Plugging the gap: Aligning public policy and private capital to tackle global water loss crisis

Recasting water loss as a scalable investment case

The world currently loses 324 billion cubic meters of fresh water each year, enough to meet the needs of 280 million people annually. As the global water challenge intensifies each year, it is increasingly clear that the issue is not one of supply alone, but of how water is efficiently managed and delivered. Utilities around the world invest billions into treating and distributing water, yet a third of the world's drinking water is lost before it reaches consumers. This loss occurs due to a combination of real losses such as leakage and pipe breaks caused by aging infrastructure, increased pressure or soil movement, and apparent losses including metering inaccuracies, unauthorized consumption, as well as data and billing errors, all of which make it difficult to accurately quantify and address the true scale of water loss.

The difference between the cost of water produced by water utilities and revenue collected from end-users is generally referred to as non-revenue water (NRW). Less revenue means less discretionary capital, making it much harder for utilities to raise capital for and to self-fund network repairs, system upgrades and expansion projects. Revenue loss attributable to NRW has amounted to approximately US$50 billion per year and has become a glaring issue that should sit at the top of the global water agenda.

Despite governments and utilities continuing to consider how to enhance and maintain water security and accelerate public funding for water projects, NRW reduction projects—including leak detection and repair, pressure management, network rehabilitation and metering—have been implemented in a slow and piecemeal manner, with water utilities primarily adopting a reactive, patch-and-repair approach rather than holistic, data-driven overhauls.

This article examines why NRW reduction projects have long struggled to attract investment, and how recent developments in policy design and contracting models are beginning to change that dynamic.

Why NRW reduction projects are challenging to implement

For water utilities, the core commercial challenge of NRW reduction projects begins with pricing. Regulated water supply tariffs are often set well below the full economic cost of water production and transmission. Yet the financial return from NRW reduction depends on the value attributed to each unit of water recovered, as the marginal cost of reducing losses can exceed the marginal benefit of the water saved.

Lack of high-quality data also remains a significant issue. Utilities often hold data across multiple disjointed systems, leaving them without an accurate picture of how much water is used or lost. This makes it difficult to assess how much water can be saved through NRW reduction projects and undermines any potential commercial viability of these projects internally. Moreover, to attract private partners for such projects, utilities must commit to clear baselines, KPIs and payment mechanisms, which is difficult when internal data is weak or disputed.

The challenges are compounded by fragmented governance. In many jurisdictions, responsibility for water management is dispersed across multiple levels of government and agencies. With no single central body responsible for system-wide performance or reporting, systemic underperformance can persist across jurisdictions without any authority holding the mandate, visibility or incentive to drive coordinated action. NRW reduction projects require coordination across policymakers, regulators and utilities, yet fragmentation often leads to unclear accountability. As a result, NRW reduction projects can often stall, as no single institution bears the full cost or responsibility for inaction, often leading to a cycle of short-term leak repair initiatives and temporary improvements.

Bringing public interest and commercial viability into alignment

We explore five case studies to demonstrate how different jurisdictions have aligned public objectives with commercial incentives, and where these approaches have succeeded or fallen short. The five jurisdictions examined—Vietnam, Malaysia, Thailand, England and Singapore—represent a range of institutional models, income levels and regulatory contexts, and together illustrate the conditions under which alignment between public and commercial objectives for NRW reduction has proven achievable, partial or elusive.

Vietnam

Supported by a political directive imposing hard targets on NRW, an Asian Development Bank (ADB) financing facility, and an orientation plan for urban water supply up to 2025, water utilities in Vietnam have invested in district metering, pressure management and network rehabilitation. In the Ho Chi Minh City and Hanoi pilots, private contractors took responsibility for defined zones and were paid against verifiable NRW reduction.

Using Ho Chi Minh City as a key example, the Saigon Water Supply Corporation (SAWACO) signed a design, build, operate and maintenance (DBOM) contract in 2010 with an international operator, financed in part by the World Bank. The five-year contract—including one year dedicated to maintenance—covered Zone 1, a 23-square-kilometer area comprising approximately 140,000 connections across four districts. The contractor divided this service area into 114 district metered areas (DMAs) to ensure manageable operational scale, and established procedures for active leak control, timely repair and pressure management, including minimum night-flow monitoring for each DMA. Payment combined fixed costs for DMA construction and the installation of new connections with performance-based reimbursables tied to an agreed NRW reduction target of 26 percent, or 37,500 cubic meters per day—an arrangement that gave the contractor a direct financial incentive to sustain low leakage levels throughout the contract period, not merely at the point of handover.

Over the 20-month implementation period, the results were significant. SAWACO achieved its target and saved approximately 92,000 cubic meters of water per day—almost double the contracted volume—reducing leakage to roughly half its pre-project level. Approximately 12,000 leaks were repaired across 662 kilometers of distribution network (equivalent to 18 leaks per kilometer), yet this was accomplished through the replacement of less than 1 percent of the distribution system (3,422 metres out of 662 kilometers). As leakage was progressively eliminated, water pressure was restored to a normal operating level of eight meters. The volume of water saved was sufficient to service an additional 500,000 people in the city.

These results demonstrate that performance-based contracting supported by data, clearly defined baselines and multilateral financing can deliver rapid and cost-effective NRW reduction, even without large-scale pipe replacement. Nevertheless, the gains recorded in Ho Chi Minh City have not been replicated uniformly across Vietnam's smaller utilities, where NRW in some cases remains well above 30 percent, and where institutional capacity, data quality and commercial frameworks are weaker.

Malaysia

Malaysia has used public-private partnerships as part of a broader strategy to reform a fragmented, state-led sector and, more recently, to bring in private capital and technology specifically to tackle high NRW and modernize water infrastructure.

With NRW averaging approximately 35 percent nationally, and some states exceeding 50 percent and costing roughly MYR[SH1.1] 2 billion a year in lost revenue, the federal government has opened bids for private sector-led NRW solutions, particularly for large-scale pipe replacement programs estimated at approximately MYR 10 billion (approx. US$2.5 billion).

The federal government has offered grants, while private partners bring in financing and technology, and negotiate commercial arrangements directly with state-level governments and utilities. Private companies are expected to propose integrated technical and financing packages—often build-own-operate or build-own-operate-transfer models, or long-term service contracts—with government retaining tariff control and some grant support, but shifting implementation and performance risk to the private sector.

These initiatives, however, remain at an early stage. As of late 2024, Malaysia's national NRW rate stood at approximately 37.1 percent—broadly in line with, or marginally above, levels recorded earlier in the decade. The government has set a target of reducing NRW to 28.8 percent by 2030, but measurable system-wide reductions have yet to be consistently demonstrated at scale. Until Malaysia's fragmented water governance structure is reformed and tariff structures are adjusted to reflect the true cost of water, the commercial case for private investment is likely to remain limited to discrete, ring-fenced projects rather than sector-wide transformation.

Thailand

Thailand's approach to NRW has been heavily infrastructure-driven, particularly in Bangkok, where large capital projects and performance-based contracts have been combined to cut physical NRW losses and expand supply.

In the late 1990s, Bangkok was losing approximately 40 percent of its produced water, forcing rationing and constraining growth. The Metropolitan Waterworks Authority responded by engaging contractors under performance-based contracts, with payments tied to verified reductions in NRW and increased billed consumption. Running in parallel, a series of Japanese Official Development Assistance–financed projects expanded and upgraded treatment plants, major transmission mains and the distribution network, with one project phase targeting NRW below 30 percent by 2006 through network reinforcement, new pipelines and system optimization.

At the national level, Thailand's development strategy explicitly seeks to reduce NRW in transmission and distribution systems. In urban systems such as Bangkok, pipe-replacement programs have been designed to increase pressure and cut water loss to approximately 20 percent. NRW reduction is also embedded within broader industrial, urban and groundwater protection agendas, with leakage reduction used in part to justify shifting from groundwater to surface water supply.

Despite this sustained investment, Thailand's NRW remains high, at approximately one-third of system input, suggesting that infrastructure upgrades alone have limited impact. Without parallel improvements in data, commercial practices and governance, NRW reduction projects are a necessary, but insufficient, condition for sustained NRW reduction. Thailand's experience is a cautionary lesson: Even decades of capital expenditure and performance-based contracting, when not underpinned by robust tariff reform, meaningful regulatory accountability and improved data governance, can produce limited and fragmented long-term gains.

England and Singapore

In the privatized water and sewage system in England, the economic regulator for the water sector has leakage performance targets embedded in its five-yearly price review determinations. Water companies that fail to meet their agreed leakage commitments face financial penalties that reduce allowed revenues in subsequent regulatory periods. Leakage performance is also reported publicly on a comparative basis, creating reputational consequences that compound the financial penalty. As a result, NRW reduction is now treated as a core regulatory obligation with direct consequences for the returns available to shareholders.

Singapore has achieved NRW levels consistently reported at below 5 percent, which is among the lowest in the world for any urban system at scale. This has been accomplished through an integrated institutional model in which planning, infrastructure investment, operations and regulation are unified within a single agency. The approach of the national water agency, PUB, combines aggressive leak detection programs, highly accurate district metering and a culture of operational precision that has been sustained over decades. Singapore's success reflects institutional design choices that concentrate on accountability and an alignment of incentives, making NRW performance a matter of national water security.

Both cases ultimately prove that sector-wide regulatory policy, together with the correct incentives, is more enduring than single-project delivery models.

Designing bankable NRW strategies that work

Lessons from NRW reduction projects suggest that these initiatives are most effective when embedded within a broader sector strategy. Reliable data and adaptive implementation frameworks are central to success. The establishment of tools, such as district metered areas and independent accounting systems, enables utilities to accurately distinguish between physical and commercial losses and to prioritize interventions on a rational basis.

At the same time, there is no universal model for NRW reduction; projects must be carefully tailored to local conditions, including network characteristics, data availability, institutional capacity and regulatory context. Pilot projects are particularly valuable for testing approaches under local conditions before scaling, while long-term plans supported by periodic review and adjustment allow utilities to maintain momentum and respond to operational challenges.

Sustained NRW reduction depends on institutional capacity, clear allocation of responsibilities and alignment of incentives across stakeholders. Making outcomes visible through monitoring, demonstrating cost-effectiveness and ensuring adequate budgetary support all contribute to maintaining engagement and accountability over time.

From pilots to scale: Government action needed

NRW reduction is often constrained by the misalignment of incentives, data and governance. Where these elements are joined, it is possible to reconcile public objectives with commercial viability, and deliver sustained improvements in water security and preservation. As long as water remains undervalued by both governments and consumers, NRW reduction projects will continue to lack the required political backing and investment to proceed at scale. Ultimately, the question is no longer whether it can be done, but whether governments will choose to do it.

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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