Case Study — Nampula , Nacala , and Pemba , Mozambique

1 Nampula, Nacala, and Pemba, Mozambique Context • Low-income country • Aggregation covering urban areas • Low level of water performance Purpose Performance, professionalization, solidarity, economic efficiency Scope Water functions and services Scale • Administrative boundaries • Localities covered: 3 for water • Population covered: 396,665 inhabitants for water • Coverage: 39% for water • Connections: 50,874 for water • Network length: 1,371 km for water Process Voluntary Governance • Merger • Public administration • Decision making: almost all decisions are vested in FIPAG, which is under guardianship of the Ministry of Public Services, Housing, and Water Resources • Asset transfer: assets are the property of FIPAG • Liability: liabilities and debts from previous operators are not taken over by aggregated utility • Staff transfer: all staff was transferred • No clear entry and exit rules Outcome Negative: very little improvement Findings Investment delayed because of political arbitration; hence, services are trapped in low-level equilibrium. Aggregation has not yet delivered clear benefits. W S S G S G U T I L I T Y T U R N A R O U N D S E R I E S W A T E R G L O B A L P R A C T I C E

In 1998, the water services of Nampula and Pemba were aggregated under the Fund for Investment Ownership and Water Supply Assets (Fundo de Investimento e Património do Abastecimento de Água; FIPAG), a national public agency that owns and manages the water assets in both cities.In 2009, following unsuccessful bidding processes, FIPAG took over operation of both water services.
That same year, Nacala's water service was aggregated into FIPAG, along with the water services of other cities from the northern region of Mozambique, creating the FIPAG northern unit.
Following this aggregation, some limited improvements have been made in terms of economic efficiency.However, the service quality level is still low.As such, aggregation has not delivered its expected benefits yet, and efforts should be continued to achieve a clear improvement in utilities performance and secure the financial sustainability of services.

A Water Sector Reform That Tried to Unbundle Investment and Operation Functions
In the mid-1990s, the government of Mozambique initiated a series of political, economic, and social reforms.Those reforms included measures to restructure the water supply and sanitation sectors, which were in dire straits.The transformation of the water supply subsector in particular was fueled by the National Water Policy 1 and the Water Tariff Policy, 2 which enabled the growth of water coverage.In addition, to have a more controlled rollout of this new strategy, the government instituted the delegated management framework 3

Aggregation of Investment and Operation Functions under FIPAG Following Unsuccessful Bids
The cities of Nampula these large systems can be explained partly by the fact that most of these utilities are seen as still transitioning and suffer significant political influence, particularly during election years.The revenue collection from public institutions in particular is always uncertain and poses an important commercial risk, and the water tariff policy is not very dynamic and in some cases is not cost reflective.

A Gradual Aggregation of Urban Water Services under the FIPAG Northern Unit
In FIPAG for a longer period.Nacala's water service was suffering from weak commercial performance, with high nonrevenue water coupled with significant physical losses.The municipality of Nacala had not invested in its water system because it was struggling to secure investment funding.When the Nacala utility was transferred to the FIPAG group, the municipality's role was significantly reduced.Some forms of coordination remained, mainly for planning purposes, but all other decisions were vested in FIPAG.

Aggregation Benefits Have Not Materialized Yet
In    The proportion of complaints addressed and resolved by the water utilities reflects the quality of customer service.This indicator shows an important decrease for all three water services (figure 6).
The lack of timely response to complaints frustrates customers, leading to dissatisfaction.
CRA sets a turnaround time of 14 days as a reference value for customers to obtain a first response from the water operator   In this evaluation, 4,347 customers of various systems were surveyed.
In Pemba and Nampula, more than half of the customers surveyed do not rate the service provided as "good" (figure 8).
As a whole, although economic efficiency in the northern region has improved, performance and service quality levels lag.However, the gradual improvement of the aggregated service overall can be monitored using the existing index, IDER.Such monitoring facilitates accountability toward customers because improvement can be steadily demonstrated over time.
It can also be used to set improvement targets.

Notes
(DMF).(See figure 1.)This framework defined the separation of powers and functions among key sector players-namely, the Fund for Investment Ownership and Water Supply Assets (Fundo de Investimento e Património do Abastecimento de Água; FIPAG) and the Water Regulatory Council (Conselho de Regulação do Abastecimento de Água; CRA).The government's initial plan was to aggregate the investment function of urban water services under FIPAG, which owns and manages urban water assets and is responsible for associated investment programs.The operation and maintenance of these urban systems were to be handed out to private operators through calls for tenders.Water utilities regionalization was supposed to create an appealing market for the private sector.FIPAG started on a pilot basis, focusing only on the five largest water supply systems in the country.Its investment portfolio was progressively extended to cover 21 main urban areas.(Seemap 1.)However, despite

FIGURE 1
FIGURE 1. Institutional Delegated Management Framework of Water Utilities in Mozambique 2004, in parallel with the international bidding for Maputo and the four northern cities, FIPAG signed a three-year contract with Vitens Evides International, a Dutch water operator, to provide technical assistance for service management and professional training for four small and medium-size southern cities 4 : Xai-Xai, Chókwè, Inhambane, and Maxixe.Vitens's technical assistance was contracted in the scope of a major financial investment by the African Development Bank.The implementation of this contract led to the creation of the FIPAG southern unit.Following the successful implementation of this aggregation experience under public-private partnership contracting, FIPAG and Vitens signed another contract in 2006, for the provision of similar services for five other cities located in the central region of Mozambique: Chimoio, Gondola, Manica, Tete, and Moatize.The integration of these new cities into FIPAG group was formalized in 2009 5 and led to the creation of the FIPAG central unit.That same year, FIPAG absorbed 6 the cities of Nacala, Lichinga, Angoche, and Cuamba, which were then linked to the two major systems of Nampula and Pemba.Following the successful experiences with the southern and central units, the FIPAG northern unit was created.The creation of that unit aggregated the water systems of the cities of Nampula, Nacala, Angoche, Pemba, Lichinga, and Cuamba.When Nacala was brought into the FIPAG northern unit, it benefited from the technical capacity of other utilitiesespecially Nampula and Pemba, which had been under figure2).
explaining the decrease in operating cost coverage ratio mentioned previously.(See figure 4.) The prevailing arrangement for tariff adjustment in Mozambique foresees annual adjustments, under the terms of the regulation agreement and regulatory framework that FIPAG, the regulated entities, and CRA agreed on for a regulatory cycle of five years.The process itself is quite complex and relies on the analysis of many variables associated with economic and social issues that influence the cost of vice provision, including operation and capital costs as well as macroeconomics indicators, among others.The operator has to provide audited accounting reports of the previous fiscal year for consideration during the discussions on annual tariff adjustment.The continuity of service has been divided by two in all three water services, whereas metering level is very high, at 90 percent.Nonrevenue water is a major concern in water supply operation in Mozambique, with an average value of 42 percent across FIPAG-operated systems.Water losses in the water supply systems of Nampula and Nacala are quite high, at 20 m 3 /km/day and 48 m 3 /km/day respectively in 2015.In Pemba, on the contrary, water losses have fallen, dropping from 39 m 3 /km/day in 2009 to 6 m 3 /km/day in 2015.

FIGURE 5 .
FIGURE 5. Evolution of IQS in the Northern Region

FIGURE 6
FIGURE 6. Complaints Addressed in the Northern Region

TABLE 1 . IDER Performance Indicators
Average water tariffs in Nampula and Pemba have increased by approximately 66 percent between 2009 and 2014.For Nacala, the evolution of tariffs is more erratic, with a decrease in recent years, thus probably