Enhancing Sustainability and Cost Efficiency in Albania’s Water Supply Sector: A Path Toward Responsible Water Resource Management

The Albanian water supply sector is facing important challenges despite the country’s abundant natural water resources. In terms of coverage, only 71% of the population has access to safe drinking water. There are significant interruptions in supply, and many Water Utilities (WUs) underperform financially and technically. This study aims to explore the cost structure of Albania’s WUs, assess their operational sustainability (exploring their cost structure), and identify cost-saving opportunities. Individual data for each WU (57 in total) for the period from 2008 to 2015 is used and a translog cost function to estimate economies of output, customer density, and economies of scale is applied. By employing a hedonic approach, the analysis incorporates technical variables such as network length, number of customers, water losses, and load factors along with output and input prices. The results highlight the presence of diseconomies of output density, customer density, and scale, indicating that increasing water production or the customer base disproportionately raises operational costs. These findings reflect Albania’s water supply inefficient infrastructure, a consequence of major network losses, poor network conditions, and limited capacity to manage increasing demand efficiently. Several policy implications derive from this study. There is an urgent call for investment in infrastructure upgrades, and a strong sectorial reform to improve the financial and operational sustainability of WUs. Policymakers should also consider strategic tariff adjustments and potential regionalisation of services to mitigate rising costs along with regulators and national authorities to guide interventions in enhancing water service delivery, ensuring equitable access, and promoting long-term sustainability.