Water privatization in Armenia – or, more accurately, the participation of private companies in the provision of water supply under contract with the government of Armenia – has been prepared since the mid-1990s. The first management contract for water supply in Armenia, covering the capital Yerevan, was signed in 1999 with financial support from the World Bank. As of 2010, almost 2.1 million people or about two thirds of the population of Armenia, including its entire urban population, received their drinking water from private companies. Sanitation is not included in the private sector contracts and remains a public responsibility. Basics of management contracts Under a management contract a private company provides specific services such as operating water systems as well as billing and revenue collection on behalf of the government. The private companies, however, do not own the revenues collected. They are being paid by the government through a fixed fee and a performance-based variable fee, so that there is no link between the level of tariffs and remuneration of the private company. The private companies are partially paid from the proceeds of loans and grants provided by external donors such as the World Bank, the Asian Development Bank and German aid. Investments are funded by external donors through soft loans provided to the government of Armenia. Situation before privatization In the first half of the 1990s and in the aftermath of the demise of the communist system, the economy of Armenia had collapsed, with GDP declining by 50% and inflation reaching 5,000%. This resulted in many people not paying their water bills and a lack of maintenance of the water system. In Yerevan the collection efficiency was estimated to be only 45% in 1997 and had further declined to 19% in 1999. Unaccounted-for water was estimated at 72%. The average residential consumption was estimated at 250 liters per connection per day, twice as high as, for example, in Germany. Later it became clear that some of these figures had been seriously underestimated. For example, average residential consumption was found to be closer to 800 liters per connection per day. Tariffs were set at the equivalent of US$0.10 per cubic meter, which was insufficient to cover even operating costs. The situation outside the capital was similar or worse. Despite Armenia's abundant water resources, water supply was intermittent for most of the country. In Yerevan, water was provided for six hours