BOTSWANA’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

# **Box 1. The water sector reform**

In 2009 the Government of Botswana initiated overhauling changes of the water sector and its institutions that covers, among other things: Implementation of the reform plan as presented in Option 3 of the National Water Master Plan Review (NWMPR). In this plan, the Water Utilities Corporation (WUC) has the sole authority for the provision of water supply, bulk water and sewerage services for the entire country.

Establishment of new institutions that would include a regulatory regime consisting of the WRC, Water Regulator and the restructured DWA. The Plan should also include the critical time frames and strategic actions required to move the sector from its current situation toward the future vision.

Definition of institutional arrangement and restructuring. The NWMPR has identified various institutions that need to be setup as part of the reform of the sector. The reform should achieve clear definitions of the roles, authorities and responsibilities of the various institutions. This includes restructuring and definition of mandate of of DWA, WRC, Regulator and WUC.

Development of water and wastewater policy framing a policy document on the water and wastewater strategy for submission to parliament.

Development of water and wastewater sector tariff strategy: The independent water regulator as envisaged will be responsible for the tariff setting (formal methodology, tariff levels and nature and type of subsidies) and the protection of consumers from natural monopoly such as WUC. The tariff strategy should cover the tariff for water supply, bulk water supply and wastewater.

Adapted from World Bank (2009).

The Botswana Water Utility Corporation (WUC), which at the time of collecting the data was in charge of operating the water systems of Gaborone and other five major cities, has been one of the best performers among African utilities; its performance has positively evolved over time. Distributional losses fell from 21 percent of production in 2000 to 10.6 percent in 2008, half the level of a wellperforming utility. In fact, as of 2008 the WUC’s nonrevenue water was only 40 percent of the losses reported by similar African utilities. The collection ratio has been reported at 95 percent of bills since 2000 (table 8), a ratio that financially contributes reliable, high-quality service (24/7). In 2008, 70 percent of consumers were satisfied with the service versus the 50 percent reported in 2006. But systematic adjustments of tariffs have not been carried out since 2004, and the residential tariff has remained at the same level since.

# **Box 2. The hidden costs of utilities**

A monetary value can be attributed to observable operational inefficiencies—mispricing, unaccounted-for losses, and undercollection of bills, to mention three of the most conspicuous—by using the opportunity costs of these inefficiencies: tariffs for uncollected bills and production costs for mispricing and unaccounted-for losses. These costs are considered hidden since they are not explicitly captured by the financial flows of the operator. Hidden costs are calculated by comparing a specific inefficiency against the value of that operational parameter in a well-functioning utility (or the respective engineering norm) and multiplying the difference by the opportunity costs of the operational inefficiency.

_Source:_ Briceño-Garmendia, Smits, and Foster (2009).

The sector’s overall good performance is also reflected in the very low level of hidden costs due to inefficiencies (box 2) (table 8, figure 11a). WUC fully recovers operating costs, allowing for surpluses that give WUC substantive cash flows. What is not fully clear is whether tariffs, as set up to 2008, would 21