate a detailed Business Plan that will convince funding institutions that the Utility’s operation is/ will become sustainable and will be able to repay its debts. Such a Business Plan will require input from information on (a) current operations (tariff structures, revenue breakdown, operational costs (fixed & variables) breakdown, Debts & repayment schedules, Financial Statements), (b) from the proposed Investment Plan (c) as well as from other Utility operations such as water auditing and demand forecasting. The process is shown in the above diagram.
One of the main problems is that some/ most/ or even all of the integrated asset management required activities are not carried out at the Utility and the Utility/ Funding Institution can’t always wait until such activities are carried out to determine the financial viability of the Utility or applicability of a requested loan. As a result another model is required; the “Utility Assessment Model” that will utilize easily measurable indicators from the Utility and make suitable assumptions to arrive at the outputs required by the Investment and Financial Planning models.
The diagram above illustrates the overall process. The left block basically represents Utility functions, activities and output of the Integrated Asset Management Process whilst the right blocks show the main components of the Investment and Business Planning process and model.
Implementation of Hydro-Comp’s Business Planning methodology and associated Model will empower Municipalities/ Utilities to:
- Evaluate the current status of the AM programs in the Utility & provides a basis for integrated AM technical planning.
- Enforce a clear & documented strategy for managing municipal assets from design to disposal at end of useful life.
- Institute verifiable and monitored investment plans.
- Link investment plans to long term funding requirements
- Create a long-term capital funding program.
- Provide for meaningful Financial Reporting
Hydro-Comp’s Investment and Business Planning implementation process has various steps that allow the choice of combining various alternatives/ options that ensure the desired results both in terms of reliability of service and performance as well as financial viability. The main steps are as follows:
1) Utility Assessment: A Utility Assessment is carried out prior to the described activities or at any stage during the execution of those activities to provide supplementary information (not yet derived from the said activities) to the Investment and Financial Models.
2) Investment Planning & Modeling: The investment model receives recommended interventions from the Activities of (a) Data Improvement analysis, (b) Rehabilitation Plan, (c) Maintenance Plan, (d) Commercial Rehabilitation Plan, (e) Leakage Reduction Program, (f) Upgrading Plan, (g) Emergency Response Plan and the (h) Master Plan. The activities are grouped in terms of Performance Areas (Source and Water Treatment Plants, Bulk Supply, Distribution networks and Consumer connections) and ranked in terms of their effect on the (a) Reliability of Service and (b) profitability of the organisation.
3) Financial Planning & Modeling: The Financial Plan and Model will project costs and revenues and present full financial statements and key performance indicators (KPI) for the Utility over the Planning period which is usually the period required to repay capital loans.
Commercial Data Analysis
Commercial Data Analysis is extremely important and highly recommended as part of the Business Planning process and Investment Model implementation.
The process is initiated by Commercial data evaluation which is carried out using the EDAMS Assets Management – Commercial Data Evaluation (CDE) system. This analysis should preferably be executed at a Utility on a regular basis to identify discrepancies in the commercial database and also monitor the progress of addressing such discrepancies. The process basically divides Demand per connection into Metered Consumption plus un-metered consumption plus Internal Wastage and Leakage. It groups connections into problem areas and quantifies all demand components per problem area, defining appropriate interventions per such area.
The findings of the Commercial data analysis can further be used in compile detailed action plans for rehabilitating the appropriate commercial components. and address problems related with stuck meters, oversized/ undersized meters, suspect consumption category, suspect illegal connections (on customers without a connection) and meter inaccuracies on large consumers.
Capacity Building & Monitoring
Implementation of the business plan model includes full operator and user /management training.
Utility management is trained in the use of the models and the updating of the AM-BPM model. Hydro-Comp’s structured support services program include the updating of the AM-BPM model on a yearly basis, additional refresher courses and verification/ audit studies that the business plan is on track with the predicted/achieved results and the implementation of the investment plans.