Current status of the water supply businessTakuya Urakami
We are faced with various challenges regarding water and environmental infrastructure.
To overcome these challenges, we must undertake water supply business operations through public-private partnerships.
Through this we can pursue sustainability, ensuring that we can use safe, clean water reliably and indefinitely.
We are the ones responsible for future generations.

Professor of the Kindai University Faculty of Business Administration. Ph.D. in Business Administration.
Born in Amakusa City, Kumamoto Prefecture. Completed his doctorate at the Graduate School ofBusiness Administration, Kobe University. Assumed current position in April 2013 after working
as a contract researcher at the Osaka Prefectural Institute for Advanced Industry Development
and as a lecturer for the Faculty of Business and Economics at Kindai University. Specializes in theeconomics of public utilities. Council member for the Ministry of Health, Labour and Welfare, theMinistry of Land, Infrastructure, Transport and Tourism, and for many local governments.

Current state and issues facing water infrastructure

people by 2063 before finally falling to approximately a half ofFrom what we have seen so far, it's hard to be optimistic

There is no doubt that our waterworks are the mostin Japanpeak population around 2100.

with regard to the reality of the water supply business inindispensable piece of social infrastructure in our lives.

The history of modern Japanese waterworks began in

But this is not the only problem Japan is facing. As you areJapan. Facilities constructed during periods of high economic

The waterworks industry has moved from the construction

Yokohama, in 1887. It was designed to prevent water-borne

well aware of, the tremendous amount of damage caused

growth are already aging. Increases in future investment

era in the 20th century, to the maintenance era in the 21st

infectious diseases and fires, with municipalities in mind as

by the frequent occurrence of natural disasters in recent

are expected due to planned improvements. And a certain

century. What should we do to "protect" rather than "create"

the suppliers. Since then, the water supply business has beenyears. Strong lifelines need to be built to counter the majoramount of investment is also required to make the facilities

our water infrastructure? In today's rapidly changing socio-

operated on the principle of independent profit as a local public

earthquakes exceeding maximum seismic intensity of lower

resilient to natural disasters. However, in the future revenues

economic environment, advanced management capabilities

enterprise under the principles of municipal management.

6, massive typhoons, guerrilla rainstorms, and other natural

will decrease due to the declining population. Currently, theare required to manage the water supply business. We need

The spread of waterworks expands rapidly with high economic

disasters occurring almost every year.

expenses that should be borne by the current generation areto think deeply on this in order to ensure the water supply

growth. What was just 32.2% in 1955 exceeded 90% in the

Let's take a look at management of the water supply business.

being postponed to the next generation in order to reducebusiness is sustainable and to fulfill our responsibility to future

1980s, and that number reached 98% by the end of 2017.

As of the end of FY2017, there were 1,347 water supply

water prices.

generations.

Considering that approximately 70% of the total land area ofcompanies in Japan (those supplying water to at least 5,000

Japan is comprised of forests, it is acceptable to think that apeople). Many of these companies are profitable. This does

national public water supply has basically been achieved.

not show that management is stable. To start, water supply

In entering the 21st century, Japan is facing major changes tobusinesses are operated as local public enterprises on theits social structure. Needless to say, declining birthrates andprincipal of independent profit. Construction and improvementa shrinking and aging population are among these. Accordingof facilities are primarily funded through internal funds (internal

to the National Institute of Population and Social Security

reserves) and new debt (corporate bonds). It's easy to see that

Research, the total population of Japan began to decline after

if the balance of dept (corporate bonds) becomes too large,

peaking in 2008. This rate of decline will accelerate in theit can cause a crisis for future management. In order to keep

future, and the population is expected to fall below 90 million

management stable, sufficient internal funds must be held.

Water supply business in a society with a declining population
Revenue earning water has been decreasing since hitting its peak in 2000, as changes in Japan's population and the spread of water-saving
equipment has led to lower amounts of water being used per person. By about 2065, this revenue earning water will drop to approximately 60% of
its peak amount.
● In principle, the water supply business is operated through water charges (independent profit system), but revenue decreases along with adeclining population, and so the management situation is becoming ever more severe.
●(Thousand m3/day) Revenue earning water［
45,000(hundred million yen)

Investment in waterworks and water supply

Population with access to piped water (%)

15,000

the temporary increase in expenses when a disaster occurs,

16,00080

and also allow management to continue even if there is no12,000

60

8,000

40

But in reality, many companies are far from achieving sustainable

4,000

20

management practices, instead reducing the number of staff

1963

1973

1983

1993

METAWATER REPORT 2019

2003

2013

0
(Year)

necessary in order to reduce the burden on the current generation.

Low (reference)］

Household consumption［

Actual value

Estimated value］(ℓ per person/day)
350

1998
243ℓ per person/day

300

2065
22 million m3/day

250

0

1960

200

2015
227ℓ per person/day

150

Household consumption

5,000

generated to secure these internal funds.

investments in improvements, and borrowing more than isHigh (reference)2015
36 million m3/day

10,000income from charges for a fixed period. Profit (surplus) must be(reducing labor costs) to reduce water prices, postponing

Estimated value

20,000Estimation method

1953

Source: Ministry of Health, Labour and Welfare

3

25,000100

Revenue earning water

30,000against risks such as natural disasters. They compensate for

20,000035,000investment, but also as an important method for protecting

Actual value

2000
39 million m3/day

40,000

These internal funds serve not only as a source of future
Changes in coverage of water supply system and investment

Management and Operations Overview

Bringing water and environmental infrastructure
to the next generation through public-private partnerships.

1970

1980

1990

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

2100

2110 (Year)100(1) Population being supplied with water: Calculated by multiplying Japan's estimated future population (2017 estimate) by the rate of population served by water supply (2015 actual
results: 94.4%).
(2) V olume of revenue earning water: Estimated by separating into household and non-household use.
Revenue earning water from household use: Household consumption × population being supplied with waterSince it is difficult to grasp trends of waterworks exclusively for groundwater use, future economic trends, etc., revenue earning water from non-household use is assumed tochange in accordance with that of revenue earning water from household use, with the ratio for non-household use set at 0.310 that of household use.
(3) The high and low levels are the results of estimations when Japan's estimated future population is changed to low death/high birth rates (high), and high death/low birth rates (low).

Source: Ministry of Health, Labour and Welfare

METAWATER REPORT 20194

Current status of the water supply businessMeasures for strengthening water infrastructure

Water Supply Act and points of revision
The biggest factor leading to the revision of the Water Supply
Act was that as an industry, Japanese waterworks had reacheda stage of maturity. The percentage of the population withaccess to piped water has been almost flat since 2000, andPromotion ofregional collaborations

Promotion of
public-private partnerships

Prefectures are
the facilitators

Introduction ofconcessions

the population being supplied with water has been steadilydecreasing as Japan's total population decreases. Water

establishes basic policies to strengthen infrastructure andfacilities constructed during periods of high economic growth

prefectures establish plans for strengthening water supply

are already aging, and the time for full-fledged renovation andinfrastructure as well as set up councils to promote regional

reconstruction has arrived.

collaboration. The act has also defined that business operators"Creating" and "maintaining" are two entirely different things.

are obliged to create water supply facility ledgers, and that

The first thing we must do is change our way of thinking.

they should create and publish future income and expenditure

On top of that, Japan is now in a society with a declining

prospects. Third, the introduction of concessions is now

population. How will maintenance be carried out as thepossible as a new form of public-private partnership. While

population decreases, the demand for water declines, andthe granting of operating rights themselves are a nationalless water revenues are received? "Advanced management

permission, creative originality is expected from the local

capabilities" are required.

governments in determining the scope of the operating rights,

As mentioned earlier, there were 1,347 water supply

determining usage prices, etc.

companies in Japan as of the end of 2017. Most of those are

Japan's water supply system faces an extremely difficult

small-scale businesses with less than 10 employees. In thissituation. Regional collaborations and public-private

rapidly changing socio-economic environment, how can small-partnerships are key to ensuring that a water supply industry

scale businesses exercise advanced management capabilities

with such a large number of small-scale businesses canwhile also taking on their daily duties? In addition, a decline

continue to be sustained for the next 50 to 100 years. Thesein population means a decline in the number of municipal

regional collaborations and public-private partnerships can be

employees. The water utilities run by municipal management

effective in helping to create an organization that demonstrates

are no exception. The number of people employed in the water

advanced management capabilities.

and has many distinctive areas with different historical andThese range from the essential to the frivolous. Historically,

cultural backgrounds. I want to see the private sector propose

there have been many services that have improved greatly withpublic-private partnerships that are ideal for each region.

the transition from the public to the private domain.
In order to rid users of their "somewhat uneasy" mentality, theProposal for "providing a stable supply of safe water

government needs to actively send out correct information,

for the future"

allowing users to gain an understanding of public-private

The "basic policies" established by the Water Supply Act clearlypartnerships. On top of that, water utilities need to also

state the responsibilities of residents who are waterworks

recognize that public-private partnerships are not just a means

users. They state that residents should be aware that they

for reducing costs, but are an effective way of ensuring theare participating in the management of the water supply, andsustainability of our water supply, and as such they should bethat they should understand that financial resources need to

exploring options for desirable partnerships between the public

be obtained through water charges for the maintenance andand private sectors.

planned improvement/renovation of facilities.

With this uncertain future on the horizon, I believe that the

To ensure our children and grandchildren can use therole expected of private companies related to the water

waterworks safely and with peace of mind, we, the current

supply business is to greatly "complement the public". As

generation of users, need to understand everyone's roles

manifested in the previous opposition to privatization, the idea

regarding the water supply and make sure we bear the costs

that the water supply should be publicly managed is deeply

through paying the appropriate water usage fees.

rooted in Japan. On the other hand, the small-scale water

Responsibility for ensuring the sustainability of our watersupply businesses that maintain the framework of municipal

supply does not lie only with the municipalities, nor is it

management we have now can lead to failure if left as is. The

entirely on the shoulders of the private sector. I believe that an

power of the private sector, which makes up for shortages ofindispensable part of realizing a safe and secure water supply

human resources and has advanced management capabilities,

in the future lies in us, everyone who uses the water supplyis essential in making a sustainable water supply a reality.

system in any way, truly coming to grips with the fact that we

From north to south, Japan stretches across a vast distance,

are all responsible.

Management and Operations Overview

Background to the enforcement of the revisedand services all around us are offered by private companies.

supply business is on a downward trend, and it is difficult

5

to secure the employees they need, let alone pass on their

Expectations of the private sector in the watertechnology and know-how.

supply business

It was under these circumstances that the Water Supply Act

In the water supply field, the abilities of the private sector

was revised at the end of 2018. I would like to point out three

have already been utilized across a wide area. It would notthings. First, the act has declared that the waterworks industry

be an exaggeration to say that without the power of the

had shifted from the construction era to the maintenance era.

private sector, our water supply system would not be possible.

In Article 1 of the Water Supply Act, the aim of waterworks has

Nevertheless, when the Water Supply Act was revised at the

been changed from "planned maintenance" to "strengthening

end of 2018, intense discussions against privatization were

infrastructure". Second, the responsibilities of the national

held. It is thought that users feel "somewhat uneasy" about

government, prefecture, and business operator have beenleaving water supply in the hands of private companies.

clarified. The act has defined that the national government

However, stepping back and taking another look, many products

METAWATER REPORT 2019

What is a concession agreement?
Many water utilities have been operated by public entities.
Concessions in the water supply business are agreements in which longterm operating rights are granted to a private business while approval of
business items and facility ownership remain in the hands of the public. Private
businesses permitted by the Minister of Health, Labour and Welfare can operate
the business using fees collected from users as a source of funds. This is
expected to contribute to a sustainable water supply business, using operating
revenues to repay existing debt in full and reducing operating expenses andimproving service levels by utilizing the know-how of the private sector in acomprehensive range of areas not seen before.

Water supply service

Final responsibility insupplying water

Users
Water prices
Operating rights

Operator (private)
Permission

Facility maintenance andmanagement services
Monitoring

Ownership

Water utility (public)
Approval

METAWATER REPORT 20196