Performance target based non-revenue water reduction contracts: a new concept successfully implemented in southeast Asia

• Published in: Water science & technology. Water supply 2002-01, Vol.2 (4), p.21-28
• Main Author: Liemberger, R
• Format: Article
• Language: English
• Subjects: Contracts; Equivalence; Feasibility studies; Malaysia, Selangor; Outsourcing; Payback periods; Revenue; Success; Tariffs; Water; Water shortages; Water supply; Water utilities
• ISSN: 1606-9749; 1607-0798
• DOI: 10.2166/ws.2002.0116

Non-revenue water (NRW), the difference between water produced and water sold, has reached unacceptable levels in the majority of water utilities all around the world. Outsourcing of NRW reduction activities is often the only feasible solution. The paper describes the concept of “performance target based non-revenue water reduction contracts” in general and provides detailed information on the world's largest NRW reduction contract - the Selangor NRW reduction project. The performance target of Phase 1 was to reduce NRW by 18,540 m3/day. The works were completed on time and the target has been over-achieved. Based on this success, Phase 2 of the project has commenced in April 2000 with the aim of reducing NRW across the entire state of Selangor, by 200,000 m3/day over a 9 year period. After the first 15 months of the project, all targets have been substantially over-achieved. The project cost is RM 398 M (equivalent to US$ 105 million) with a pay-back period of 6.7 years. The internal rate of return was calculated to be 33.2% based on the assumption that the value of water equals the average tariff of RM 1.27 (equivalent to US$ 0.33). It can be concluded that performance target based NRW reduction contracts are a feasible model for water utilities around the world.