Cost-Benefit Analysis for Investment Decisions: Chapter 20 (Restructuring The Water And Sewer Utility In Panama)

In the 1980s, investments in Panama’s water supply and sanitation sector centered on expanding the system capacity to meet the growing demand. However, since the facilities were constructed, maintenance had been neither fully performed nor properly programmed and maintained. As a consequence, the water supply and sanitation systems were inefficient and functioning under serious constraints. To remedy these shortcomings, the Panamanian government, with the support of the Inter-American Development Bank (IADB), launched the Public Enterprise Reform Program for the water supply and sewerage sector. The program’s objective was to scale back the public sector’s role and to promote the participation of private operators in service delivery. The program, in particular, aimed to strengthen the Instituto de Acueductos y Alcantarillados Nacionales (IDAAN), the public utility responsible for providing water supply and sanitation services by rationalizing its staff, outsourcing support activities to the private sector, and collecting outstanding accounts. This chapter explains how the results of the financial and economic appraisal of a program aimed at improving the overall efficiency of the water utility with no expansion of coverage can differ significantly when viewed from different perspectives.