Sustaining Jordan’s water sector

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

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.

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