ROCKBlue recently had the privilege to interview Engineer George Ndongwe, the previous Managing Director of Lusaka Water and Sewerage Company Ltd. (LWSC) and got his expert insight on a few management and operational topics. Mr. Ndongwe is highly experienced in water and sanitation engineering as well as management and commercial operations for water utilities. He is a member of the Institute of Directors (Zambia) and a (certified) corporate governance trainer, strategic management specialist, and once served as a member of the Water and Sanitation Sub-Sector Advisory Group’s (SAG) advising Government on reform issues. In addition he has served with the Engineering Institution of Zambia, as well as been a member of three Audit Committees in Government Ministries. He holds a B.Eng. Civil Engineering, an MSc in Water Resources Engineering and an MBA.
The following questions were discussed:
- Please list 5 “quick wins” a utility or municipality can address that are relatively inexpensive.
- What are the key actions that must be taken to transform a utility or municipality into a corporatized/bankable entity? That is, one that operates like a business that must cover all its costs.
- If you have a challenging “enabling” environment such as a regulator not permitting higher tariffs or politicians that are undermining your decisions, how can you still find a way to manage under these circumstances? What tactics and strategies have you used to overcome such obstacles?
- What do you consider the most significant challenges to running a successful utility or municipality?
- How do you individualize Company strategies and planning?
- What strategies or actions have you used when your revenue was insufficient to cover your costs?
1. Please list 5 “quick wins” a utility or municipality can address that are relatively inexpensive.
The following are potential areas of “quick wins” towards performance improvement.
- Staff morale – An actively engaged and committed staff is critical for any performance improvement effort. Therefore, one quick win is to better keep staff engaged, focused and involved in developing plans for improvements; and assisting them to realize these improvements so that they’re able to see that their contributions are having a positive impact on the utility.
- Billing collection improvement – It’s normally easy to at least make some improvements in this area to narrow the revenue gap.
- Preventive maintenance – Updating or improving upon standard operation procedures (SOPs) for facility maintenance to ensure consistency across the utility so that processes are institutional and not fully dependent upon personnel in charge. Maintenance is critical to ensuring reliable supply of water, and increased revenue – which assists with sustainability of a utility.
- Non-revenue-water (NRW) – Reducing at least some administrative/commercial losses, and physical losses through additional leakage control and pressure management can be quickly implemented for quick wins.
- Expanded connections – Increasing the revenue base by allowing a few more connections to the network. One approach to overcome a customer’s possible financial reluctance to being connected is to introduce a deferred payment plan for connections – the obvious benefit is the utility making more money from increased water sales.
2. What are the key actions that must be taken to transform a utility or municipality into a corporatized/bankable entity? That is, one that operates like a business that must cover all its costs.
The key driver for the utility in this regard is sustained profitability and reliability in providing their service. This can be achieved by focusing on good governance, effective utility management and service delivery.
- Good governance – Decent corporate governance systems and practices form the foundation for effective utility management, which is essential for establishing confidence among key stakeholders such as employees, customers, shareholders and financiers.
- Leadership and human resource management – Quality leadership is essential to drive any institutional reform. This must be supported by a compliment of well qualified and experienced staff – the utility must attract and retain valuable employees. Building a cohesive work force is crucial to foster change for better performance. Reputable human resources management systems and practices are key.
- Strong financial management systems – Develop and prioritize investment plans that address critical needs and those that can provide a quick and discernible returns.
- Effective organization and strategic planning – Strategic Planning must be aligned with
- a. capacity to provide services, and
- b. capacity to implement new infrastructure
- Effective technical operations and management systems – This is necessary to ensure reliable service delivery and consistency in performance
- Effective Commercial Operations and Customer Service – It is critical to ensure effective systems are put in place for billing and revenue collection. In addition, a healthy relationship between the utility and the customer encourages timely payments.
3. If you have a challenging “enabling” environment such as a regulator not permitting higher tariffs or politicians that are undermining your decisions, how can you still find a way to manage under these circumstances? What tactics and strategies have you used to overcome such obstacles?
What is key when operating in a challenging regulatory environment is narrowing the gap between the regulator’s expectations and the utilities capacity to provide services. In Zambia, systems and practices that have been put in place have to some extent managed to narrow this gap. The utility must consistently demonstrate its commitment to service delivery improvement while ensuring the regulator is aware of the challenges it faces. The utility must also demonstrate its desire to work with the regulator towards solutions that are aligned with the regulatory goals.
Political interference in operations of a utility can have serious negative impacts on a utility’s long-term sustainability and it should be avoided or mitigated at all costs. From my experience a robust corporate governance system that clearly spells out key responsibilities of parties, outlines key governance practices and that is respected by all is necessary for ensuring that some stakeholders do not wantonly interfere with utility operations. A good stakeholder engagement plan can help stakeholders such as politicians gain a better understanding of the legal and operational implications of bad corporate governance practices. Obviously good leadership in government is key to guarantee laws and processes are followed by all.
4. What do you consider the most significant challenges to running a successful utility or municipality?
The critical challenge areas include:
- Shaping a positive corporate culture which is key to the long-term sustainability of a utility. The Chief Executive Officer and senior management must take the lead in fostering this within the organization.
- Maintaining a healthy stakeholder engagement and communication plan can help the utility narrow the gap between un-met stakeholder expectations and its service delivery capacity. For example, a strategic plan well aligned with key stakeholder expectations that is communicated and shared with stakeholders can help ease this challenge.
- Financial issues which are a constant concern that require the utility to first look inwards for solutions to counter the problems.
- Key quick win actions focusing on increasing revenue; for example, the utility can focus on ensuring that large consumers and commercial customer are metered, billed and timeously followed up for payments.
- Cutting down on unnecessary expenditures; the utility needs to review its cost structure and cut down on expenditure where possible. Care must be taken though not to adversely impact service delivery and revenue generating activities.
- Limitations of infrastructure such as aged systems. Identify low-cost investment opportunities that can provide maximum benefit in the short to medium term.
- Implementation of a clear prioritized investment plan covering the medium to long-term is critical for the utility’s long-term sustainability.
5. How do you individualize Company strategies and planning?
This is a good question. The key to effective strategic planning and a performance improvement plan (PIP) is to align the PIPs with individual performance expectations so that individuals are accountable to working towards the overall improvement objectives and are held accountable if the PIP goals are not achieved.
6. What strategies or actions have you used when your revenue was insufficient to cover your costs?
This is a very common scenario since budgets are developed with revenue assumptions, and it’s not uncommon for revenue assumptions to be overly optimistic. This results in having to make operational cuts due to the revenue gaps. Ideally, the utility should provide conservative revenue projections.
One way to handle this is to consistently monitor budget performance by reviewing monthly reports from various departments to see how they’re working against the budget. This allows them to also check/validate key budget assumptions. These reports should be shared with all staff – not just management – so that everyone is provided feedback on their performance. In case of shortfalls, the utility does have various options including suspending/rescheduling some expenditures and short-term borrowings from banks to bridge critical financing gaps. The big risk is cutting the maintenance budget because this can directly harm revenue generation. So, it’s critical to ensure budgets and revenue projections reflect reality.