MEASURING EFFICIENCY AND PRODUCTIVITY OF WATER AND SANITATION SERVICES – A BENCHMARKING EXERCISE IN PORTUGAL

Now, more than ever, the efficient management of the water and sanitation services (henceforth WSS) is at issue. All over the world, governments are compelling the water and sanitation sectors to improve their efficiency and productivity, through tougher regulatory tools, either imposed by direct governmental regulation, by an independent agency, or even by self-regulation. Although the ongoing levels of restructuring are different, they have the same goals: to make these sectors more efficient, to curb the WSS rate of return and to pass the productivity earnings to the costumers through reduced prices or better service quality.It is imperative to intervene in these sectors because, generally, each market only allows a single company to operate, as it presents sizeable economies of scale (natural monopoly) and economies of scope. The WSS also need intensive capital, long-lived and sunk assets and, as a rule of thumb, they are indispensable to the welfare of all society and to all sectors of the economy. These situations, eventually, lead to WSS misuse, which provide an inefficient service, with high prices and poor quality. For these reasons, it is necessary to put competitive pressure on WSS and benchmarking is an effective alternative.There are several benchmarking tools available for this purpose, each one with benefits and drawbacks depending on the context where they stand. This document will analyse some of these tools, such as those that calculate the efficiency and the productivity through non-parametric methods. These techniques are able to provide comprehensive measures of economic efficiency dealing with multiple inputs and multiple outputs. The non-parametric methods used here are data envelopment analysis (hereafter DEA) and Malmquist productivity index (henceforth MPI) and they are applied to 68 Portuguese WSS, corresponding to about 63 % of the Portuguese population.This article is organized as follows. Section I makes an introduction to the Portuguese water and sanitation sectors. Section II describes the benchmarking techniques adopted to measure the efficiency and the productivity, such as DEA and MPI. Section III presents the empirical results and section IV concludes the paper.