Prepaid Water and Equity - International Perspectives

By Stacey Isaac Berahzer and Guest Author, Petal Joseph

Since there are not many academic publications addressing prepaid water service in the United States, we looked at some journal articles that discuss the practice in other countries. In early 2014, France, recognizing citizens right “to access drinking water under conditions that are economically acceptable to all,” introduced the Brottes Law which prohibits water service providers from shutting off any residential customer’s supply due to non-payment. Unlike the other utilities – gas and electricity – this restriction applies year-round, not only during the winter period, and applies to all consumers. While it offers some protection against economic discrimination, it does not cancel the consumer’s obligation to pay, thus allowing service providers to recover their debts by other means.  

As a work-around, some French water utilities instituted the practice of “lensing” where they reduced the flow of water to an insufficient low stream. The strategy of restricting flow resulted in several court decisions which eventually deemed this procedure illegal in France in 2016.

Newly introduced legislation in late 2019 makes provision for the implementation of financial mechanisms that will “make the right of access effective” thereby allowing measures such as tariffs and aid for low-income households to better utilize and pay for this resource.

Difficult Choices

In the US, the case for affordability of water is often made in terms of a customer having to sacrifice other needs, such as food or medicine, in order to pay for water. A similar trade-off was noticed in Soweto, South Africa. Social customs and community networks began to break down in poorer townships of Soweto when prepaid metering was introduced as persons were now forced to choose between access to safe water and their other personal needs. In many instances, residents altered their water usage patterns to avoid exceeding the free amount allowed monthly. In the US, this “free” amount may be compared to “lifeline rates” where the first increment of water is sometimes priced below the cost of service for the sake of affordability.

Striking a Balance

Installation of a prepaid water meter (PWM) system presents a viable solution for challenges in operational efficiencies that water service providers face. High rates of nonrevenue water (NRW) contribute to the financial challenges often encountered by service providers and the quality of water service experienced by customers. Service providers, as a means to improving water management, have been seen to reduce NRW, for example in Nakuru, Kenya.

There, the state water company manages a metered system in a densely populated urban area, where a large percentage lives below the poverty line. The study revealed a decrease in NRW from 49% to 14%, as well as, improved water coverage, better water quality and affordability in their operations. This example certainly presents a strong case for the installation of PWMs where improvements in water management and delivery are a major concern. But what of the customers, particularly the economically challenged? Do PWMs further marginalize the vulnerable and disadvantaged in our communities?

A Catch-22

Attempts at PWM installation in Mumbai, India were not as well-received. Evidently, the cost of the meters themselves were far more prohibitive than in other countries and thus, would have needed heavier subsidization of the service, perhaps to the point of being strenuous on the utility’s finances. Invariably, civil society activism presented a strong enough opposition to the proposal on the basis of rights and this resulted in its withdrawal. In 2011, the idea of PWM was re-introduced however, in the Mumbai High Court when a judgment supported the position that all citizens should have some access to water, even occupants of illegally erected slums. This access was to be assured through the installation of a PWM system. Up to 2019, no pre-paid meters were as yet installed, despite the five-year old court order, and utility managers - at their discretion - continue to connect residents with the existing post-paid meter system.

Sparking Innovation

One clear indication emerging from the international case studies examined is that both water utilities and their customers would benefit from alternative financial mechanisms which do not place overbearing costs of implementation on the utilities thereby allowing for more reasonable terms of engagement with customers. Simultaneously, the mechanism may also allow for customers to benefit from lower rates and fees making it more likely their accounts remain in good standing. One such possible solution is metafinancing, as seen in some countries like Kenya, Guatemala and Peru. Metafinance can be described as the middle ground between microfinance and the more traditional municipal finance options and operates at a community or neighborhood scale. Typically, metafinance initiatives have been either through credit to utilities or through savings to customers. While it is not a replacement for public sector investment, metafinance arrangements may offer some inspiration for American cities that are considering implementation of PWMs but wish to avoid some of the public resistance encountered in other territories.

The New Normal?

The convenience of prepaying for services has gained popularity with the American public in the recent past; a fact that is not lost on utility providers like the City of Blakely and other Georgia service providers. In fact, some 18 member companies of the Central Service Association (CSA) have been utilizing IT and software solutions since 2009. By fully integrating comprehensive software applications, thousands of their customers benefit from greater satisfaction and maintain better credit. The providers also register better financial statements and significant operational cost savings.

 

This is part of a blog post series funded by the Georgia Environmental Finance Authority (GEFA).

Disclaimer: The opinions of the writers should not be considered legal advice or endorsement by GEFA.