The purpose of this study is to show the link between institutional capacity and performance in three water utilities in the north of Mexico (Hermosillo, Mexicali and Saltillo). These utilities have similar weather, population and economic development level, but they also have different outcome performance measured in terms of service continuity, water loss and consumer satisfaction. These utilities also have different institutional frameworks: Hermosillo is a municipal owned utility, Mexicali is a state owned utility and Saltillo is a public private partnership (PPP). The influence of these configurations on the institutional capacity is addressed by analyzing three levels of institutional capacity: the macro level, which refers to the political and institutional context of utilities and their relation to other government agencies; the meso level which refers to the legal, technological and financial resources (which allow utilities to carry out long term planning of activities, set water prices at sustainable levels, diversify financial sources, measure consumption, collect revenue, etc); and the micro level which refers to the human resources management (hiring policies, incentives, training, etc.) Indicators were defined in order to measure the level of development of each of these levels.
Results show that utilities with better performance (Mexicali and Saltillo) have greater indices of institutional capacity. Mexicali and Saltillo have longer planning horizons than Hermosillo as well as greater measurement of water consumption. They also have more hours of training and better incentives. Saltillo has also less staff per thousand connections, and being a PPP, is not affected by political discretion in staff hiring. Mexicali has diversified its sources for financing infrastructure, unlike Hermosillo which depends greatly on the support from the municipal government. Saltillo has implemented a system of dividend payment that provides funds for investment.In general, results suggest that the institutional configuration of utilities can affect their institutional capacity and thus performance, with training, measurement and financial diversification as key elements of institutional capacity. So far, policies in Mexico have been oriented towards providing more resources for new water sources and infrastructure, but these resources are not used efficiently because of the low capacity of utilities. Thus, policies should address the issue of institutional capacity in urban water utilities in Mexico. By subdividing the study of institutional capacity in three levels, the approach used in this study allows policy makers to identify opportunity areas in the institutional capacity of utilities so that policies can be oriented to the improvement of the most deficient levels.