Benchmarking de Empresas PBenchmarking de Empresas PBenchmarking de Empresas PBenchmarking de Empresas Púúúúblicas de blicas de blicas de blicas de

Agua y Saneamiento en CentroamAgua y Saneamiento en CentroamAgua y Saneamiento en CentroamAgua y Saneamiento en Centroamééééricaricaricarica

Taller de Taller de Taller de Taller de TrabajoTrabajoTrabajoTrabajo

Maria Luisa Maria Luisa Maria Luisa Maria Luisa CortonCortonCortonCorton, PURC Research Associate, PURC Research Associate, PURC Research Associate, PURC Research Associate

Hotel Barceló San José Palacio

San Jose de Costa RicaSan Jose de Costa RicaSan Jose de Costa RicaSan Jose de Costa Rica

15 de 15 de 15 de 15 de octubreoctubreoctubreoctubre de 2007de 2007de 2007de 2007

1. Data Collection

2. Variables Utilized in the Analysis

3. Performance indicators: Operational, Cost and quality

4. Trends and System expansion 2002-2005

5. TFP analysis

6. DEA – technical efficiency frontier

7. Technical Efficiency Change

8. Stochastic Cost frontier

Data CollectionData CollectionActivities up to March 2007

1.1.1.1. Data Base starting point: data from ADERASA & IBNET Data Base starting point: data from ADERASA & IBNET Data Base starting point: data from ADERASA & IBNET Data Base starting point: data from ADERASA & IBNET

2222. Data Base . Data Base . Data Base . Data Base additions:additions:additions:additions:

� El Salvador data for 2002El Salvador data for 2002El Salvador data for 2002El Salvador data for 2002----2005200520052005� Guatemala, EMAPETGuatemala, EMAPETGuatemala, EMAPETGuatemala, EMAPET----data for 2006data for 2006data for 2006data for 2006� Honduras, SANAA Honduras, SANAA Honduras, SANAA Honduras, SANAA –––– data for 2005data for 2005data for 2005data for 2005----2006200620062006� Costa Rica, ESPH Costa Rica, ESPH Costa Rica, ESPH Costa Rica, ESPH –––– data for 2002data for 2002data for 2002data for 2002----2003200320032003

3.3.3.3. Data gaps filled and data values updated for all Data gaps filled and data values updated for all Data gaps filled and data values updated for all Data gaps filled and data values updated for all utilities except utilities except utilities except utilities except AguasAguasAguasAguas de Puerto Cortezde Puerto Cortezde Puerto Cortezde Puerto Cortez----Honduras Honduras Honduras Honduras

4.4.4.4. Data reviewed by all utilities except Data reviewed by all utilities except Data reviewed by all utilities except Data reviewed by all utilities except AguasAguasAguasAguas de Puerto de Puerto de Puerto de Puerto CortezCortezCortezCortez----HondurasHondurasHondurasHonduras

Variables Utilized in the AnalysisVariables Utilized in the AnalysisVariables Utilized in the AnalysisVariables Utilized in the AnalysisVariables Utilized in the AnalysisVariables Utilized in the AnalysisVariables Utilized in the AnalysisVariables Utilized in the Analysis

OUTPUTSOUTPUTSOUTPUTSOUTPUTS

1) Volume of water - Produced, billed and lost2) Number of water connections and sewerage - Total, residential, with meter3) Number of consumers of water and sewerage: Total population, population

served, number of inhabitants per connection4) Network length – water and sewerage

INPUTSINPUTSINPUTSINPUTS

1) Number of workers and its costs (or expense) - Total, by contract, and fixed2) Volume of energy and its cost (kWh or another unit) 3) Capital stock: Non-current assets, Accumulated depreciation , Annual

depreciation4) Administrative Expenses, Financial Expenses, Operating costs, Total Costs

QUALITY QUALITY QUALITY QUALITY

1) Water quality: any variable defining water quality according to each country, such as percentage of residual chlorine.

2) Continuity: number of hours a day customers receive water service3) Number of complaints4) Number of network leaks

Output Variables Used in the AnalysisOutput Variables Used in the AnalysisOutput Variables Used in the AnalysisOutput Variables Used in the AnalysisOutput Variables Used in the AnalysisOutput Variables Used in the AnalysisOutput Variables Used in the AnalysisOutput Variables Used in the Analysis

1) Volume of water - Produced, billed and lost

2) Number of water connections and sewerage - Total, residential, with meters

3) Number of consumers of water and sewerage: Total population, population served, number of inhabitants per connection

4) Network length: water and sewerage

Input Variables Used in the AnalysisInput Variables Used in the AnalysisInput Variables Used in the AnalysisInput Variables Used in the AnalysisInput Variables Used in the AnalysisInput Variables Used in the AnalysisInput Variables Used in the AnalysisInput Variables Used in the Analysis

1) Number of workers and its costs (or expense) - Total, by contract, and fixed

2) Volume of energy and its cost (kWh or another unit)

3) Capital stock: Non-current assets, Accumulated depreciation , Annual depreciation

4) Administrative Expenses, Financial Expenses, Operating costs, Total Costs

Quality Variables Used in the AnalysisQuality Variables Used in the AnalysisQuality Variables Used in the AnalysisQuality Variables Used in the AnalysisQuality Variables Used in the AnalysisQuality Variables Used in the AnalysisQuality Variables Used in the AnalysisQuality Variables Used in the Analysis

1) Water quality: any variable defining water quality according to each country, such as percentage of residual chlorine.

2) Continuity: number of hours a day customers receive water service

3) Number of complaints

4) Number of network leaks

Performance PatternsPerformance PatternsPerformance PatternsPerformance PatternsPerformance PatternsPerformance PatternsPerformance PatternsPerformance PatternsComparing Latin American and Central American performance indicators provides one way to evaluate the impacts of public policy and managerial incentives in the region. To maintain consistency, definitions of these indicators are the same as those developed by ADERASA.

Water service provision measured by three factors:

� volume of water,

� number of connections

� population served.

Two groups of utilities are identified– large utilitieslarge utilitieslarge utilitieslarge utilities, comprised of IDAAN, AYA, ANDA and ENACAL and, comprised of IDAAN, AYA, ANDA and ENACAL and, comprised of IDAAN, AYA, ANDA and ENACAL and, comprised of IDAAN, AYA, ANDA and ENACAL and– small utilitiessmall utilitiessmall utilitiessmall utilities group which includes SANAA, ESPH, group which includes SANAA, ESPH, group which includes SANAA, ESPH, group which includes SANAA, ESPH, AguasAguasAguasAguas de de de de

Puerto Cortes, and EMAPET. Puerto Cortes, and EMAPET. Puerto Cortes, and EMAPET. Puerto Cortes, and EMAPET.

0

100

200

300

400

Millions m3

IDAAN-

Panama

AyA-

Costa Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Costa Rica

AgPtoC-

Honduras

EM APET-

Guatemala

Figure 1: Volume of Water - Average 2002/2005

Delivered

Billed

Lost

Figure 2: Number of Connections - Average 2002/2005

0

100

200

300

400

500

600

IDAAN- Panama

AyA- Costa Rica

ANDA- El Salvador

ENACAL-NIcaragua

SANAA-Honduras

ESPH- Costa Rica

AgPtoC-Honduras

EMAPET-Guatemala

Th

ou

sa

nd

s

Water

Sew

Wat w/Meters

0500

1,0001,5002,0002,5003,0003,500

Thousand

habita

nts

IDAAN-

Panama

AyA-

Costa Rica

ANDA-

El

Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Costa Rica

AgPtoC-

Honduras

EM APET-

Guatemala

Figure 3 : Population w ith Water Service vs Total -Average

Total With Water Serv

Utility SizeUtility Size

Figure 4: Water Billed vs Consumption

0

100

200

IDAAN-

Panama

AyA-

Costa Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Costa Rica

AgPtoC-

Honduras

EM APET-

Guatemala

Mill

ion

s

0

50

100

150

200WaterBilled

Consumption

Volume of Water

0

100

200

300

400

Millions m3

IDAAN-

Panama

AyA-

Costa Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Costa Rica

AgPtoC-

Honduras

EM APET-

Guatemala

Figure 1: Volume of Water - Average 2002/2005

Delivered

Billed

Lost

Number of Connections

Figure 2: Number of Connections - Average 2002/2005

0

100

200

300

400

500

600

IDAAN-

Panama

AyA-

Costa Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Costa Rica

AgPtoC-

Honduras

EMAPET-

Guatemala

Th

ou

sa

nd

s

Water

Sew

Wat w/Meters

Population and Service

0500

1,0001,5002,0002,5003,0003,500

Th

ou

sa

nd

ha

bita

nts

IDAAN-

Panama

AyA-

Costa Rica

ANDA-

El

Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Costa Rica

AgPtoC-

Honduras

EM APET-

Guatemala

Figure 3 : Population with Water Service vs Total -Average

Total With Water Serv

Water Billed vs. Consumption

Figure 4: Water Billed vs Consumption

0

100

200

IDAAN-

Panama

AyA-

Costa Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Costa Rica

AgPtoC-

Honduras

EM APET-

Guatemala

Mill

ion

s

0

50

100

150

200WaterBilled

Consumption

Water lost = Water lost = Water lost = Water lost = average 41%*41%*41%*41%*

Commercial efficiency: ommercial efficiency: ommercial efficiency: ommercial efficiency: ratio of water billed to water delivered = 60%;60%;60%;60%; ADERASA 40%

Metering: Metering: Metering: Metering: # connections with a meter in place / # of total connections

= 55%; 55%; 55%; 55%; ADERASA 75%

Service coverage : Service coverage : Service coverage : Service coverage : population with water service / total population in the area

= 90%;90%;90%;90%; ADERASA 89%.

gap between large (93%) and small utilities (78%)

Network density : Network density : Network density : Network density : number of connections / network Length = 86868686

Larger firms have denser networks than smaller firms.

Water consumptionWater consumptionWater consumptionWater consumption: volume of water billed / population with water service = 219 219 219 219 lt/pers/daylt/pers/daylt/pers/daylt/pers/day

ADERASA 172

gap between large (222 lt/pers/day) and small utilities (323 lt/pers/day)

Number of workers per one thousand connectionsNumber of workers per one thousand connectionsNumber of workers per one thousand connectionsNumber of workers per one thousand connections= 6.7; 6.7; 6.7; 6.7; ADERASA 3.13

Operational IndicatorsOperational IndicatorsOperational IndicatorsOperational IndicatorsOperational IndicatorsOperational IndicatorsOperational IndicatorsOperational Indicators

* Water loss = Volume of water delivered less water billed for Panama-IDAAN, Costa Rica-AYA, Nicaragua-ENACAL, Honduras- AgdePto Cortes Water loss = Volume of water produced less water billed for El Salvador-ANDA, Honduras-SANAA, Costa Rica-ESPH

Operating costsOperating costsOperating costsOperating costs = labor and energy costs, chemicals, administrative and sales expenses. Depreciation and finance expenses are considered as part of total costs

On average, operating costs = $86/connection86/connection86/connection86/connection.

As network density network density network density network density increases, operating costs per connection decreases for large firms whereas small companies show a direct relationship between operating cost and network density.

Operating cost per cubic meter of water Operating cost per cubic meter of water Operating cost per cubic meter of water Operating cost per cubic meter of water = $0.10/m30.10/m30.10/m30.10/m3; ADERASA $0.20/m3$0.20/m3$0.20/m3$0.20/m3

Administrative expense per connection Administrative expense per connection Administrative expense per connection Administrative expense per connection = $27 for large firms $27 for large firms $27 for large firms $27 for large firms ADERASA $47ADERASA $47ADERASA $47ADERASA $47

$34 for the small $34 for the small $34 for the small $34 for the small

Cost IndicatorsCost IndicatorsCost IndicatorsCost IndicatorsCost IndicatorsCost IndicatorsCost IndicatorsCost Indicators

Figure 5: Coverage and Network Density-Average

0%

25%

50%

75%

100%

IDAAN-

Panama

AyA-

Cost a Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Cost a Rica

AgPt oC-

Honduras

EMAPET-

Guat emala

0

50

100

150

Coverage

NetwDen

Figure 6: OpCost per Connection vs Network Density

0

50

100

150

200

IDAAN-

Panama

AyA-

Cost a Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Cost a Rica

AgPt oC-

Honduras

EMAPET-

Guat emala

0

50

100

150OpCost / Conx

Net wDen

Figure 7: Workers Average- 2002/2005

0

1,000

2,000

3,000

IDAAN-

Panama

AyA-

Cost a Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Cost a Rica

AgPt oC-

Honduras

EMAPET-

Guat emala

0

2

4

6

8

10

TotalWorkers

Work/1000connect

Figure 8: OpCost per Connection vs Workers/1000Conx

0

50

100

150

200

IDAAN-

Panama

AyA-

Cost a Rica

ANDA- El

Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Cost a Rica

AgPt oC-

Honduras

EMAPET-

Guat emala

0

2

4

6

8

10

OpCost/Conx

Work/1000Conx

� Compliance with water qualitywater qualitywater qualitywater quality: 97.53% -ADERASA 95.96%.

� Number of complaints per connection complaints per connection complaints per connection complaints per connection similar for both ADERASA and Central America.

� Number of leaks/km of pipeNumber of leaks/km of pipeNumber of leaks/km of pipeNumber of leaks/km of pipe: 5.19 – double ADERASA 2.53

� ContinuityContinuityContinuityContinuity - the number of hours with water service - ranges from 20 to 24 hours*

*ANDA not included

Quality IndicatorsQuality Indicators

F igure 14: Water D elivered, P o pulat io n Served and C o nnect io ns

C hanges

-50%

-25%

0%

25%

50%

75%

100%

IDAAN-

Panama

AyA-

Costa Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Costa Rica

AgPtoC-

Honduras

EM APET-

Guatemala

WaterDeliv PopServ Conx

Figure 15: Water Connections and Network length % of Change

0%

25%

50%

75%

100%

IDAAN-

Panama

AyA-

Costa Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Costa Rica

AgPtoC-

Honduras

EM APET-

Guatemala

WaterConx NetLeng

20022002--20052005

Systems Systems

ExpansionExpansion

Figure 16: Cost of Workers Change

0

5

10

15

20

25

30

IDAAN-

Panama

AyA-

Costa Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Costa Rica

AgPtoC-

Honduras

EM APET-

Guatemala

Figure 17 Energy Costs Change

0

2

4

6

8

10

12

14

16

18

20

IDAAN-

Panama

AyA-

Costa Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Costa Rica

AgPtoC-

Honduras

EM APET-

Guatemala

Mill

ion

s$

Figure 18: Admin Expenses Change

0

5

10

15

20

25

30

35

40

IDAAN-

Panama

AyA-

Costa Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Costa Rica

AgPtoC-

Honduras

EM APET-

Guatemala

Figure 19: Operating Costs Change

0

10

20

30

40

50

60

IDAAN-

Panama

AyA-

Costa Rica

ANDA-

El Salvador

ENACAL-

NIcaragua

SANAA-

Honduras

ESPH-

Costa Rica

AgPtoC-

Honduras

EM APET-

Guatemala

Mill

ion

s$

20022002--2005 Cost2005 Cost

TrendsTrends

Total factor Productivity Analysis Total factor Productivity Analysis Total factor Productivity Analysis Total factor Productivity Analysis Total factor Productivity Analysis Total factor Productivity Analysis Total factor Productivity Analysis Total factor Productivity Analysis –––––––– 2002/2005*2002/2005*2002/2005*2002/2005*2002/2005*2002/2005*2002/2005*2002/2005*

How much output Is produced due to all the How much output Is produced due to all the How much output Is produced due to all the How much output Is produced due to all the inputs: trends over timeinputs: trends over timeinputs: trends over timeinputs: trends over time

Aspects considered for setting the weights:Aspects considered for setting the weights:Aspects considered for setting the weights:Aspects considered for setting the weights:

1.1.1.1. the elementsthe elementsthe elementsthe elements representing the weights, representing the weights, representing the weights, representing the weights, 2.2.2.2. the the the the mathematical mathematical mathematical mathematical or or or or functional formfunctional formfunctional formfunctional form3.3.3.3. If the If the If the If the weights are the sameweights are the sameweights are the sameweights are the same for the two for the two for the two for the two

periodsperiodsperiodsperiods

Instead of considering multiple outputs, Instead of considering multiple outputs, Instead of considering multiple outputs, Instead of considering multiple outputs, 2 sets of TFP:2 sets of TFP:2 sets of TFP:2 sets of TFP:

1.1.1.1. Output = Output = Output = Output = Volume of Water billedVolume of Water billedVolume of Water billedVolume of Water billedInputs = Labor and energyInputs = Labor and energyInputs = Labor and energyInputs = Labor and energy

2.2.2.2. OutputOutputOutputOutput = Number of Connections= Number of Connections= Number of Connections= Number of ConnectionsInputs = Labor and energy Inputs = Labor and energy Inputs = Labor and energy Inputs = Labor and energy

Weights for input factors are calculated as the ratio ofWeights for input factors are calculated as the ratio ofWeights for input factors are calculated as the ratio ofWeights for input factors are calculated as the ratio oftheir respective costs relative to direct operating costs**. their respective costs relative to direct operating costs**. their respective costs relative to direct operating costs**. their respective costs relative to direct operating costs**.

∑∑

∑∑=

00

11

0

1

/

/

nnk

k

k

nnk

k

k

XsYr

XsYr

TFP

TFP

*Costa Rica-AYA and AgdPC utilized years are 2003-2005; SANAA 2005-2006. EMAPET reported one year so it is excluded.

** Only IDAAN, ANDA and ENACAL reported both inputs; other utilities are not considered for calculations

Volume #Connect Volume #Conne

IDAAN –

Panama

1.42 1.39 1.17 1.15

ANDA –

El Salvador

0.80 0.97 0.92 1.0

ENACAL -

Nicaragua

0.95 0.85 0.93 0.89

TFP > 1 TFP > 1 TFP > 1 TFP > 1 ���� increased productivity increased productivity increased productivity increased productivity TFP < 1 TFP < 1 TFP < 1 TFP < 1 ���� productivity has decreased by (1 productivity has decreased by (1 productivity has decreased by (1 productivity has decreased by (1 –––– value)value)value)value)

Calculations using volume of water billed and numbers of Calculations using volume of water billed and numbers of Calculations using volume of water billed and numbers of Calculations using volume of water billed and numbers of connections differ in that they flip the ranking of the connections differ in that they flip the ranking of the connections differ in that they flip the ranking of the connections differ in that they flip the ranking of the second and third rank service provider. second and third rank service provider. second and third rank service provider. second and third rank service provider.

Laspyres, Paasche

and Fisher Tornvquist

Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005

� Technical Efficiency Technical Efficiency Technical Efficiency Technical Efficiency relativerelativerelativerelativerelativerelativerelativerelative to peer groupto peer groupto peer groupto peer group

� Peer group composed of Peer group composed of Peer group composed of Peer group composed of bestbestbestbestbestbestbestbest producersproducersproducersproducers

� Main assumption: if firm A produces Y units of output with X Main assumption: if firm A produces Y units of output with X Main assumption: if firm A produces Y units of output with X Main assumption: if firm A produces Y units of output with X units of input then others should be able to do so if they were units of input then others should be able to do so if they were units of input then others should be able to do so if they were units of input then others should be able to do so if they were to operate efficientlyto operate efficientlyto operate efficientlyto operate efficiently

� DEA gives a DEA gives a DEA gives a DEA gives a proportionproportionproportionproportionproportionproportionproportionproportion by which observed inputs could be by which observed inputs could be by which observed inputs could be by which observed inputs could be contracted if the firm were efficient contracted if the firm were efficient contracted if the firm were efficient contracted if the firm were efficient

� Produces efficient input and output Produces efficient input and output Produces efficient input and output Produces efficient input and output target levelstarget levelstarget levelstarget levelstarget levelstarget levelstarget levelstarget levels for for for for inefficient firmsinefficient firmsinefficient firmsinefficient firms

DEA results contingent uponDEA results contingent uponDEA results contingent uponDEA results contingent uponDEA results contingent uponDEA results contingent uponDEA results contingent uponDEA results contingent upon

1.1.1.1. Composition (homogeneity of peer group)Composition (homogeneity of peer group)Composition (homogeneity of peer group)Composition (homogeneity of peer group)2.2.2.2. Set of outputs and inputs Set of outputs and inputs Set of outputs and inputs Set of outputs and inputs 3.3.3.3. Quality of data with respect to errorsQuality of data with respect to errorsQuality of data with respect to errorsQuality of data with respect to errors

Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Data Envelopment Analysis (DEA):Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005Technical Efficiency Frontier for 2005

Model 2: (lower efficiencies)

Outputs = Water billed , Network density , pop served

Inputs = Total workers

Model 1:

Outputs = Water billed , #connections , pop served

Inputs = Total workers , Network Length

GNI included as an input factor

Outputs and Inputs

Y

output

x ( input)

O

AB

Variable Returns Frontier at period t

Constant Returns Frontier

0

100,000

200,000

300,000

400,000

500,000

600,000

0 500 1,000 1,500 2,000 2,500 3,000 3,500

Labor

Co

nn

ectio

ns

ANDA

IDAAN

AYA

ENACAL

SANAAESPH

CRS Frontier

Constant Returns to Scale FrontierConstant Returns to Scale FrontierConstant Returns to Scale FrontierConstant Returns to Scale FrontierConstant Returns to Scale FrontierConstant Returns to Scale FrontierConstant Returns to Scale FrontierConstant Returns to Scale Frontier

MalmquistMalmquistMalmquistMalmquistMalmquistMalmquistMalmquistMalmquist index input Technical Efficiency index input Technical Efficiency index input Technical Efficiency index input Technical Efficiency index input Technical Efficiency index input Technical Efficiency index input Technical Efficiency index input Technical Efficiency Change 2002Change 2002Change 2002Change 2002Change 2002Change 2002Change 2002Change 2002--------20052005200520052005200520052005

� TFP index is calculated only in reference to a particular firm TFP index is calculated only in reference to a particular firm TFP index is calculated only in reference to a particular firm TFP index is calculated only in reference to a particular firm –––– a firm change of productivity over time a firm change of productivity over time a firm change of productivity over time a firm change of productivity over time ––––

� This efficiency change component of the This efficiency change component of the This efficiency change component of the This efficiency change component of the MalmquistMalmquistMalmquistMalmquist index index index index is calculated with respect to the movement of a firm towardis calculated with respect to the movement of a firm towardis calculated with respect to the movement of a firm towardis calculated with respect to the movement of a firm towards s s s the optimal frontier determined by a group of firmsthe optimal frontier determined by a group of firmsthe optimal frontier determined by a group of firmsthe optimal frontier determined by a group of firms

2/1

110000

111001

111

000

0

1

),(),(

),(),(

),(

),(

=

XYDXYD

XYDXYD

XYD

XYD

TFP

TFP>1 � efficiency declined< 1 � efficiency increases by (1-value)= 1 � no change

No significant changes in efficiency

� The short period considered (only 4 years) � Industry characteristics� Most firms do not show efficiency changes

Stochastic Cost FrontierStochastic Cost FrontierStochastic Cost FrontierStochastic Cost FrontierStochastic Cost FrontierStochastic Cost FrontierStochastic Cost FrontierStochastic Cost Frontier

� Cost behavior according to the choice of input prices, given a lCost behavior according to the choice of input prices, given a lCost behavior according to the choice of input prices, given a lCost behavior according to the choice of input prices, given a level evel evel evel of output producedof output producedof output producedof output produced

� Allows the identification of the inefficiency and noise terms Allows the identification of the inefficiency and noise terms Allows the identification of the inefficiency and noise terms Allows the identification of the inefficiency and noise terms separatelyseparatelyseparatelyseparately

0.34 0.55

0.18 0.14

(0.80*(0.03*( 4)))

UnitOpCost GNI VolBil

PLabor PEnergy

t noise

α= − +

+ +

+ − +

UnitOpCostUnitOpCostUnitOpCostUnitOpCost= (Operational costs + administrative expenses)/ # of connection= (Operational costs + administrative expenses)/ # of connection= (Operational costs + administrative expenses)/ # of connection= (Operational costs + administrative expenses)/ # of connections s s s

Price of labor = total cost of workers / total number of workersPrice of labor = total cost of workers / total number of workersPrice of labor = total cost of workers / total number of workersPrice of labor = total cost of workers / total number of workers

Price of energy = total energy expenses / length of the networkPrice of energy = total energy expenses / length of the networkPrice of energy = total energy expenses / length of the networkPrice of energy = total energy expenses / length of the network. . . .

Inefficiency

34

56

0 2 4 6 8id

MethodologyMethodologyMethodologyMethodology OutputsOutputsOutputsOutputs InputsInputsInputsInputs Technology Technology Technology Technology functional functional functional functional

formformformform

PeriodPeriodPeriodPeriod PurposePurposePurposePurpose

Performance Performance Performance Performance IndicatorsIndicatorsIndicatorsIndicators

Water lost, metering, coverage, network density, water consumption

Number of workers/Number of workers/Number of workers/Number of workers/

1000connect1000connect1000connect1000connect

Ratio of Ratio of Ratio of Ratio of single single single single variablevariablevariablevariable

2002 2002 2002 2002 2005200520052005

Productivity Productivity Productivity Productivity change of one change of one change of one change of one factor for a factor for a factor for a factor for a particular firmparticular firmparticular firmparticular firm

TFPTFPTFPTFP----LaspeyresLaspeyresLaspeyresLaspeyres, , , , PaaschePaaschePaaschePaasche, , , , FisherFisherFisherFisher

1)VolWaterBil

2)#Connections

Labor + EnergyLabor + EnergyLabor + EnergyLabor + Energy Ratio of Ratio of Ratio of Ratio of linear linear linear linear combination combination combination combination

2002 2002 2002 2002 2005200520052005

Productivity Productivity Productivity Productivity change of a few change of a few change of a few change of a few factors for a factors for a factors for a factors for a particular firmparticular firmparticular firmparticular firm

TFPTFPTFPTFP----

TornqvistTornqvistTornqvistTornqvist

1)VolWaterBil

2)#Connections

Labor + EnergyLabor + EnergyLabor + EnergyLabor + Energy Ratio of Ratio of Ratio of Ratio of log form log form log form log form combinationcombinationcombinationcombination

2002 2002 2002 2002 2005200520052005

Productivity Productivity Productivity Productivity change of a few change of a few change of a few change of a few factors for a factors for a factors for a factors for a particular firmparticular firmparticular firmparticular firm

DEADEADEADEA

frontierfrontierfrontierfrontier

1)VolWaterBil + #connect+ pop.served

2)VolWaterBil + net.dens + pop.served

1)GNI + Labor + 1)GNI + Labor + 1)GNI + Labor + 1)GNI + Labor + netlengnetlengnetlengnetleng

2) GNI + Labor2) GNI + Labor2) GNI + Labor2) GNI + Labor

Ratio of Ratio of Ratio of Ratio of linear linear linear linear combination combination combination combination

2005200520052005 Tech efficiency Tech efficiency Tech efficiency Tech efficiency of a firm of a firm of a firm of a firm considering considering considering considering multiple inputs multiple inputs multiple inputs multiple inputs and outputs, and outputs, and outputs, and outputs, with respect to with respect to with respect to with respect to best practice best practice best practice best practice within a groupwithin a groupwithin a groupwithin a group

MalmquistMalmquistMalmquistMalmquistcatchcatchcatchcatch----upupupup

effecteffecteffecteffect

1)VolWaterBil + #connect+ pop.served

2)VolWaterBil + net.dens + pop.served

1)GNI + Labor + 1)GNI + Labor + 1)GNI + Labor + 1)GNI + Labor + …………………………………………........netlengthnetlengthnetlengthnetlength

2) GNI + Labor2) GNI + Labor2) GNI + Labor2) GNI + Labor

Ratio of Ratio of Ratio of Ratio of DistancesDistancesDistancesDistances

2002 2002 2002 2002 2005200520052005

Movement of a Movement of a Movement of a Movement of a firm towards firm towards firm towards firm towards tech efficient tech efficient tech efficient tech efficient frontier set by a frontier set by a frontier set by a frontier set by a groupgroupgroupgroup

Stochastic Stochastic Stochastic Stochastic Cost Cost Cost Cost frontierfrontierfrontierfrontier

VolWaterBil GNI GNI GNI GNI

LaborLaborLaborLabor

EnergyEnergyEnergyEnergy

Linear log Linear log Linear log Linear log combination combination combination combination

2002 2002 2002 2002 2005200520052005

Central Central Central Central tendency of tendency of tendency of tendency of cost efficiency cost efficiency cost efficiency cost efficiency for a group of for a group of for a group of for a group of firmsfirmsfirmsfirms

� IDAAN and ESPH show proportional increases in number of connections and network length.

� AYA’s increase in volume of water is less than proportional to the increase in number of connections and network length.

� ENACAL displays a higher proportional increase on number of connections with respect to the increase on network length. The opposite occurred in Aguasde Pto Cortes.

� Overall, changes in operational costs for the period are relatively small.

� AYA’s increase in operational costs may be explained by an increase on cost of workers and administrative expenses.

� IDAAN’s increase on operational costs may be explained by its increase on energy costs.

� ANDA displays a decrease on operational costs which may be partly due to a decrease in administrative expenses.

System Expansion and Cost TrendsSystem Expansion and Cost Trends