The scale of the structural crisis is stark. In sub-Saharan Africa, South Asia, the Middle East, and Latin America, utilities are trapped in a vicious cycle that the essay describes with unusual clarity. Tariffs are set below cost-recovery levels, starving providers of revenue. Public budgets are constrained, and providers’ access to them is limited. The resulting fiscal squeeze reduces investment in maintenance, rehabilitation, and renewal, so infrastructure deteriorates, losses mount, and service levels fall. Customers, seeing unreliable or intermittent supply, become unwilling to pay, and the fiscal deterioration makes the political case for tariff reform even harder to pursue. Each turn of the loop makes the next turn more likely.

The numbers behind that cycle are sobering. Non-revenue water, the industry term for water lost to leakage, theft, and unpaid accounts, averages 35 to 45 percent across low- and middle-income countries, compared with 10 to 15 percent in well-managed systems. The authors offer a vivid analogy: it is as if hospitals were losing a third of their medicines before those medicines reached patients. Fewer than 10 percent of providers in sub-Saharan Africa are estimated to cover both operation and maintenance costs and capital costs from customer revenue alone. In many urban systems in South Asia and Africa, average service is below twelve hours per day, and few providers offer sanitation services that could be considered safely managed, and then only to a small fraction of customers.

Crucially, the essay insists these are not merely operational failures but governance failures. Drawing on regulatory experience from multiple regions, the authors identify a consistent set of root causes: political control of tariff decisions that keeps prices far too low, an unwillingness to allocate government budget resources to service providers, the appointment of managers based on political loyalty rather than technical competence, procurement practices that serve patronage rather than value for money, weak accountability structures, and regulatory frameworks designed to look independent on paper while remaining permeable to political influence in practice. Private investment is generally out of the question where returns are negligible, and the situation worsens as budgets tighten, inflation rises, and borrowing becomes more expensive.

The most instructive counterexample comes from Brazil, whose trajectory over the past two decades illustrates both the depth of the problem and the transformative potential of getting governance right. Before 2020, Brazil’s water and sanitation sector was defined by extreme fragmentation: more than 3,000 municipal providers, the majority financially unviable, serving populations too small to generate the revenue base required for sustainability. Fragmentation also precluded cross-subsidization, because each municipality managed its finances independently, so revenues from profitable urban systems could not offset losses in peri-urban areas. As recently as 2019, an estimated 100 million Brazilians lacked adequate sewage treatment. Yet the country had world-class professionals, capable state-level regulators, well-endowed development finance institutions, and a sophisticated capital market. What it lacked was a governance architecture that produced accountability, economies of scale, and a political calculus in which reform appeared cheaper than inaction.

The 2020 legislation known as the Novo Marco Legal do Saneamento changed that calculus through three simultaneous moves. It required municipalities to join regional service blocks rather than continue operating in isolation. It empowered the national regulatory agency, ANA, to set regulatory reference standards that subnational regulators were expected to adopt. And it made access to federal financing conditional on compliance with the new framework, effectively using fiscal transfers as an incentive for governance improvement. Compliance is voluntary in law and unavoidable in practice: the law did not mandate better governance, which would have collided with constitutional protections for municipal autonomy, but instead made the financial cost of inadequate governance concrete. The results were rapid. Regionalization accelerated, providers became more attractive to private investors through concessions and other forms of participation, and sanitation coverage trajectories measurably improved. Just four years after adoption, approximately 17 billion dollars in investments had been secured, and the Brazilian Association of Water and Sewage Services Concessionaires estimated the sector could secure nearly 13 billion dollars more in 2025.

The essay argues that reform has acquired a new urgency beyond the traditional public health and development case, because three pressures are converging on public finances simultaneously. Official development assistance to the water sector is declining significantly as major donors retrench and redirect aid budgets. Rising interest rates and growing debt burdens are constraining fiscal space, forcing governments to choose between infrastructure investment and servicing debt. And climate-driven shocks, including droughts, floods, cyclones, and saltwater intrusion, are diverting resources toward emergency response precisely when there is no room for additional fiscal demands. In this environment, a utility that cannot sustain itself operationally is not just a sectoral problem but a broader fiscal liability for its shareholders, while a utility that covers its costs from user revenues, borrows and repays against its own balance sheet, and attracts private investment can actually improve public fiscal space.

Two national experiences show how governance quality translates directly into financing access and revenue performance. In Kenya, the Water Services Regulatory Board, an independent regulator established under the Water Act 2002, publishes annual reports ranking utilities across nine standardized indicators of service quality and financial sustainability. The public nature of these rankings creates accountability pressure that administrative enforcement alone cannot achieve, and utilities that improve their rankings attract preferential access to financing from governments and from domestic and international lenders. In Zambia, the National Water Supply Council, operating as an independent regulator since 2000, pioneered annual compliance inspections across all licensed utilities in the country’s eleven provinces. The comparative publication of utility performance created competitive pressure and better data for investment decisions. Over the period following its establishment, the weighted average collection-to-billing ratio among regulated utilities rose from around 60 percent in 2001 to 75 percent by 2005, with leading utilities exceeding 80 percent. That improvement, achieved through governance rather than capital investment, is equivalent to a significant increase in effective revenue available for maintenance, loss reduction, and expansion.

Financial independence, the authors argue, is both a product of good governance and a shield for it. Providers that cover operation, maintenance, and debt service through tariffs need fewer outside approvals, withstand external interference more effectively, and can focus on their core responsibilities, operating as if a firewall separated service provision from other entities in their jurisdictions. One utility manager captured the sentiment plainly: when there is no need to go around asking for money, one controls one’s own destiny. Financial independence also allows providers to secure credit ratings, which are a precursor to nearly all investments by pension funds and insurance companies, investors whose long investment tenors match the lifecycle of water infrastructure such as treatment plants designed to last more than thirty years. Yet most such investors are prohibited from investing in entities without formal credit ratings, and too many providers in emerging markets are simply unready, unable to cover day-to-day costs or service a loan, leaving them dependent on expensive and slow credit enhancements such as guarantees, intercepts, special purpose vehicles, and viability gap funding.

The essay closes with a call for alignment across every actor in the sector. Governments must act as duty bearers, leading, investing, taking risks, and making hard, sometimes unpopular decisions with a long-term goal in view. Development partners must sustain support for the least capable providers, focus on institutional strengthening under client-government leadership, and coordinate with one another far more strategically than in the past. Regulators, ringfenced from implementation, must set standards that create conditions for access and environmental compliance, while financial regulators provide comfort for investors. Utility leaders must champion efficiency, transparency, and performance management, and make the case that operational autonomy and cost-reflective tariffs are prerequisites, not obstacles, for reliable service. Civil society and consumer groups, often the most underappreciated partners and the most affected by tariff and service decisions, must be consulted and engaged. Private financiers and credit rating agencies, largely absent from the sector in emerging markets, can be partners in building viable, bankable providers. The underlying message is disarmingly simple: fixing water and sanitation service providers is not a technical challenge or a money challenge, it is a governance challenge, and everyone, including citizens who must understand the implications of water being underpriced and undervalued, has a role to play.

Subject of Research: Governance reform of water and sanitation service providers in low- and middle-income countries

Article Title: Why fix water and sanitation service providers?

Article References: Saltiel, G., Kolker, J., & Brocklehurst, C. (2026). Why fix water and sanitation service providers?. PLOS Water, 5(9), e0000643. https://doi.org/10.1371/journal.pwat.0000643

Image Credits: AI Generated

DOI: 10.1371/journal.pwat.0000643

Keywords: water governance, sanitation, utilities, non-revenue water, Brazil sanitation reform, tariffs, credit ratings, regulation, Kenya WASREB, Zambia NWASCO, development finance, PLOS Water