Regulation and Efficiency & Productivity Considerations in Water & Wastewater Industry: Case of Iran

AbstractSince the beginning of 1980s, many countries decided to reform and regulate some public utilities such as water, electricity, gas etc. Since, the public utilities specially water are managed as regional or local entities, the benchmarking approaches are therefore applied to compare the performance of local firms active in an industry on the basis of their relative efficiency along with ways that are used to determine the yardstick model for evaluating the performance of such enterprises. Thus, this study aims at measuring the efficiency of water & wastewater companies (WWCs) as incentive regulation tools for stimulating efficiency of production and supply through cost reduction and improving the quality of services provide by water distributors. In this study, the performances of 34 WWCs were assessed using non-parametric methods as “Data Envelopment Analysis” (DEA) in 2011. Furthermore, we reviewed the DEA-based Malmquist approach for total factor productivity (TFP) and technology change in WWCs over the period of 2008 to 2011. An input variable includes operating costs, number of employees (staff) and number of water connections and output variables are the volumes of water billed and the number of customers. The results of analysis indicate that the average efficiency of WWCs under constant return to scale (CRS) is equal to 77% (technical efficiency) and under variable return to scale (VRS) is equal to 88% (scale efficiency). In other words, given the existing resources and facilities, the potential to improve water production equals to 23% and 12% respectively. Whereas in terms of constant return to scale (CRS), the cost saving potential amounts to 1874 billion Rials or 16% of the operating costs (price=2011). Also, the Malmquist index for total factor productivity (TFP) and technology change are calculated as 0.951 and 0.940 respectively, indicating a decrease of productivity in the Iranian water & wastewater industry during 2008 to 2011