31 January 2023
Sustaining Jordan’s water sector
Published online 14 June 2022
Jordan’s water scarcity is among the most severe in the world, but it has one of the lowest water service tariffs. Iyad Dahiyat1 , a former secretary-general of the Water Authority of Jordan, suggests solutions for a more cost-effective water sector.
Jordan has one of the lowest water service tariffs in the world, overlooking the scarcity value of water or the cost of delivery in the municipal sector, which is managed by the Water Authority of Jordan (WAJ) and three publicly owned water and sewerage companies. Water is considered a social commodity in Jordan, and if the government were to charge the actual cost, tariff levels would rise by 300%, hurting low- to middle-income households. However, failure to correctly price municipal water and wastewater services threatens the sector's financial viability and allows for unsustainable use. Average service costs are higher than average prices, resulting in a lack of revenue, which is required to ensure long-term service sustainability and adequate financial investment in water system operation, maintenance and replacement.
In its Second Review in August 2021, the International Monetary Fund highlighted that the operating budget deficits of the WAJ and the three water and sewerage companies increased respectively to 1 and 0.4% of GDP in 2020. In that year, WAJ and the three water and sewerage companies shared a combined loss of US$520 million (JOD 372 million) and an accumulated sector debt of more than US$3.5 billion (JOD 2.5 billion). Jordan's government absorbs fiscal deficits and debt repayments in the form of annual cash subsidies and liability transfers, contributing to the country's stringent economic conditions.
Jordan’s water sector must address its system-wide losses in non-revenue water —water lost before it reaches the customer, for example through leaks, theft or metering inaccuracies. It is estimated that 50% of all municipal water produced in Jordan is not metered and billed (approximately 245 million cubic meters annually); an extremely high figure by international standards. For comparison, about 10% of Germany’s water and 27% of Morocco’s is non-revenue.
A second issue is rising electricity costs, which accounted for 44% of the water sector’s total operating expenses in 2020. Municipal water production accounts for the country’s greatest use of electricity — 15% of total national consumption. Electricity use increased 37% between 2010 and 2018 due to the commissioning of new water and wastewater infrastructure, primarily to alleviate and mitigate a rise of 21% in national demand caused by the influx of refugees from Syria. Furthermore, electricity sector reform had a significant impact on the water sector, as the electricity tariff for water increased by 333% between 2010 and 2018.
Thirdly, the three publicly owned water and sewerage companies do not currently have performance contracts with the government that outline their expected efficiency levels or benchmarks. There is no transparent disclosure of internal costs associated with water distribution, such as pipe maintenance, electricity consumption, overheads, labour and administration. Monitoring is inadequate without developed regulatory tools. The traditional business model of owning, maintaining and hosting all functions in-house has not changed and is not benefiting from the lower cost of outsourcing. Water and sewerage companies are yet to involve the private sector in the management of services to improve internal efficiencies and performance.
Jordan’s water sector must also address asset management, as increasing financial constraints force the WAJ and water and sewerage companies to manage a larger asset base with fewer resources. The water sector has been propelled by ambitious national and global targets, placing an emphasis on acquiring assets such as water and wastewater networks, treatment and desalination plants, and wastewater recycling systems. But, with a larger asset base, annual financial provisions must be made to operate, maintain and replace various components throughout the asset lifetime. There is no long-term strategy for operational investments, and funding must be raised to maintain performance and reliability while reducing the risk of service disruption. If the necessary operational budgets are not provided, there may be a partial meltdown of service delivery, with severe consequences for stability.
A way forward
A first step could be to reduce non-revenue water losses by implementing performance-based contracts while allowing the private sector to inject vitality and much-needed cash. This model should create an incentive framework that encourages the private sector to finance and deliver results in the most cost-effective way possible and allocate risks appropriately between the public and private sectors. Performance-based contracting has the potential to bring about rapid improvements in terms of increased cash flows and water availability.
The water sector will also benefit from improving energy efficiency and the use of renewable energy in major facilities to achieve lower electricity costs. Better and higher-level water and energy coordination should be encouraged between the energy and water sectors to capitalize on their interdependence. This could include more predictability in the electricity tariff, taking into account the water sector's financial constraints, more predictable renewable energy quotas given to the water sector, as well as a peak/off-peak energy tariff.
Additionally, regulatory tools are needed to monitor water and sewerage companies and compensate for the lack of competition. Water and sewerage companies have been operating without proper oversight, resulting in inefficiencies. Government should not continue subsidizing the water sector regardless of these inefficiencies. Incentivizing improved performance will allow for efficiency gains to be realized and passed on to customers and the government. The implementation of regulatory tools such as benchmarking, yardstick competition, and comparative reviews will compare business input and output data to shape cost functions.
Finally, unlocking private investment in asset operations management and bridging the operation and maintenance financing gap will necessitate a transition from public ownership to a hybrid ownership structure of water and sewerage companies. Receiving investments from private financing markets has the potential to improve municipal water system efficiency, sustainability, and fiscal stability.
It will be vital for the government of Jordan to monitor the performance of its water sector and implement a new reform agenda with clear, measurable actions that cover the short, medium and long terms to improve its financial situation. This will require the preparation and implementation of a financial sustainability action plan to guide water sector reform by reducing system inefficiencies and increasing water revenue to improve the municipal sector’s cost recovery.
Iyad Dahiyat is the former Secretary-General of the Water Authority of Jordan (WAJ) and the Ministry of Water and Irrigation in Jordan from 2016 to 2019. He has more than 20 years of experience in the development of water strategies and policies, integrated water resources management, financial sustainability and cost recovery, climate change adaptation and mitigation, and energy efficiency and renewable energy. He managed more than 50 projects to improve basic services and enhance utility operational efficiencies in the water sector for a total value exceeding USD1 billion. He also served as the program director and senior technical adviser to support the Government of Jordan (GoJ) in implementing the new Public Investment Management - Public-Private Partnership framework.
He is currently working as the operations director of AJ Group, a leading Jordanian consulting engineering firm, and has recently participated in the Water Sector Thematic group in the 2022-2033 National Economic Workshop “Advancing into the future: Unleashing the potential to modernize the economy”. He holds an MBA in business administration and an MSc in Water and Environmental Management from the United Kingdom and a BSc in civil engineering from the University of Jordan.