What Determines Efficiency? An Analysis of the Italian Water Sector (original) (raw)
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Water services reform in Italy: its impacts on regulation, investment and affordability
Water Policy, 2007
The water and waste sector is one of the fastest growing Italian utility sectors, currently going through a period of unprecedented change, development and consolidation. The reform, introduced in 1994 with the Galli Law, provides for the organisation of water supply and sewerage through the aggregation of municipal utilities into Optimal Territorial Areas. Vertical and horizontal integration of water and sewerage services allows saving to be made according to economies of scale and scope. Moreover, the Italian legislator intends to achieve the industrialisation of a sector which until then was characterized by economic or municipal management. With the reorganisation forecast by the reform, a programme of investment developing over a period between 20 and 30 years is set out. One of the fundamental aspects of the reform is that, with an adequate long term plan it gives the chance to provide excellent planning for the required works in order to achieve optimum safety and quality in water services. As the restructuring takes its course, a debate is under way on the increase of investment that could cause problems of affordability for the new tariffs.
Purpose – This is a benchmarking study and the purpose of this paper is to investigate if there is any association between operational efficiency in the integrated water management industry in Italy and the typology of service providers, and as a consequence, the nature of concession contract. Design/methodology/approach – The study is focussed on 38 optimal territorial areas (ATOs), e.g. a circumscribed geographical area where the provision of integrated water services is considered efficient. It uses Data Envelopment Analysis (DEA) to calculate ATO efficiency and a stepwise regression procedure performed to investigate the effect of contract type on the operational efficiency rate of the ATO. Findings – This study shows that there are some inefficiencies in the water service supply industry in Italy. The estimated average pure technical and scale efficiency of ATOs are 92.62 and 93.91 percent, respectively, while the average technical efficiency is 87.61 percent and the lowest is slightly higher than 13 percent. Operational inefficiencies might not be determined by size only. In fact, results show that the water service provider and contract agreement typologies are associated with efficiency. In particular, operational efficiency is higher in those ATOs where the water service supply concession contracts that fit the schemes of the new legislative framework prevail or where the service is mostly provided by a private equity owned or by mixed public-private companies. Research limitations/implications – It was assumed that any incremental level of water quality beyond the minimum acceptable threshold as required by law is not important to increase the operation efficiency score; henceforth, no variables measuring the water quality were introduced in the DEA model. The result of the study may be not fully representative of the Italian water service sector, because the unavailability of accurate and consistent public databank in Italy did not allowed to have a larger sample. Practical implications – This paper is one of the first in Italy to investigate the association between the operational efficiency of the ATOs and the nature of water service providers and contract agreements used. Originality/value – This paper is one of the first in Italy to investigate the association between the operational efficiency of the ATOs and the nature of water service providers and contract agreements used. Keywords - Benchmarking, Efficiency, Contracts, DEA, Water management, Service providers, Water service provision, Waste water Paper type - Research paper
Governance, strategy and efficiency of water utilities: the Italian case
Water Policy, 2017
The determinants of the performance of water utilities are a topical issue worldwide. This paper analyzes the relationship between efficiency and corporate governance in Italian water utilities, measured through data envelopment analysis. Using an M-quantile regression model, efficiency estimations are ranked considering relevant governance (board size and composition; firm size) and strategy features (membership of a corporate group; provision of wholesale services) in order to provide decision-makers with indications regarding the best corporate governance and strategic choices to improve the efficiency. Results show that fully publicly owned firms reach lower levels of efficiency than their counterparts with an ownership structure that also includes private partners. Moreover, higher levels of efficiency are reached by utilities with more than six board members and by firms in which the presence of politically connected directors is substantial (more than two-thirds of board memb...
This paper presents a benchmarking study of the water and wastewater industry in Italy. A three-stage modeling approach was implemented to measure the efficiency of 53 utility operators. This approach is based on the implementation of network and conventional data envelopment analysis (DEA) to model the production process of the water service utility operators. In comparison to the conventional black-box or one-stage production model generally adopted in previous studies, the proposed approach provides information relative to the different efficiency components of the stages and blocks of the water service production process and its overall efficiency. Further, by shifting the efficiency analysis to a two-dimensional performance space, i.e., resource and market-efficiency, it offers a more comprehensive view of the water service industry and allows accounting for different business goals at the same time and for an investigation of industry trade-offs. Results show that the operators' efficiencies in the Italian water service industry are generally variable and low. There are no water service utilities which are 100% efficient from the resource-efficiency perspective, and the maximum efficiency score is 0.545. Efficiency measurements suggest that there is a general orientation of the Italian water industry to not invest in upgrading and improving the infrastructure assets, and achieving an acceptable efficiency in the operations is critical to delivering water services to market in an efficient way. Only one utility operator is 100% efficient from the market-efficiency perspective. The low tariffs adopted by the water service operators do not allow the gaining of satisfactory service remuneration and the achievement of long-term business sustainability. The joint analysis of the resource and market efficiency scores indicates that there is a trade-off between the corresponding business goals. Recently, the sustainable management of water resources has become an important policy issue in Europe. The access to clean and good-quality drinking water and adequate sanitation service is of primary importance to ensure human well-being, protection of public health and ecosystems, energy production, industry and agriculture development, and economic growth. Hence, any disruption in the supply of water and wastewater services and scarcity of water resources have negative impacts on the quality of human life and economic activity [1]. The provision of water and wastewater services requires considerable investment to comply with the European Union Urban Waste Water Treatment and Drinking Water directives and the various national laws. Thus, in the near future, the main water management challenges in Europe will be the operations, maintenance, upgrading, and renovation of the infrastructure. This implies that water and wastewater services should be managed in an economically and environmentally sustainable fashion.
Benchmarking in the public service industry: The Italian water service management sector
2011
The paper undertakes a benchmarking study of the water service management sector in Italy using Data Envelopment Analysis. The optimal territorial area (ATO) is chosen as unit of analysis, while sample investigated includes 38 ATOs. Both technical and scale efficiency are evaluated. Results of DEA implementation show that the average pure technical and scales efficiency are situated at 92.62% and 93.91%, respectively. Findings also show that efficiency is neither related to service average tariff nor to investment planning effectiveness. Returns to scale are investigated too.
Eficiency of Water Utilities: Does Local Public Ownership Matter? Evidence from Italy
2014
In the last decades the governance of local public services has been the focus of administrative reforms to pursue an improvement in the eciency and productivity levels coping with increasing constrains in nancial re- sources. In this scenario, changes in governance and ownership of local public services shave occurred with a shift from public to private owner- ship (Pollitt and Bouckaert, 2011). Our paper focuses on the eciency analysis of Italian water utilities. The attention toward this type of utili- ties is motivated by two reasons: rstly, in recent years the Italian water industry has been at the centre of debate about the possibility of priva- tization; secondly in 2011 the change in the regulation conferred powers to the Italian regions to decide on which administrative body should be the provider of local water services. In addition, the law does not exclude that regions themselves could exercise this power. Thus, the evaluation of the eciency and productivity analysis ...
The Privatisation of Water Utilities in Italy and the Associated Debate (EPPPL 2|2010)
Privatisation per se has always been a highly controversial issue, but it becomes even more so when envisaging private sector participation in the provision of water services and sanitation. Due to the fact that water services are seen as such a key public utility, proposals for private sector participation often provoke strong opposition. Water is considered a common beneficial good, to be shared among all members of the community. It has to be safeguarded against waste and inefficient use, to preserve this resource for future generations. Water has the characteristics of a natural monopoly which is affected by asymmetric information between regulators and regulated entities, more so in the form of moral hazard. Considering its particular nature, it cannot be governed simply through market rules, since private operators are naturally devoted to profit maximisation. Instead, it requires the public sector either to provide the utility directly or to regulate the private economic agent that provides water services for the common good.
Private management and public finance in the Italian water industry: A marriage of convenience
Water Resources Research, 2008
In many countries reforms of water and sanitation utilities have favoured private sector involvement. The drivers of this trend are the need to improve efficiency and professional capabilities of service operation and willingness to relieve public budgets from the heavy burden of investment. Little attention has been devoted, in turn, to the heavy imp act this strategy can have on water bills because of the higher cost of capital, what is implicit given the economic risk that the private sector is required to accept. We argue here that these consequences can be very important and outweigh the potential benefits of liberalization. As a capital intensive industry with long economic life of assets, the water industry is particularly vulnerable to the cost of capital, and this creates the case for publicly-supported financial schemes in order to keep this cost as low as possible and guarantee long-run viability as well as affordability. More general implications and policy recommendations concerning the finance of water infrastructure are finally derived. JEL: H54; Q25; L95
Utilities Policy, 2017
In Italy's water industry, publicly owned utilities (PWCs) coexist with public-private partnerships (PPPWCs), that could contribute expertise for operations, funds, and relationships. This paper examines the effect of ownership structures on efficiency by comparing Veneto (with almost all PWCs) and Tuscany (with almost all PPPWCs). This comparison is highly debated, with possible economic, social, environmental, and political implications. A Data Envelopment Analysis approach, that uses both quantitative and qualitative variables to represent the lack of service quality, was adopted. Results suggest that PWCs perform slightly better when quality issues are excluded, while PPPWCs perform better when considering both variable types.