Document Type : Research Paper

Authors

• Akbar Khodabakhshi ¹
• Mahdi Torkamani ²

¹ Assistant Professor, Department of Economics, Faculty of Economics and Social Sciences, Bu Ali Sina University, Hamadan, Iran

² Ph.D. Student in Economics, Bu Ali Sina University, Hamadan, Iran.

Abstract

 Water utilities provide one of the most crucial services to boost the health and welfare of communities. In Iran, urban and rural water utilities operated independently until 2019,  with separate entities serving each province’s urban and rural populations. To enhance efficiency in 2019 by law the rural water utilities were attached to the urban ones and provincial unified water utilities were formed. For water utilities, this brought about enormous changes in terms of organizational structure and scale of operation. In order to determine the efficiency effects of the change, this paper compares the efficiency of water utility services in each province before and after the unification. To do so, a non-parametric method for measuring efficiency in the form of Data Envelopment Analysis (DEA), with Variable Returns to Scale (VAR) was used. “Labor forces” and “assets” of the companies were taken as inputs, and “number of water connections” and the “number of wastewater connections” as outputs and the effects of the changes in the efficiency of all 31 provincial and 3 independent water utilities before and after unification were compared. Results show that the weighted average of efficiency in the whole water and wastewater sector was improved from .66 in 2018 to .75 in 2021, and unification has improved the average efficiency score in the water utility sector in Iran.
Introduction
In Iran, until 2019 water and wastewater utilities used to deliver water and sanitation services separately as different URBAN water utilities and RURAL water utilities. Hence in each province, there existed two different water utilities. In 2019 by law the rural water utilities were attached to the urban ones and provincial UNIFIED water utilities were formed. The unification was an enormous change in terms of organizational structure and scale of operation for water and wastewater services in the country. To determine the efficiency effects of the change, we compared the efficiency of water utility services in each province before and after the unification. Specifically, we were to answer the following question:
Did the unification of water utilities improve efficiency in the sector?
Methods and Material
For efficiency measurement in economic firms as decision-making units, there are different ways among which Data Envelopment Analysis (DEA) is one of the most popular. To answer the above question, the non-parametric method for measuring efficiency in the form of Data Envelopment Analysis (DEA) was used. Since a water and wastewater utility is a Natural Monopoly and there exist increasing returns to scale, we assumed Variable Returns to Scale (VAR). Among many other inputs in a water and wastewater utility, and similar to the explanation of production functions in most of the studies, we used “Labor forces” and “assets” of the companies for inputs as the proxies for labor and capital. For output, the issue is more sophisticated since namely, only the water distributed and wastewater collected are the final products. But in a country as big and diverse as Iran, much more can be regarded as output instead of water distributed and wastewater collected. The utilities have a lot to do to reach the final product any of which could be regarded as a proxy for the final product. These include “total water distributed”, “total wastewater collected”, “length of distribution network”, “number of water or wastewater connections”, “number of water or wastewater purification plants” and so on. Since the total water distributed is a function of water demand by water connections, and also it is affected by water resources available for the utilities to distribute, it seems that the best variables to take as the output are “Number of water connections” and the “number of wastewater connections” instead of total water distributed or total wastewater collected because as mentioned, where and when there are water shortages and in the times of water stress, water crises or drought, the water distributed is affected and further on, the wastewater collected is affected too while the water utility is still operating properly and the operation is not seen.
Results and Discussion
Measuring efficiency in water and wastewater companies in a country with diverse geographical areas of service is sophisticated since the selection of appropriate inputs and outputs must be made carefully with regard to the diversity of variables that can be taken as inputs and outputs. Having this point in mind and taking the Data Envelopment Analysis (DEA) technique, “total labor forces” and “total assets” as inputs and “number of water connections” and “number of wastewater connections” as outputs, the efficiency of the water and wastewater companies BEFORE and AFTER unification were calculated. Results show that the effect for all 31 provincial and 3 independent water and wastewater companies was not the same. The unification has had a positive effect in 11 provinces, a neutral effect on 9 provinces, and a negative effect on 14 provinces. However, comparing the weighted average and simple average of efficiency in the whole water and wastewater sector in the country shows the overall result has improved efficiency score.
Conclusion
The results show that although the effects of unification inside each province might be positive, neutral, or negative, but in terms of overall efficiency in the whole country, the unification has improved the average efficiency score in the water and wastewater companies in Iran.

Keywords

• Efficiency
• Decision-Making Unit
• Water and Wastewater Company
• Data Envelopment Analysis
• Unification