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Utilities involved in the provision of water & sanitation (W&S) services must play both a technical and a financial role. The technical role is a clear one: ensuring access to clean drinking water and safe sanitation services to people in their jurisdictions.It is equally important, however, to get paid for providing these services and to remain cost-effective.

Utility companies manage the accounts of every household, business and industry that uses public or private service delivery systems. Experience has demonstrated that when utility finance is neglected or is in poor shape, the whole organization suffers and in due course uninterrupted service delivery is threatened. Thus, applicable tariffs and their collection constitute a key aspect of utility finance, which should ideally cover operations and maintenance (O&M) costs as well as capital costs. This becomes even more important when one considers the large number of people that do not have access to basic services, and the fact that water supply and billing systems are increasingly being used to pay for sewerage costs (see Pricing & Tariffs).

The World Bank has long recognized the importance of institutional improvements and reform (including in the area of utility finance) in conjunction with physical improvement. Tariff reform and effective financial management are thus key components of World Bank operations.

A more recent concern had been to improve the ability of W&S utilities to access market sources of finance, including the bond markets. This connects with our work on municipal finance and capital markets development.

Accurate financial planning and forecasting are also integral to effective management of utility finances. Utilities have to control costs and generate revenue in order to provide services in a sustainable manner. To improve quality and expand coverage, management needs to be able to accurately predict the future. A financial model, linked to engineering and cost estimates, is the preferred tool for analysis and decision making.

It has become increasingly apparent to governments in many countries that public sector institutions may not be best suited for effective utility operations and for quality utility financial management. At the same time there has been growing interest, on the part of private operators and developers, in taking on the role of managers or providers of water and sanitation services. The World Bank supports private participation in W&S as a means to improve performance and accelerate the expansion of coverage, to serve the poor. A large number of Bank operations have private sector participation and supporting regulatory development as integral components.

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