Structure and future development of the German water sector

Based on a Bundestag decision of 21 March 2002, departments of the Federal Government are requested to develop a modernisation strategy to increase the efficiency and capability of water service providers and the international presence of German water resources management. Against this background the Ifo Institute received a commission from the Federal Ministry of Education and Research as well as the Federal Ministry for Economics and Technology to analyse structural change in the water supply and waste water management, plant engineering, equipment status and systems operation and to present viable strategies for the future. The segmentation and the decentralised, municipally based structure of the German water resources management are the main constraints for success on international markets: Although the manufacturers of plants and components rank at the top of their market segment internationally, they do not, however, attain the necessary critical mass needed for a general contractor nor do they have the necessary references as operators of water-supply and waste-water-disposal systems. The German water supply and sewage disposal enterprises also do not have the financial resources needed to compete with market leaders in international tendering. The improvement of the competitiveness of the German water sector could be achieved by increasing efficiency. This would include increased co-operation between supply and disposal enterprises, the formation of larger units, possibly in the form of public-private partnerships (PPPs), a weakening of the municipality principle that prevails in water resources management as well as compulsory benchmarking. Constraints will continue to come, however, from the preservation of tax privileges for public waste-water management and the obvious protectionism for municipal structures.