PurposeService quality and customer satisfaction influence the financial performance of service organizations. Hence, the purpose of this paper is to investigate the path relationship of service quality to customer satisfaction to financial sustainability in the water service sector, which is vital to the sustainable future of mankind. Further, these three interrelated constructs and their dimensions are clearly articulated.Design/methodology/approachSERVQUAL questionnaire responses were collected from 635 household families, and the financial sustainability indicators of 56 water providers were gathered as well. Cronbach's alpha and factor analysis were conducted to measure the internal consistency and convergent validity. Path analysis was utilized to evaluate the causal diagram by examining the relationships among service quality, customer satisfaction and financial sustainability using the AMOS software package.FindingsThe results showed that the five dimensions of service quality explain 58% of the customer satisfaction variation. The responsiveness, empathy, assurance and reliability have significant impact on the customer satisfaction where p < 0.05, while the tangible dimension has an insignificant effect. The results also revealed that customer satisfaction has a significant impact on the financial sustainability indicators of the water providers, where p = 0.000 for the debt collection ratio indicator, and p = 0.003 for the financial efficiency ratio indicator.Research limitations/implicationsThis research on financial sustainability is based on evidence about service quality and customer satisfaction in the Palestinian water sector. Future research on financial sustainability of the water sector may focus on the pricing mechanism and debt collection of water service.Practical implicationsThe findings suggest that water providers should recognize the importance of service quality dimensions, which strengthen the customer satisfaction, which, in turn, is a significant driver for their financial sustainability. It is, therefore, sound to draw action-oriented managerial implications from these results.Originality/valueThe study adds to the literature of water service sector and is based on empirical evidence from primary data of household families and secondary data of water service providers from developing countries. This paper also contributes toward the strengthening of sustainability of the water service sector in Palestine – a worthy humanitarian cause. The study provides evidence useful for policy makers toward carving out policies aimed at strengthening the financial sustainability of the water service sector.

Abstract:In Balkan countries, half of water quantity is being lost during the distribution process. Due to high percentage, this study empirically evaluates the determinants of non-revenue water for 180 service providers in Albania, Bulgaria, Bosnia, Kosovo, Macedonia, Moldova, and Montenegro. Cross sectional data has been collected from International Bench-marking Network for Water and Sanitation Utilities Database "IBNET". This collected data covers period from year 2003 up to year 2015. Based on regression analysis, the findings indicate that, connection density network, labor cost percentage to operating cost, number of connections, production quantity per connection, consumption quantity per person per day, metering level ratio and operating unit cost, are significant with non-revenue water per connection indicator. However, to have in-depth analysis, International Water Association "IWA" recommends to depend on more than one non-revenue water indicator. Therefore, nonrevenue water percentage indicator has been included here. A correlation analysis in this study shows that the more the metering level ratio and labor cost percentage relative to operating cost; the less the non-revenue water percentage. On the opposite side, the more the consumption per person, production per connection, number of population, network connection density, operating cost per cubic meter sold and number of connections, the more the non-revenue water percentage, other things being constant. It seems those countries are suffering from large physical leakages and high commercial losses. To decrease those losses, coordination, amalgamations and multiple efforts are to be exerted from different parties as donation agencies, government entities and service providers.

The impactof water sales price on the performance of water service providers is typically something of a mystery. High prices mean more revenue and profit; but it may lead to less bills collection and encourage the illegal connections. Yet, this argument has not been fully addressed in the Palestinian water sector; this research evaluates the effect of average water prices on the financial sustainability key indicators as collection efficiency, profit or loss percentage, non-revenue water, staff productivity, daily consumption, operating, and maintenance cost. The average price of cubic meter sold is segmented into low, medium, and high categories. Multivariate analysis shows that there are significant differences in profit or working ratio, daily consumption, and operating cost based on the different price categories. Further significant differences have been found in non-revenue water, collection efficiency, and water production based on low and high price categories. On the other hand, no significant difference has been found in staff productivity. The results show high price set by Palestinian water providers, leads to an increase in the bill collection rate and profit margin. However, negative relationship has been found between the price on one hand, and non-revenue water, average daily consumption, and water production on the other hand. The implication of these findings reveal that the Palestinian water providers should increase water prices gradually to cover operating and maintenance cost for better financial performance and sustainability.

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Studies investigating the relationship between size and performance of water service providers are abundant. Yet, this relationship has not been fully addressed in Palestinian water sector, particularly, after the issuance of water law 2014 which calls for merging water providers into large regional utilities. This research evaluates the significant effect of the size of Palestinian water service providers on non-revenue water, staff productivity, collection efficiency, average consumption, average price, operating and maintenance cost, working ratio, and gross profit. The multivariate analysis shows that there are significant differences in working ratio, non-revenue water, staff productivity, average price, and gross profit based on the size. On the other side, no significant differences have been found in average daily consumption, operating and maintenance cost per unit, and collection efficiency based on those providers' size. The small service providers perform better in non-revenue water, staff productivity, and collection efficiency; wherein, large service providers are more profitable than small service providers. Implications of these findings by conducting further studies will add the value for better merging of the Palestinian water providers and the reforming process.