Water prices, and determination of customer satisfaction: A comparison of private and rest sectors of managing in the rural water supply schemes

The paper compares water prices and affecting factors customer satisfaction on clean-water supply of private sector with the rest of management (State-owned companies, Province Center for rural Water Supply and Environmental Sanitation and People‟s committee). Using an explanatory regression model with the survey data from 67 water supply schemes and 900 households of different management organizations in two regions of northern and southern Vietnam. The paper shows that private sector has a higher water price compared to the rest sector of the managed area of 962 VND/m3 . Customers of private sector have a higher satisfaction level than the rest of the managed area of 4% compared to the average satisfaction level. The factors affecting customer satisfaction are: (1) waiting time for water deliveries, (2) pressure of water, (3) color of water, (4) smell of water, (5) location of household users and (6) project duration.

WATER PRICES, AND DETERMINATION

OF CUSTOMER SATISFACTION: A COMPARISON OF PRIVATE AND REST SECTORS OF MANAGING IN THE RURAL WATER

SUPPLY SCHEMES

Ass-Pro Dr Doan The Loi

Theloi2001@yahoo.com Institute for Water Resources Economics and Management

Dr Nguyen Huu Dung

dungfuv@yahoo.com Department of Natural Resource Economics, National Economic University

PhD student Nguyen Tuan Anh

anhnt.iwem@gmail.com Institute for Water Resources Economics and Management

Abstract

The paper compares water prices and affecting factors customer satisfaction on clean-water supply of private sector with the rest of management (State-owned companies, Province Center for rural Water Supply and Environmental Sanitation and People‟s committee) Using an explanatory regression model with the survey data from 67 water supply schemes and 900 households of different management organizations in two regions

of northern and southern Vietnam The paper shows that private sector has a higher water price compared to the rest sector of the managed area of 962 VND/m 3 Customers of private sector have a higher satisfaction level than the rest of the managed area of 4% compared to the average satisfaction level The factors affecting customer satisfaction are: (1) waiting time for water deliveries, (2) pressure of water, (3) color of water, (4) smell of water, (5) location of household users and (6) project duration

Keywords: water supply, private sector, water prices, customer satisfaction

1 Introduction

The concentrated water supply system is the essential infrastructure to provide clean water in order to improve the health of people in rural areas and socio-economic development in the recent past In the period from 2000 to present, the Government has implemented 3 national target programs on rural clean water and environmental sanitation According to the statistics of the Ministry of Finance, by March 2017, there were 15,878 constructions totaling about 33,980 billion VND (1.498 billion USD, 0.50 billion USD per year) Of these, 14,991 works have a national database of assets managed and stored by units with a total value of 19,654 billion VND: (i) Commune People's Committee manages 12,614 submit (accounting for 84.60%); (ii) Public non-business units managed 1,860 (accounting for 12.47%); (iii) enterprises managed 437 works (accounted for 2.93%)

Comparing Vietnam's water supply, rural water supply for 2011-2015 accounts for 25.61% of total investment in water infrastructure (totaling 5.85 billion $) Rate of investment capital for rural water supply compared to investment capital for water supply infrastructure in Vietnam in the period 2011-2015 (accounting for 25.61% of total investment in water supply infrastructure) The demand for investment in rural water supply for the period 2018-2025 is 5.59 billion USD (0.63 billion USD per year on average) and 12.22 billion USD in the next 2025-2040 period an average of 0.82 billion USD per year Therefore, the demand for investment in rural water supply in the coming time is 1.44 times higher than the period 2011-2015 According to the assessment of the Center for Rural Water Supply and Environmental Sanitation (RWSA), the constructions will be medium and large scale compared to the previous period in order to ensure the sustainability of the constructions From 2016 onwards, the investment capital for the rural water supply system will be integrated into the new rural program

Fig 1: Investment capital for rural water supply in Vietnam until 2040

Nguồn: Global Infrastructure Outlook and author's calculations

In addition, according to the National Action Plan report, sustainable maintenance

of rural water supply facilities for the period 2016-2020 (2016), funding for maintenance

of sustainable water supply facilities is 4,358.618 billion VND To compensate for this funding, it is necessary to involve the private sector in investment, management and operation of water supply facilities in rural areas, reducing the burden on the state budget

Studies pointing out that the private sector and the state sector and the management community in the water sector have their own pros and cons There are a number of comparative studies between the private sector and the public sector in the water supply sector According to the authors Antonio Estache and Martín A Rossi (2002) using 1995 data with sample sizes of 50 companies in Pacific regions and using test results in the US With this topic study, Elizabeth L Kleemeier (2010) summarized the rural private operator initiatives as a promising option for addressing sustainability and sustainability issues The site describes 25 case studies from Sub-Saharan Africa, North Africa, Latin America, the Caribbean, South and Southeast Asia In addition, the Latin American study by George,

Clarke, Katrina and Scott (2009), based on a comparison before and after private sector participation, shows that the proportion of household The results of a study in Portugal by Rui Cunha Marques (2008) compared water supply systems managed by the private sector and the state sector, indicating that the management of the water supply system in the area The private sector is better than the state sector However, the study by Edouard Pe'rard (2009) in OECD countries is based on the evaluation of 22 empirical tests with 51 case studies showing that private sector participation in water supply has not a positive consequence A study by L Koestler (2009), in four case studies in Uganda, shows that private sector participation provides a high degree of motivation and effectiveness, but is not appropriate at all community Research by Eshien Chong, Freddy Huet, Stephane Saussier, and Faye Steiner (2006) supplies water in France with a sample size of 3,650 enterprises (31% managed by the public sector and 69% managed by the other sector) The average water price of pumping stations managed by PPP is higher than the average water of 17.45%

Another aspect is the satisfaction of water service users at water supply stations by different organizations, which is an important objective in overall quality management In the field of public service in general and water supply services in particular, there are many studies to evaluate customer satisfaction According to the study by KC Ellawala and DPMP Priyankara (2016) in southern Sri Lanka from July to September 2015, a sample of

583 households with 25 interview questions revealed that the site the residence area is the most influential parameter on satisfaction Satisfaction on the safety of the smell was more than 95% of the respondents The authors Parviz Fattahi, Amirsaman Kherikhah, Ramin Sadeghian, Shahla Zandib and Saeed Fayyaz (2011) propose a model for measuring the level of satisfaction of customers in the water supply sector Some important criteria such

as water quality, quantity of water, corporate responsibility, etc are differentiated and used

in the proposed model Adnan Enshassi (2005) surveyed 609 households in Gaza Strip states, the results of which show that most respondents were dissatisfied with the service water supply relates to water quality, quantity and continuity A study by Karoline Hormann (2016) analyzes the determinants of user satisfaction in clean water, sewage and trash in Portugal The study conducted a survey of 1,070 clients conducted by the Portuguese Water and Wastewater Management Authority And using the logitic model to analyze the relationship between overall service satisfaction and service satisfaction, the results show that overall consumer satisfaction with specific service aspects but not related

to socio-economic and demographic features The study by Jayaramu KP, B Manoj Kumar, Prasanna Rashmi KK (2014) in the city of Hubli-Dharwad, South India for a long time compared two continuous water supply and intermittent water supply in Hubli The results of the study show that most clients in the continuous water supply area are very satisfied with water quality, continuity, quantity, and pressure; while there is little (12%) dissatisfaction in discontinuous water supply

In Vietnam, the general concept of private sector is based on level of generalization including public sector and non-state sector There are many opinions about the private sector in Vietnam's regulations such as Joint Circular 37/2014/TTLT-BNNPTNT-BTC-BKHĐT of the Government of the Socialist Republic of Vietnam provides: (1) Private; (2)

Cooperatives; (3) Public non-business units; (4) Enterprise In Circulars 54/2013/TT-BTC, assigns the works to directly manage, use and exploit, including: (1) Public non-business units; (2) Enterprises; (3) People's committees of communes, wards and townships And according to Directive No 35/CT-TTg, the order of priority for management and operation assignment is as follows: (1) Enterprises; (2) Public non-business units; (3) Commune People's Committee According to Doan The Loi, Nguyen Tuan Anh (2016) in the water sector, some forms of management organizations such as communities, cooperatives, commune people's committees are not entirely state-owned or private sector In order to identify private sector , the research team divides the active organizations and individuals that provide rural water supply into three main areas

(1) Private sector includes: organizations and individuals investing in the construction of rural water supply facilities (CRWS) and directly managing or privatized rural water supply enterprises, government no holding share (over 50% of capital) The private sector mainly operates as an enterprise (under Enterprise Law 2014, excluding state owned enterprises) and individual business households

(2) The State-owned sectors: are state-owned organizations whichs set up construction of rural water supply facilities The state sector usually consists of state-owned enterprises, Public non-business units; (the Center for Rural Water Supply and Environmental Sanitation, management board)

(3) The other sectors: is organizations outside the two sectors, such as People's Committees, communities, cooperative groups, etc., are jointly invested in the construction

of rural water supply facilities and managed directly

Each management model in Vietnam shows different advantages and disadvantages Considering the differences between the private sector and the remaining models, they can

be grouped into two areas: (1) water supply stations managed by the private sector; (2) Water supply stations managed by the rest of the area (non-private sectors including State-owned enterprises, public service delivery agencies, Commune People's Committees, cooperatives, community management) The efficiency of private sector management compared to the rest of the region does the private sector actually operate better than the rest in terms of water prices and customer satisfaction? From there, it is possible to export solutions to attract or overcome pros and cons to attract the private sector to participate in investment, management and operation of rural water supply facilities

2 Method

To determine the difference between the private sector and the rest of the water price and customer satisfaction in this study based on dummy variable modeling

a Evaluate the difference between water prices

Used by estimating the smallest price regression on a set of indicator variables for organizational choice and a set of exogenous factors (including water supply technology, capacity, capital productivity investment, life expectancy, ), the length of the system, the number of households serving, the rate of water loss

p =DPδ +Xβ +u with u ~ (0,Σ)

Where p is the price of water for 1m3 (VND/m3)

DP: A dummy variable containing the management involvement index of different management organizations

DP=1 if privater sector is managed

DP= 0 if the rest area is managed

X is a set of exogenous controls

u is the (heteroskedastic) stochastic error

We are interested in the coefficients δ which measure the average shift in price across different the private sector and the rest manage Here dummy D receives a value of 1 when the water supply station managed by the private sector manages, and receives zero value when the water supply station managed by the rest of the area includes: public sector, Commune management, cooperative management, and community management Analysis and processing

of results use IBM-SPSS 22.0 statistical software This model used by the authors Eshien, Freddy, Stephane, Faye (2006) to examine the differences in water pricing between private-sector water supply stations under PPP contracts with linear regression model

According to the Ministry of Agriculture and Rural Development and Mouhamed (2016), the private sector participates in investment, management and participation in areas with high population density and high income In the whole country, the private sector is involved in investment and management mainly in the two major deltas, the Red River Delta (north) and the Mekong Delta (south) According to the General Statistics Office, the population density in

2016 in the Red River Delta is the highest in the country at 994 persons/km2, and the region with the third highest population density is 433 people/km2 Water supply stations were surveyed mainly in the Red River Delta and the Mekong Delta In particular, the Red River delta has a variety of management models, and the efficiency of each province is different, while in the Mekong Delta the provinces have the same management models

Table 1: Data of water supply station analysis

No Province Describe the data

1

Thai Binh, Ha

Nam, Long An

Survey data for 30 water supply stations, corresponding to each province surveyed 10 stations There are 15 stations managed by the private sector, 5 managed by the State, 10 by the People's Committee (Commune People's Committee,

cooperative, community) in 2015 under the auspices of the Australian Embassy

2

Ha Nam, Bac

Ninh, Vinh

Phuc, Hung

Yen, Phu Tho,

Thanh Hoa,

Quang Ninh,

Ha Noi

Survey data includes 37 water supply stations in Ha Nam (3 stations), Bac Ninh (5 stations), Vinh Phuc (2 stations), Hung Yen (5 stations), Phu Tho (2 stations) , Thanh Hoa (4 stations), Quang Ninh (7 stations) Hanoi (6 stations) Data

collected by the Institute for Irrigation Economics and Management in 2017 The data for the 2017 survey includes 19 stations managed by private sector, 12 managed by state owned sector and 6 managed by Commune People's Committee

b Evaluate the difference between customer satisfaction

In determining the difference in customer satisfaction of the private sector and the rest of the region, the authors used the dummy variable model to distinguish the private sector and the rest The impact on customer satisfaction as analyzed above is the amount of water, quality and location of households using the system Using the data set of 900 households surveyed by the Institute of Economics and Management of Irrigation under the Australian Embassy's implementation of the Private Sector Assessment in 2015 in three provinces of Ha Nam (300 households), Thai Binh (300 households), Long An (300 households)

S =αD + βY+u

S is customer satisfaction on the likert scale of 5 points

DS: a dummy variable containing the management involvement index of different management organizations

DS= 1 if privater sector is managed

DS= 0 if the rest area is managed

Y is the control variable (including water hours, water pressure, color, odor, taste of water and distance from household to water supply station) In addition, in this study, the author proposes additional features for the water supply station such as project duration, length of pipeline / household, scale of water supply station

Factor α to consider the degree of customer satisfaction differences between the private sector and the rest Data set of 900 households interviewed after analysis using IBM-SPSS 22.0 statistical software

3 Results

3.1 Description of characteristics of the objects to be surveyed

a Pumping Stations

Based on data collected from 67 pumping stations in 10 provinces (including 9 provinces in the North and a province in the South) among them 34 pumping stations managed by the private sector (accounting for 50.75%) and 33 water supply stations managed by the other sector (accounting for 49.25%) (see table 2)

Table 2: Selected pumping stations in survey

No Province

Organization

Tota

l

Rate (%) Private

Sector

The other sectors Govermen

t Sector

Commune People‘s Committee

Coope rative Community

No Province

Organization

Tota

l

Rate (%) Private

Sector

The other sectors Govermen

t Sector

Commune People‘s Committee

Coope rative Community

The characteristics of the rural water supply station are described in Table 3, the size of the rural water supply stations operated by the private sector is larger than the rest The performance in terms of m3 night-day and work life of the rest of the area is higher than that of the private sector

Table 3: The characteristics of the rural water supply station

Management

area

Capacity according

to design (m3day-night)

Performance

by m3 day-night (%)

Pipeline length (km)

Life expectancy for 2017 (years)

Water price includes VAT (VND/m3)

The rest of

Private

b Household users

Table 4 show the analytical variables In there, the average water price of the pumping stations survey is 5,800 VND/m3, the lowest is 2,500 VND/m3 which managed

by individual business households (Long An Province) Other features of the pumping station water are showed in Table 4 below

Table 4: Features of the pumping stations were surveyed in the analysis model

P

The current water price of the pumping

stations, the water price included VAT

(VND / m3)

Variable Concept Minimum Maximum Mean

DP

Denoting the management area Value1 is

the managment of private sector and value

0 is the managment of other sector

After clarifing other values in water quality assessments such as color, smell, and taste, and other water quality assessments Table 5 shows 900 interviewed households then filtering out 442 households which the results describing by region, province of management In table

5, the results of analysis of the households after filtering out, the proportion of households in the private sector and the rest are 58.82% and 41.18%, respectively And the proportion of men and women is 55.88% and 44.12% respectively (see table 5)

Table 5: Features of interviewed households by region and province

Gender

Total Rate(%)

Other

Sectors

Private sector

Other Sectors

Private sector

Other Sectors

Private sector

Table 6 illustrates the features related to customer satisfaction in the analysis model

Table 6: Results of Features related to customer satisfaction in the analysis model

S

Satisfied customers about water supply system according

to a five point Likert scale (1- Very dissatisfied, 2 - Not

satisfied, 3 - Normal, 4 - Satisfied, 5- Very satisfied)

DS Managed area, value 1 is the private sector‘s

Y1

How many hours a day is there in your family? (1-

24h, 2 – Only day, 3- Only night, 4-1/2 day,

5-Depending on day, 6-5-Depending on time)

Variable Concept Min Max Mean

Y4 The smell of water (1-Very foul, 2-foul, 3- No smell,

Y5 The taste of water (1-salty, 2- brackish, 3-sour, 4-quite

3.2 The difference between the private sector and other sectors

a Difference in water prices

The least squares OLS estimation result of the model was significant (Sig.F = 0.00), which was smaller than α = 1% meaning that at least one independent variable affects the dependent variable of the water price And the regression coefficient R2 = 0.346 with the Durbin–Watson coefficient d = 1.717; With k '= 6, n = 67 so having dU = 1.642, dL = 1.251 and 4-dU = 2.358, so the model has no level 1 correlation And the VIF coefficient for 6 variables is less than 2 so there is no multicollinearity (Hoang Trong and Chu Nguyen Mong Ngoc, 2008) This cooefficient is in the range 1-3, so the model does not have self-correlation The results of the estimation coefficients are presented in Table 7 The analysis results show that the water price of the pumping stations managed by the private sector is higher than that of the other sectors of 962 VND/m3 This difference is statistically significant at <1% If the price difference between the two management areas is comparable, the average price of survey pumping stations is about 16.59% This result is slightly lower than the research paper Eshien Chong The results of water price differences between pumping stations mananged by PPP compared with the pumping stations mananged by the goverment directly is 17.45%2 As a result of the model, if the 1% improvement in water loss rate is achieved, it will be improved by 25.16 VND/m3, which

is statistically significant at <5% According to the Government's Decision No 2147/QĐ-TTg, the water loss rate from 2015-2020 will decrease by 1.4% per year and 0.6% per year from 2020-20253 Flowing this goal of decision, the government will invest the budget to: (1) Enhance public awareness; (2) Enhance the capacity of local authorities; (3) Improved management capacity for water supply units; (4) To build and perfect mechanisms and

mananged PPP and managed goverment is € 26 compared with the price water is 159 €

3

According to Decision No 2147 / QD-TTg by the Prime Minister dated November 24, 2010 Approving the national program against loss, clean water collection until 2025 with the main objective to 2020 is 18% 2025

is 15%

policies on the prevention of water loss (5) Prevent the loss of clean water due to technology If the 2015-2020 target is achieved as set out, each year with m3 the water supply stations will decrease by 35.22/m3/year As the service life of the system increases, the water price decreases In this model it shows that when the service life of the system increases by one year, the water price will decrease by 6.97 VND/m3 but this result is not statistically significant

Table 7: The regression estimation results explain the difference in water prices

between the private sector and the other sectors

Model

Unstandardized Coefficients

Standardized

Collinearity Statistics

b, Difference of satisfaction

According to the results of regression analysis using least squares OLS, because the significance level of the model (Sig.F = 0.00) is smaller than α = 1%, the regression model

is statistically significant The regression coefficient R2 = 0.408 This model has no self correlation because the Durbin-Watson coefficient is d = 1.295 with sample n = 442 in the range of 1 <d <3 The model does not have multi-collinearity due to the coefficient VIF <2

of 10 independent variables (Hoang Trong, Chu Nguyen Mong Ngoc, 2008) Customer satisfaction with water supply service stations managed by the private sector was higher than the other sectors, accounting for about 0.161, which was 4.4% higher than the average In general, the difference is statistically significant <5% There are two indicatorsthat affect customer satisfaction: water availability and intensity of clean water,

in which the intensity of clean water index most affects the customer satisfaction 10.71% (with significance <1%) For water quality, the three most important indicators are color, smell and taste Water color affects the overall satisfaction of the water supply service stations, which accounts for 5.85% (significance <1%) followed by a 4.77% smell (significance <10%), water taste did not significantly affect customer satisfaction In indicator of location of customers compared to water supply service station, which affects 1.63% of overall satisfaction, the minus "-" shows that the customer's location as far as possible, the satisfaction decreases (with significance <5%) And the longer service life, the lower the customer satisfaction As the service life increases by one year, customer satisfaction is reduced by 0.013 overall satisfaction (significance <10 %) The larger the