World Bank review of utility reforms

© iStock / DNY59
© iStock / DNY59

The World Bank’s Independent Evaluation Group has released a synthesis review of findings and lessons from World Bank-supported utility reforms in the energy and water sectors, summarising evidence of what worked and what did not.

It identifies two fundamental areas of reform: improving institutional accountability and strengthening financial viability. The first involves: reforming institutional arrangements, policies, and regulations; sector planning, utility management, capacity, and skills; and creating the framework for private investment. The second requires the strengthening of cost recovery, commercial viability, and operational efficiency.

The report compares the effectiveness of Development Policy Operations (DPOs) and Investment Project Financing (IPFs) instruments across selected financial viability targets. It identifies lessons for each sector and cross-cutting lessons for both energy and water operations, centred on promoting financial and operational discipline (regardless of private or public ownership), and institutional governance and accountability.

The document notes that recovering cost of service is at the core of sector reform, and that the operational efficiency of service providers is crucial to their financial viability.

Case studies examined include radical changes to the corporate management approach and work culture in Peru’s Sedapal utility, and the well-known work by the Ho Chi Minh City water utility in Vietnam to reduce water losses.

Overall, both DPOs and IPFs, the bank’s main instruments, were found to adequately identify sector financial performance drivers, and were comparably successful across selected financial viability targets, with two notable differences.

IPFs were found to perform better than DPOs on improving overall utility financial performance, but DPOs were found to be better at influencing tariff adjustment.