35834 India Water Supply And Sanitation Bridging The Gap Between Infrastructure and Service January 2006 India Country Team Energy and Infrastructure Department South Asia Region, World Bank INDIA Water Supply and Sanitation Bridging the Gap Between Infrastructure and Service World Bank Report January 2006 This report has been prepared by a World Bank team led by Alain R. Locussol (Lead Water Supply and Sanitation Specialist, South Asia Region) and including Smita Misra (Senior Economist, South Asia Region), Midori Makino (Senior Financial Analyst, South Asia Region), Catherine Hunt (Junior Professional Associate, Infrastructure Economics and Finance), and Vahid Alavian (Lead Water Resources Specialist, World Bank Institute) under the general supervision of Sonia Hammam, Water & Urban Sector Manager, South Asia. Data were collected and analyzed by Consultants Indicus Analytics, Delhi, partly financed by the Water and Sanitation Program ­ South Asia (WSP-SA). The team gratefully acknowledges inputs from Ministry of Urban Development; Department of Drinking Water Supply, Ministry of Rural Development; Planning Commission; UNICEF; WHO; DFID & WSP-SA. The Report has been discussed with the Government of India but does not necessarily bear their approval for all its contents, especially where the Bank team has stated its judgements / opinions / policy recommendations. Pg 2 Table of Contents Abbreviations and Acronyms ....................................................................................................................................4 .oreword................................................................................................................................................................5 Executive Summary ................................................................................................................................................6 Chapter 1 : Assessing Progress in Extending Access to Infrastructure and Service ........................................................9 Growing Access to WSS Infrastructure ...................................................................................................9 The Urban Sector ..................................................................................................................................9 Current Access to Infrastructure ...................................................................................................... 10 .uture Access to WSS Infrastructure ...............................................................................................11 The Rural Sector .................................................................................................................................11 Current Access to Infrastructure ...................................................................................................... 12 .uture Access to Infrastructure........................................................................................................12 .uture Capital Expenditure Requirements .......................................................................................... 12 Lagging Access to Reliable, Sustainable and Affordable Service ..............................................................13 Reliability .......................................................................................................................................13 .inancial Sustainability ....................................................................................................................15 Environmental Sustainability ............................................................................................................15 Affordability ...................................................................................................................................15 Chapter 2 : Bridging the Gap Between Infrastructure and Service ............................................................................. 16 What India Can Do to Meet the MDG Target ......................................................................................... 16 Increase the Accountability of Institutions to Improve the Reliability of Service .......................................16 Clarify the Roles of the Actors ........................................................................................................16 Devolve .ull Responsibility for Providing the Service to the Most Appropriate Levels of Government ...................................................................................................17 Ring-fence WSS Operations..........................................................................................................17 Transform Beneficiaries into Paying Customers ................................................................................18 Promote Private Sector Participation ................................................................................................18 Improve the .inancial Sustainability of the Service ................................................................................19 Price the Service According to Sound Principles................................................................................19 .inance the Transition Toward .ull Cost Recovery in a Transparent Manner .......................................20 Create .inancial Incentives to Reduce O&M, Capital, and .inancing Costs.......................................... 20 Expand the Role of Programs Sponsored by GoI to Support Reform ..................................................... 21 Use other Sources of .inancing to Complement the Support for Reform..............................................22 Improve the Environmental Sustainability of Service .............................................................................. 22 Price Water According to Sound Economic Principles ........................................................................22 Strengthen Water Rights and Develop Water Markets ........................................................................23 Limit Depletion of Groundwater .......................................................................................................23 Protect Water Quality .....................................................................................................................24 Plan Infrastructure to Achieve Realistic Environmental Objectives ...................................................... 24 Support Behavioral Change Toward Better Sanitation Practices ...........................................................24 Improve the Affordability of Service ..................................................................................................... 25 Reduce Costs by Adapting Design Criteria and Technology ................................................................ 25 Pg 3 Reduce Costs by Adapting O&M Arrangements.............................................................................. 25 Implement a Cost Recovery Strategy Adapted to the Poor ................................................................. 25 Build the Capacity of the WSS Sector................................................................................................... 26 Build an Identity for the Urban WSS Industry .................................................................................26 Adapt Training Programs to the New Needs of the Urban WSS Sector ............................................... 26 Develop Special Information Programs for Key Stakeholders .............................................................. 27 Build the Capacity of PRI ................................................................................................................. 27 .igure 1 : Steady Growth in Urban Population with Access to Improved Drinking Water Sources ........................ 10 .igure 2 : Progress and Slippage: Change in Access to Piped Water in Urban Areas Between 1991 and 2001 .............................................................................................................................. 11 .igure 3 : Growing Access to Rural Water Supply Infrastructure ....................................................................... 12 .igure 4 : Availability of Water (hours/day) ...................................................................................................... 15 .igure 5 : Operational .ramework for Improving Accountability in the Urban WSS Sector ................................... 19 .igure 6 : Two Cost Recovery Strategies for Urban WSS. Implications for Tariff Support ................................... 21 .igure 7 : Changing Allocation of Reform-linked Incentive .unds for Rural Water Supply and Sanitation................................................................................................................................. 22 .igure 8 : Potential Sources of Water for Chennai ............................................................................................ 23 Table 1 : Actual and Targeted Access to Water Supply and Sanitation Infrastructure at the End of .ive-Year Plan Periods .................................................................................................................... 13 Table 2 : Expenditures Required to Meet MDG Target ...................................................................................... 14 References ........................................................................................................................................................... 28 Abbreviations and Acronyms ARWSP Accelerated Rural Water Supply NGO Non Governmental Organization Program NRW Non Revenue Water BIS Bureau of Indian Standards NSSO National Sample Survey Organization CPHEEO Central Public Health and NURM National Urban Renewal Mission Environmental Engineering Organization OB. Output Based .inancing GoI Government of India O&M Operation and Maintenance GP Gram Panchayat PHED Public Health Engineering Department HUDCO Housing and Urban Development PIP Performance Improvement Plan Corporation PSP Private Sector Participation lpcd Liters per capita a day PRI Panchayati Raj Institution LRMC Long Run Marginal Cost TSC Total Sanitation Campaign M&E Monitoring and Evaluation ULB Urban Local Bodies MDG Millennium Development Goal VWSC Village Water Supply Committee MoUD Ministry of Urban Development WSS Water Supply and Sanitation Pg 4 lnL; MkW- fdjhV ,l- ijh[k Dr. Kirit S. Parikh ;kstuk vk;ksx ;kstuk Hkou ubZ fnYyh & 110 001 MEMBER PLANNING COMMISSION YOJANA BHAWAN NEW DELHI-110 001 .oreword The Millenium Development Goal (MDG) require India to halve by 2015 the proportion of people who had no access to safe drinking water and basic sanitation. Are we on course to achieve this goal was the question this report initially wanted to answer. .rom the point of view of progress made so far, it appeared that India could achieve 100% access to infrastructure in the next decade or so, both in urban and rural areas, at the current level of funding. However a close look at the ground realities makes it obvious that mere access to infrastructure is only one side of the coin. Quality of service at levels comparable to atleast other developing countries merits equal, if not more, attention. The ultimate objective should be to achieve a service that is reliable and not restricted to a few hours of water supply in the day, financially sustainable and not surviving on large operating subsidies and grants, environmentally sustainable without aquifers getting depleted, supplying potable water instead of contaminated water due to inadequate treatment and last but not the least, affordable, in particular for the poor, instead of the consumer spending much more than they should for meeting their basic needs. Given the resource constraints, innovative financing arrangements will need to be evolved. Bridging the gap between infrastructure and service is a challenging task and will require a serious adjustment, both by the Central and State governments, of policies, institutional arrangements and financial incentives. The report includes a series of recommendations that could help us to shape the design of our future programmes in the water and sanitation sector. I am sure that the Central Ministries dealing with the water sector and the State governments will find the report most useful in preparing the road map for the sectors. 27.1.2006 (Kirit S. Parikh) nwjHkk"k +91-11-23096568 VsyhQSDl +91-11-23096569 Telephone: +91-11-23096568 Telefax: +91-11-23096569 e-mail: kirit.parikh@yojana.nic.in Pg 5 ExecutiveSummary Access to Water Supply and Sanitation it could achieve 100% coverage of water supply Infrastructure is increasing... infrastructure if not by 2007, as targeted by the Rajiv Gandhi National Drinking Water Mission, then In urban areas, access to drinking water considered probably by 2012. The rural population share with safe by the Governments standards rose from about access to basic sanitation, which may have been as 82% of the population in 1991 to 90% in 2001. low as 5% in 1990, rose to about 20% in 2001 and This figure, which includes access to non-piped water, is currently about 35%. If it is to reach about 55% at could rapidly reach 100%, consistent with the the end of the 12th Plan to meet the MDG target, India objective of the Ministry of Urban Development to may currently be somewhat behind. Meeting the MDG achieve 100% coverage in 2007 (end of the 10th target in rural areas would require investment of about Plan). But in an urban environment non-piped water Rs 240 billion (US$6 billion) for each of the 11th and may not be considered a safe source. Thus progress 12th Plans. toward Target 10 of the Millennium Development Goals (MDG) of halving by 2015 the proportion of ...but access to reliable, sustainable, and affordable people without sustainable access to safe drinking water supply and sanitation service is lagging behind. water and basic sanitation (in 1990) would need to be measured on the basis of access to piped water. This Reliable? Whether in small towns, mega-cities, single- indicator, which was about 65% in 1990, would need village or multi-village schemes piped water is usually to reach about 87% by the end of the 12th .ive-Year distributed for no more than a few hours per day, Plan (2017) if India is to meet the MDG target. With regardless of the quantity available. In urban areas, raw access to piped water of about 74% in 2001 India sewage often overflows into open drains because appears to be on track to achieve the MDG. The urban sewers are blocked or pumping stations not population share with access to basic sanitation, which functioning. In rural areas handpumps can remain out rose from 43% in 1990 to about 62% in 2001, is of order for months, while latrines too often are used likely to improve to about 82% at the end of the for purposes other than that for which they were 12th Plan, thus exceeding the theoretical MDG target designed. Many rural habitations have slipped back to of about 72%. Based on preliminary estimates, not covered or partially covered status, mainly due meeting the MDG target in urban areas would to sources going dry, or systems working below require investment of about Rs 695 billion and capacity due to poor operation and maintenance. Rs 875 billion (US$16 billion and US$21 billion) for the 11th and 12th Plans1. .inancially Sustainable? A few mega-cities recover from user charges the full cost of water supply and In rural areas access to drinking water increased from sanitation service, including operation and maintenance about 65% of the population in 1990 to about 90% and capital costs. But most urban operations and all in 2001. Thus it appears likely that if India sustains rural schemes still survive on large operating subsidies investment at a level similar to that of the past decade, and/or capital grants provided by the States. 1 All figures are in 2001 rupees. The exchange rate used is US$1.00 = Rs 42.5. Pg 6 India Water Supply and Sanitation BRIDGING THE GAP BETWEEN IN.RASTRUCTURE AND SERVICE Environmentally Sustainable? Most cities must and expenses of water supply and sanitation compete with the agricultural sector to secure surface operations would need to be separated from those of water rights and tend to deplete local aquifers that the local government and ring-fenced; clarifying the they use as substitute sources; very few cities financial situation of service providers is deemed to be contribute to the abatement of pollution in receiving essential to design appropriate financial recovery bodies. Villages relying on groundwater also suffer programs. To further increase accountability, the from the rapid depletion of aquifers, whose mining for beneficiaries of a nearly free (but very poor-quality) irrigation purposes is encouraged by highly subsidized service would need to be transformed into paying power rates. customers with the right to express concerns and preferences. .inally, the scope for private sector Affordable? Most households, forced to cope with participation needs to be given careful consideration, poor quality water supply and sanitation service, with emphasis on service and management spend time and money on expensive and unsafe contracts, since the main issue is increasing the substitutes and on treatment for waterborne diseases. efficiency of day-to-day operations rather than raising User charges are low by international standards, but commercial financing for extending infrastructure. the cost of the alternatives on which users must rely Especially in the rural water supply and sanitation far exceeds the full cost of providing good quality sector, it is important that demand responsive service. And while the poor may be the intended approaches are adopted. Communities need to be beneficiaries of the low user charges, they suffer most involved in the decision making process, regarding the from the resulting poor quality of service. Due to choice of scheme, planning, design, implementation, inadequate O&M and increasing numbers control of finances and management arrangements. of partially functioning or defunct schemes, the rural Monitoring and evaluation indicators need to be communities revert to conventional substitutes that are specially developed to provide a comprehensive often unsafe. coverage of inputs, processes, outputs and outcomes, related to various interventions for improving service So the true challenge is not to increase access to performance, including periodic feedback from the infrastructure to almost 100% of the population, beneficiary communities. but to increase access to reliable, sustainable, and affordable service. India is unlikely to be able to Achieving .inancial Sustainability. Achieving financial meet this objective unless it adjusts policies, sustainability would require establishing sound institutional arrangements, and financial incentives principles for pricing water supply and sanitation to help improve service delivery... service so as to meet financial, economic, equity and simplicity objectives. Aiming at full recovery of Improving Reliability. Improving the reliability of operation and maintenance costs from user charges by service would require clarifying the roles of the actors the end of the 11th Plan (2012) is probably feasible in the sector (policymakers, regulators, financiers, for both urban and rural service. Going beyond and asset owners, and service operators) and establishing contributing to capital costs could be envisaged in a enforceable contractual relationships between them so second phase; preliminary estimates show that it is as to increase transparency in decision making and likely that user charges needed to cover operation, accountability to end users. In addition, full maintenance and capital costs would, as an average, responsibility for service provision would need to be be lower than those in countries with water and devolved to the lowest appropriate level of sanitation sectors comparable to that of India. The government. As part of this, the function of promoter transition from todays highly subsidized sector to a of infrastructure, now the responsibility of State much less dependent one would need to be financed in engineering agencies, such as Public Health a transparent and targeted manner, with any operating Engineering Departments or State Water Boards, would subsidies still provided by the States linked to actual need to be consolidated with that of provider of improvement in the performance of service providers. service, to ensure that water supply and sanitation Cost reduction programs have to be implemented: projects are implemented at low cost and correspond (i) to reduce operation and maintenance costs: efforts to what service providers can operate. The revenues would need to focus on creating appropriate financial Pg 7 incentives, and the private sector may have an waste water collection as to waste water treatment; a increased role to play; (ii) to reduce capital costs: the large share of the waste water now generated never dimensioning of sector infrastructure should be limited reaches treatment facilities. Infrastructure would need to to what is strictly needed and the quality of be planned to achieve realistic environmental objectives: construction should be improved to extend useful life waste water treatment to the highest level often fails to of assets; and (iii) to reduce financing costs: financing improve the water quality in the receiving bodies enough conditions should be adapted to the sectors debt to be economically justified. .or rural water supply, an servicing capacity. State financing programs would effective water quality monitoring and surveillance need to be designed to support the recovery of the program needs to be institutionalized. .inally, efforts to urban water supply and sanitation sector, not merely support collective behavioral change toward better to fill gaps in infrastructure. The role of the sanitation practices should be continued, particularly Government of India in supporting the reform should those aimed at eliminating open defecation. be extended: a financing mechanism similar to the rural sectors Swajaldhara can be created for the urban Improving Affordability. Improving the affordability of sector, under the National Urban Renewal Mission. service would require reducing costs, as already .inally, external financing needs would have to be mentioned above. Cost recovery strategies would need harnessed primarily to support implementation of new to include transparent, well-targeted subsidies for the policies, institutional arrangements, and fiscal poor, both to help obtain connections to service and to incentives, not just to rehabilitate and extend encourage the consumption of a minimum quantity of infrastructure. In the rural water supply and sanitation water. It is important that rural communities and sector, it is important to shift the O&M responsibility Panchayati Raj Institutions have a complete of handpumps, single village schemes, and intra- understanding of the various technology options. village network (multi-village schemes) to the VWSCs The selection of water supply technology should be (under the aegis of the Gram Panchayat) to improve determined by a number of factors, such as technical O&M cost recovery and collection efficiency. feasibility, user preferences and requirements, combined with willingness to contribute towards Achieving Environmental Sustainability. To achieve capital and O&M cost. environmental sustainability, bulk water would need to be priced according to sound economic principles, to ...and build the capacity now lacking. give consumers the right signals about the actual cost of this increasingly scarce commodity. Water rights In the urban water supply and sanitation sector an would need to be strengthened and water rights markets important step toward building capacity would be to developed to allow water-starved cities an official access create an identity for the Urban Water Supply and to water resources that are now used, often inefficiently, Sanitation industry. A professional association of by agriculture, and to ensure proper compensation of service providers could play a key role in disseminating farmers. Depletion of groundwater, still the main source best practices, implementing full scale benchmarking, of water for rural schemes, would need to be limited by and providing training and certification for sector pricing the electricity delivered to farmers according to professionals. Training institutions would need to sound principles and ensuring that power bills are adapt their programs, currently focused mainly on actually paid. Groundwater recharge activities are technical design issues, to the new needs of the urban required to address the source sustainability issues in sector. And special information programs would need over-exploited or critical aquifers. Given the to be developed for key stakeholders, i.e., local conflicting groundwater demand from irrigation, industry politicians, consumer associations, and the many non- and drinking water, there is an urgent need for State governmental organizations with a special interest in level regulatory agencies with specific mandates for water supply and sanitation. In the rural sector special water resource management and regulation of training programs would also need to be developed to exploitation of groundwater. Water quality would need build the capacity of local governments (Panchayati Raj to be protected by paying as much attention to proper Institutions) and the village water supply committees. Pg 8 Chapter 1 Assessing Progress in Extending Access to Infrastructure and Service India is making good progress in increasing access to MDG target of access to WSS service without changes Water Supply and Sanitation (WSS) infrastructure in in policies, institutional arrangements, and financial both urban and rural areas, but is lagging behind in incentives. While most of the reports expanding access to service that is reliable, sustainable recommendations for such changes are well accepted and affordable. This report analyzes the main reasons in India, they have not yet been consistently for the gap between infrastructure and service and implemented. presents a series of recommendations for gradually improving the reliability, sustainability and affordability Growing Access to WSS Infrastructure of the WSS service. The report draws on the findings and recommendations of two background papers on the urban and rural WSS sectors (World Bank 2005a, The Urban Sector b) and takes into account the comments received from Some 5,161 of Indias cities and towns, including the Planning Commission, the Ministry of Urban 423 class 1 cities with a population of 100,000 or Development (MoUD), the Rajiv Gandhi National more, have piped water systems, mostly designed Drinking Water Mission (RGNDWM) and several other according to standards set by the Bureau of Indian agencies which participated in a workshop organized in Standards (BIS)2. There are no global statistics on, for Delhi in October 2005. example, the number of connections served or the length of the distribution networks. Also, since The exercise was prompted by a critical question: can metering is either non-existent or unreliable, the India meet Target 10 of the Millennium Development volumes of water produced and consumed cannot be Goals (MDG) of halving, by 2015, the proportion of accurately estimated. Piped water systems are known people who had no sustainable access to safe drinking to be highly inefficient, with non revenue water water and basic sanitation in 1990? The report (NRW)3 typically averaging 40 to 50% of production. concludes that access to WSS infrastructure is likely to All class 1 cities are equipped with a sewerage increase regularly if India sustains its current level of system, but the number of other cities and towns investment. Nevertheless, India is unlikely to meet the equipped is not known precisely; only about 2Per capita norms are as follows: (i) metro cities with sewerage system: 150 lpcd; (ii) towns and cities with sewerage system: 135 lpcd; (iii) towns and cities without sewerage system: 70 lpcd; (iv) population covered by public standpipes: 40 lpcd. 3NRW includes unbilled, metered consumption; unbilled, unmetered consumption; unauthorized consumption; metering inaccuracies; leaks in transmission mains; leaks and overflows in service reservoirs; and leaks in distribution mains and service connections up to the meter. Pg 9 700 cities treat their effluent before disposal in about Rs 150 billion (US$3.5 billion) to the sector. the environment. No consolidated data is available on the outstanding debt of the urban WSS sector. There are no statistics on the size of the staff employed by the urban WSS sector and the State A recent attempt to benchmark the performance of engineering agencies that design and implement urban selected WSS service providers has highlighted the WSS projects, but most large WSS service providers paucity of data available, beyond data on infrastructure employ more than 10 staff per 1,000 water capacity, to help efficiently monitor progress toward connections (and sometimes significantly more), way reliability, sustainability, and affordability of the WSS above international best practice of 2 to 4. The service. training provided in the sector is traditionally oriented toward technical design issues. Current Access to Infrastructure. According to the 2001 census, about 90% of Indias urban population Urban WSS is the responsibility of the States, which (252 million of the total 280 million) had access to provide most of the funds for developing a source of drinking water considered safe by infrastructure; programs sponsored by the Government GoI standards, up from about 82% (177 million of of India (GoI) contribute only limited financing. 217 million) in 1991. About 50% of the urban Revenues fall far short of costs: average operating population (140 million) had direct connections to costs are estimated at around Rs 6.5 per cubic meter distribution networks, up from about 42% (92 million) (US$0.15/m3), and average revenue from user charges in 1991 and another 24% (67 million) access to at only about Rs 2.5 per cubic meter (US$0.06/m3). public standpipes. About 16% (46 million) had access Thus, the urban WSS sector survives on large to other improved sources, such as wells or operating subsidies and capital grants from the States. boreholes equipped with hand or motorized pumps States also guarantee loans made by the Housing and (.igure 1). Also in 2001, about 62% of the urban Urban Development Corporation (HUDCO) to develop population (182 million of the 280 million) had access new WSS infrastructure; this agency has so far lent to adequate sanitation, up from 43% (95 million) in .igure 1 : Steady Growth in Urban Population with Access to Improved Drinking Water Sources 100 90 Access to improved drinking 80 water source Household connections coverage 70 Trend (access to improved drinking water source) Trend (household connections) Percentage60 50 40 1988 1990 1992 1994 1996 1998 2000 2002 2004 Source: .or 1991, Census of India; for 1993, Demographic and Health Survey 1992/93 and National Sample Survey Organization (NSSO); for 1996, NSSO; for 1999, National .amily Health Survey 1998/99; for 2000, Multi-Indicator Cluster Survey. Pg 10 India Water Supply and Sanitation BRIDGING THE GAP BETWEEN IN.RASTRUCTURE AND SERVICE .igure 2 : Progress and Slippage: Change in Access to Piped Water in Urban Areas Between 1991 and 2001 Percentage change in population share with access 60 Nadu Tamil Pradesh Pradesh 40 Maharashtra Himachal Madhya Kerala 20 Gujarat Punjab India Karnataka All Rajasthan 0 -20 Pradesh Assam Haryana -40 Bengal Andhra Bihar West -60 Orissa Note: Piped access includes pipes both within and away from the premises. Source: Census of India 1991 and 2001. 1991, with an estimated 36% (100 million) having the early 1990s and the early 2000s (.igure 2). access to sewers and an estimated 29% (82 million) Access to basic sanitation increased from about 43% to septic tanks. Out of the remaining 98 million, about in 1990 to about 62% in 2001; it is likely that the half had access to pit latrines and community toilets theoretical MDG target of 71% for the end of the 12th and about half had no access to sanitation. Plan would be exceeded and that coverage would reach about 82%. It is estimated that access to sewers .uture Access to WSS Infrastructure. India has made would evolve from about 36% in 2002 to about 52% good progress since the early 1990s in developing in 2017. Table 1 summarizes assumptions made with WSS infrastructure in urban areas. But whether it is on regards to future access to various sources of water track to meet the MDG target depends on whether and type of sanitation. non-piped water can be considered a safe source of drinking water in an urban environment. If so, the The Rural Sector share of the urban population with access to safe water, which rose from about 82% in 1991 to 90% Rural WSS is also a State responsibility. But the GoI, in 2001, could possibly reach 100% in the next through Swajaldhara, a program that advocates for 10 years or so, consistent with MoUD objective of decentralized service delivery and community achieving 100% coverage in 2007. But if, as this participation in the project cycle, contributes about report recommends, non-piped water is not considered 10% of the overall investment program. Although a safe source, progress needs to be measured on the service provision is supposed to be decentralized to basis of access to piped water. Access to piped water local governments, most of the work of designing, would need to increase from slightly less than 65% in implementing, and operating WSS schemes is still 1990 to about 87% at the end of the 12th Plan, or carried out by State engineering agencies such as 2017. With the 2001 census showing an estimated Public Health Engineering Departments (PHED) and 74% of the urban population having access to piped State Water Boards. States provide substantial water, India seems to be on track to achieving the operating subsidies, as cost recovery is limited, in MDG target; however there is evidence that piped addition to large development grants. The monitoring water coverage has slipped in several States between and evaluation (M&E) mechanism in place captures Pg 11 primarily progress in construction and the access to adequate wastewater and excreta disposal disbursement of funds at the State and central levels; it facilities. does not assess the functionality of the schemes and performance of the service. An exception is the Total .uture Access to Infrastructure. The RGNDWM sets an Sanitation Campaign (TSC), which evaluates sanitation objective of extending access to water supply schemes by looking at their outcome indicators. infrastructure to 100% of the rural population by 2007. The expansion of coverage from about 65% of Current Access to Infrastructure. Coverage of the rural the rural population in 1990 to about 90% in 2001 population by water supply infrastructure has suggests that this objective can clearly be achieved, if increased steadily in recent years (.igure 3). According not in 2007 probably in 2012, if an investment level to census data, about 90% of the rural population similar to that of the past decade is sustained. .or (665 million out of the total 740 million) had access sanitation, where only 5% of the rural population had to a safe source of drinking water in 2001, much access to infrastructure in 1990, a reasonable higher than the 65% (425 million out of 642 million) objective would be to reach 55% at the end of the in 1991. In 2001 about 43% of the rural population 12th, or 2017. This implies that the coverage ratio (about 320 million out of 740 million) was served by should have been in the range of 27% in 2001. 3.5 million community handpumps, and several million According to the 2001 census, the actual coverage household handpumps were still used in areas with ratio was 20%, indicating that India may be somewhat high water tables. In addition, 6% had access to behind. tubewells and mini water supplies, and 24% to single- village or multi-village schemes. Systems are generally .uture Capital Expenditure Requirements. Table 1 designed to provide an average of 40 liters per capita compares targeted access rates under the MDG (for per day4. On the sanitation front, the 2001 census 2017) and stated objectives of GoI agencies in charge shows 20% of the rural population (135 million) with of the WSS sector for 2007. Table 2 gives an .igure 3 : Growing Access to Rural Water Supply Infrastructure Percentage of rural population 100 90 .ully Covered 80 70 60 50 40 30 Partly Covered 20 10 Not Covered 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: Ministry of Rural Development 1996; Planning Commission, Annual Plan 2002; and Rajiv Gandhi National Drinking Water Mission, 2003 and 2004 Habitation Surveys. 4Access to rural water supply infrastructure is defined as access to an average of 40 liters per capita a day within a distance of 1.6 kilometers or, in hilly areas, within an elevation of 100 meters. Pg 12 India Water Supply and Sanitation BRIDGING THE GAP BETWEEN IN.RASTRUCTURE AND SERVICE Table 1 : Actual and Targeted Access to Water Supply and Sanitation Infrastructure at the End of .ive-Year Plan Periods 1992 1997 2002 2007 2012 2017 Total population million 850 940 1,030 1,110 1,200 1,300 Urban Sector Population million 210 250 290 350 420 500 Access to safe water million 173 213 264 334 420 500 Access to piped water million 136 171 218 277 349 435 Individual connections million 90 115 148 200 265 345 Public standpipes million 46 56 70 77 84 90 Access to improved sanitation million 152 189 238 306 386 486 Access to sewers million 53 76 104 144 193 260 Access to septic tanks million 44 58 79 102 126 148 Access to latrines million 55 55 55 60 67 78 Rural Sector Population million 640 700 740 760 780 800 Access to safe water million 420 542 684 726 764 800 Access to improved sanitation million 37 68 150 234 335 425 Source: .or 1992 and 2002 estimates from the 1991 and 2001 Census of India; for targets, World Bank staff forecasts. estimate of the capital expenditures be required to meet devote another 0.25% of its GDP to supporting its the MDG target based standard unit costs consistent WSS sector. with that suggested by the Central Public Health and Environmental Engineering Organization (CPHEEO). Lagging Access to Reliable, Sustainable According to this calculation, India would have to invest about Rs 935 billion (US$22 billion, or an and Affordable Service average US$4.4 billion/year) and Rs 1,115 billion (US$26.25 billion, or US$5.25 billion/year) The MDG Target 10 refers to sustainable access to respectively during the 11th (2007-2012) and 12th safe drinking water and basic sanitation, not simply Plans (2012-2017). This would represent an average access to WSS infrastructure. The quality of the 0.55% of Indias GDP during the ten-year period current WSS service in India is assessed against four extending from 2007 to 2017. These percentages are key criteria: reliability, financial sustainability, higher than that estimated for the 8th and 9th Plans environmental sustainability and affordability. (0.32% and 0.34% respectively) but lower than that of the 10th Plan (0.64%)5. If only 40% of operation Reliability refers mostly to the permanence of the water and maintenance (O&M) costs are recovered from user supply and the safe removal of wastewater and excreta charges, as is the case today, India would have to from the immediate environment. In India, whether in 5Estimates using a different methodology suggest that, in order to sustain a growth rate of its GDP of about 7.5% between 2006 and 2010, India should spend about 8% of its GDP for developing infrastructure, of which 1% for WSS. About half of the future investment for WSS would have to be devoted to replacing existing assets. .or the purpose of discussing cost recovery strategies this paper uses the estimates given in Table 2. Pg 13 Table 2 : Expenditures Required to Meet MDG Target Actual and Projected Spending Requirements (2001 Rs billions, unless otherwise specified)a 199297 199702 200207 200712 201217 Urban areas Capital expenditure Water supply 310 385 470 Sanitation 230 310 405 Total 60 117 540 695 875 O&M costs 295 415 575 Rural areas Capital expenditure Water supply 100 198 225 195 195 Sanitation 7 12 50 45 45 Total 107 210 275 240 240 O&M costs 255 270 280 Total Capital expenditure 167 327 815 935 1,115 O&M costs 550 685 855 Capital expenditure 19.2 22.0 26.2 (US$ billion) GDP 52,000 95,000 127,500 170,000 210,000 Capital expenditure as % of GDP 0.32 0.34 0.64 0.55 0.53 Not available. aAll rupee values are shown in 2001 rupees. All dollar values are converted at the exchange rate US$1 = Rs 42.5. The projected investment figures are based on available information and maybe on the lower side as future GoI programs develop. The rural water supply and sanitation is a dynamic sector with periodic changes due to groundwater depletion, floods, droughts etc., and keeping these in view the GoI has increased investment in the rural water supply sector by 40% over the last year, raising it from Rs 29 billion to Rs 40 billion in 2005-06. .urther, under Bharat Nirman the aim is to cover uncovered habitations, slipped back habitations and habitations affected by poor water quality. GoI is moving forward to address reliability and sustainability issues by addressing groundwater depletion through water recharge & watershed programs, as well as conjunctive use of surface and groundwater. The affordability issues are being tackled by increasing community participation in the selection and design of schemes. GoI is targeting 100% sanitation infrastructure coverage by 2012 and has increased allocation by 75% over the past year from Rs 4 billion in 2004-05 to Rs 7 billion in 2005-06. GoI is taking up awareness campaigns for changing mind-sets, along with a major role for panchayats and local institutions for social mobilization. urban or rural areas, the WSS service provided than a few hours a day, whether in small towns, in today fails the reliability test. Indeed, there is even multi-village schemes, or even in class 1 cities and evidence that the quality of service is deteriorating. mega-cities (.igure 4)6. Handpumps, which still In many cities, for example, the number of hours serve half the rural population, can remain out of during which water is available has recently order for months before being repaired by state decreased. Regardless of the quantity of water agencies. In urban areas raw sewage often available, piped water is never distributed for more overflows into open drains because sewers are 6Limiting the hours of water distribution has adverse effects: it creates high risks of contamination of the water distributed; forces customers to cope with the intermittent service by installing booster pumps, storage reservoirs, and purification equipment or by developing their own water source (backyard well or borehole); and leads to significant waste because customers usually leave their tap open waiting for the water to come. Pg 14 India Water Supply and Sanitation BRIDGING THE GAP BETWEEN IN.RASTRUCTURE AND SERVICE .igure 4 : Availability of Water (hours/day) benefit better-off customers rather than the poorest who often lack access to public WSS. 300 Environmental Sustainability means proper recharge of aquifers and reservoirs, robust water rights, and the 250 Delhi Mumbai capacity to protect water quality against increasing domestic, agricultural, and industrial pollution. In India 200 the WSS service seldom meets this criteria. Most cities 150 Ahmedabad must compete with the agricultural sector to secure lpcd Bangalore water rights and insufficient allocation of surface water 100 often leads to over-exploitation of local aquifers. Very few cities are able to contribute to the abatement of 50 pollution in receiving bodies. Villages relying on Chennai groundwater suffer from the rapid depletion of 0 aquifers, whose mining for irrigation purposes is 0 2 4 6 encouraged by highly subsidized power rates; as a hours/day result many villages are now forced to develop much more expensive multi-village schemes based on surface Source: Water and Sanitation Program South Asia, Benchmarking Project water. Affordability is measured by comparing the blocked or because pumping stations are not combined cost of primary and substitute WSS functioning as a result of unreliable power supply. services with the cost of public services that meet Rural latrines are too often used for purposes (such good quality standards and for which user charges as storage) other than that for which they are cover the full (O&M and capital) costs. Most intended, and open defecation is still widespread. households, forced to cope with poor-quality Those who suffer most from all this are the poor, service, spend time and money operating expensive unable to afford the coping mechanisms often substitutes, travel distances to collect water, and adopted to compensate for deficient public service7. incur costs for the treatment of waterborne diseases. Alternative services are always costly, and .inancial Sustainability means the recovery of O&M as household spending on water supply and sanitation well as capital costs from user charges rather than can be 10 times the official water bill. Again, the general taxes. A few mega-cities, such as Mumbai and poor suffer most from the poor quality of service, Chennai, recover the full cost of service from user itself a direct result of the low user charges for charges, but most urban operations and rural schemes, which the poor are the intended beneficiaries. including those relying on handpumps, still survive on operating subsidies, estimated to be of the same order The focus of the report is on "services" rather than of magnitude as capital expenditure. A WSS service "infrastructure" and hence the principles that apply to that relies on permanent operating subsidies cannot be water supply also apply to the waste water services considered financially sustainable. Subsidies are when "WSS" is mentioned. A separate analysis of neither transparent nor targeted and, thus, tend to waste water services has not been attempted. 7In Delhi the cost of coping has been estimated to average Rs 4,000 a year per household for installing and operating substitute sources (storage tanks, booster pumps, purification equipment, backup borehole and motorized pump), excluding the opportunity cost of the time spent. Compare this figure. Pg 15 Chapter 2 Bridging the Gap Between Infrastructure and Service The overview in the previous chapter suggests that the Increase the Accountability of Institutions to true challenge of the MDG target is not to boost the share of population with access to WSS infrastructure Improve the Reliability of Service from an already fairly high level to close to 100% Improving the reliability of the WSS service depends very before the end of the 12th Plan or earlier. Instead, the much upon increasing the accountability of its providers. challenge is to increase the share of the population And achieving this objective depends on a few principles with access to reliable, sustainable, and affordable that apply to both the urban and the rural sector: service from an extremely low level to, say, about 50%. This task is clearly much more difficult, since it Clarify the roles of the actors; requires adjusting policies, institutional arrangements, and fiscal incentives. If GoI continues with Devolve the full responsibility for providing the business as usual, it is unlikely that the MDG target service to the most appropriate level of government; can be met. Ring-fence WSS operations; What India Can Do to Meet the Transform beneficiaries into paying customers; and MDG Target Look for approaches that strengthen performance incentives, including an enhanced private sector To support progress toward the MDG target, this report role. advocates the implementation of widely accepted principles such as the Dublin Principles, the Government Clarify the Roles of the Actors. In urban WSS there is of Indias official policy for rural WSS (Swajaldhara), and often an unhealthy overlap between policymaking, the comments of the Planning Commission in the 10th regulation, financing, ownership of infrastructure, and Plan for urban WSS8.(.or detailed proposals for the operation of service within State agencies responsible urban and rural sectors, see World Bank 2005a and b.) for the two sub-sectors. Essential steps to avoid 8.ormulated in the early 1990s, the Dublin Principles articulate four main themes: the institutional principle, which advocates stakeholder participation, including a greater role for nongovernmental organizations, women, and the private sector; the subsidiarity principle, which calls for managing water supply and sanitation service at the lowest level of government deemed appropriate; the ecological principle, which suggests that water management be designed in a holistic manner to ensure that intersectoral needs are taken into account and environmental consequences properly mitigated; and the instrument principle, which encourages greater attention to the economic value of alternative uses of water resources and the use of economic instruments such as water rights and user charges. Pg 16 India Water Supply and Sanitation BRIDGING THE GAP BETWEEN IN.RASTRUCTURE AND SERVICE conflicts of interest include unbundling these supply driven mode by the State agencies which functions, establishing clear terms of reference, and identify, design, finance, implement and maintain the building accountability mechanisms, preferably within schemes. The current emphasis on targets and norms the framework of enforceable contracts. encourages excessive investment, undermines efficiency, and deters the transfer of ownership to PRIs The rural sector faces a similar need to clarify roles. and communities which should be responsible for Efforts should focus on devolving finances, functions, planning, implementing and maintaining the and functionaries to Panchayati Raj Institutions (PRI) infrastructure. To bridge the water supply infrastructure/ and progressively shifting the role of the State to service gap, it is essential to shift from the target- facilitator, and the role of State engineering agencies oriented supply driven approach to a demand driven from promoter of infrastructure and provider of service approach which provides users with the services they to provider of technical assistance. want and are willing to pay for. The funds, functions Devolve .ull Responsibility for Providing the Service and functionaries should be gradually devolved to the to the Most Appropriate Levels of Government. PRIs and the user communities. Decentralization should Despite constitutional amendments that leave the be accompanied by efforts, by State engineering States free to decide how they wish to transfer agencies or private consultants and professional Non responsibility to local governments for providing WSS Governmental Organizations (NGO) to strengthen the service, State engineering agencies are still very much role of user committees and PRI in the project cycle the driving force behind the development of the WSS from identification to implementation and operation. infrastructure. They design infrastructure, sometimes arrange financing for it, implement infrastructure Ring-fence WSS Operations. In urban areas efforts to projects, and transfer infrastructure to municipal improve WSS service need to go well beyond closing corporations, urban local bodies, or PRI for operation the gap between the demand estimated according to and, if applicable, servicing debt. This arrangement GoI standards and the capacity of the existing provides little incentive for State engineering agencies infrastructure. Unless the WSS service is treated as a to construct cost-effective infrastructure or for local commercial operation, its quality, including that governments to take it over, as evidenced by the provided to the poor, is unlikely to improve. An predominance of expensive multi-village schemes in essential step in this is to separate the accounts of the states where PRI are known to be weak. autonomous local service providers from those of the ULB to which they report. This step is critical even in In the urban sector, Urban Local Bodies (ULB) should rural areas, where international experience has shown create autonomous service providers and give them that separating the accounts of the village water responsibility for selecting WSS projects that they can committee from those of the local government helps afford and can operate technically and commercially; users develop a sense of ownership of the systems this would require consolidating the roles of promoter and improve their O&M. of infrastructure and provider of service at the local level. Smaller ULB should be encouraged to join forces Central and State government funds for capital in WSS syndicates to achieve economies of scale expenditures should be preferably channeled toward and reduce the cost of service provision. State such ring-fenced entities rather than ULB or State engineering agencies should still have a major part to engineering agencies. When preparing financing play, in strengthening the capacity of these local applications for WSS infrastructure rehabilitation and service providers to make informed decisions, prepare extension projects, ring-fenced service providers would financing requests, design and implement projects to need to submit financial recovery programs as part of rehabilitate and extend infrastructure, and operate the their Performance Improvement Plans (PIP) based on WSS service. But such agencies should not be allowed financial forecasts meeting minimum accounting a monopoly, and local service providers should be free standards. .inancing applications would have to be to employ private engineering consultants, selected independently appraised by State agencies responsible through open competition, if they wish. for financing urban WSS projects. As part of this, standard formats for financing applications need to be Similar principles should apply in the rural sector. Rural developed for autonomous service providers, along water supply infrastructure is currently provided in a with standard appraisal procedures for State financing Pg 17 agencies. Service efficiency and financial indicators In the urban sector, experience in various countries would have to be closely monitored by independent has already shown that PSP could be helpful for regulatory mechanisms, most likely to be created at mega-cities as well as for secondary cities and small the State level. Tariffs would have to be proposed by towns, in a number of ways. Autonomous service service providers in accordance with policies to be providers could award service contracts of limited defined by the States and submitted to independent scope for such tasks as detecting and repairing regulatory agencies for review so as to limit political leaks, operating and maintaining pumping stations, influence. or billing and collection local private contractors. Similar contracts could be awarded for village piped Transform Beneficiaries into Paying Customers. water systems. Private operators could also take on International experience shows that urban WSS sectors more comprehensive tasks, such as the technical that are successful always recover their O&M and and commercial operations of a WSS service, under capital costs from user charges. Similarly, successful a medium-term management contract or a lease rural sectors always recover 100% of their O&M costs or affermage contract. Remuneration of operators from user charges and often request contributions to should be linked to their performance. And the capital costs (5 to 10%) in cash or in kind, mainly to performance of the operators should be create a sense of ownership: these principles are part benchmarked to identify the good performers and of the GoI Swajaldhara program. In India, however, the laggards. In the rural sector local retailers could O&M of both urban and rural systems is deficient supply parts, and private mechanics can be trained because revenues from user charges are inadequate by state engineering agencies to maintain and operating subsidies often not available in a handpumps for village water committees, who timely manner. would also finance their services. Despite widespread unwillingness to charge among Schemes to involve the private sector must not neglect politicians, there is evidence of willingness to pay stakeholders. International and recent Indian experience among users, at least when they feel that service has shown that clearly communicating the rationale for providers are genuinely concerned about improving PSP and consulting clients in the basic design of quality. Indeed, transforming beneficiaries of almost schemes are key to success. Also critical is managing free but very poor-quality service into paying expectations about the speed with which service customers of reasonably good service should increase quality can be improved: turning around a poorly accountability: paying customers should, and even performing WSS system takes time. must, have the right to voice their concerns and preferences. In urban areas, they should be represented .igure 5 proposes an operational framework for on the boards of the autonomous service providers so improving accountability of the various actors and that they can participate in decision making. for improving reliability, financial sustainability, environmental sustainability and affordability of the A move toward cost recovery from user charges may urban WSS service. It identifies the various key actors, have to be gradual and linked to improvement in the i.e. the policy maker, the economic regulator, the water quality of service. Thus, operating subsidies may still resource regulator, the owner of the WSS assets, the be necessary but they should be transparent, targeted other users of the water resources, the provider of the and eventually phased out. WSS service and the customers (in ovals) and shows the contractual relationship to be established among Promote Private Sector Participation. Private sector them (in rectangle). participation (PSP) could be helpful to improve the efficiency of service and increase the accountability of When it comes to improved reliability of the WSS service providers, qualities in short supply in both service, figure 5 shows that the key elements to be urban and rural areas today. (But attempts to develop developed are the operation contract between the schemes involving the private sector have so far owner of the WSS assets and the provider of the WSS focused mostly on raising commercial financing to service; the customer contract between the provider develop new infrastructure and limited to operations in of the WSS service and the customer; the feedback enclave projects). mechanism between the customer and the regulator; Pg 18 India Water Supply and Sanitation BRIDGING THE GAP BETWEEN IN.RASTRUCTURE AND SERVICE .igure 5 : Operational .ramework for Improving Accountability in the Urban WSS Sector Policy Maker Economic Regulator Other Water Users ENVIRONMENTAL .INANCIAL Targeted Service Right Subsidies .eedback Monitoring & Tariff Setting Market Water Customer RELIABILITY Owner of WSS Asset SUSTAINABILITY Water Right SUSTAINABILITY .inancing Application A..ORDABILITY Customer Operation .inancing Contract Contract Agreement Independent Appraisal WSS Service Water Resource Provider .inancier Regulator and the service monitoring mechanism between the Referring to .igure 5, key elements of the regulator and the owner of the WSS assets. This accountability framework to achieve financial arrangement can also be implemented when the asset sustainability in the urban WSS sector include the ownership and service provision functions and when definition of sound pricing policies by the policy the policy making and regulatory functions are maker, their enforcement by independent regulators combined, but obviously much less efficiently. and the independent appraisal of applications submitted together with the Performance Improvement Improve the .inancial Sustainability of Plan (PIP) by owners of WSS assets to autonomous the Service financing agencies. Similar principles, including independent appraisal and approval would apply for Efforts to improve the financial sustainability of urban multi-village schemes in the rural WSS sector. It is and rural WSS service should center on several important to shift the O&M responsibility of principles: handpumps, single village schemes, and intra village network (multi-village schemes) to the VWSCs (under Price the WSS service according to sound the aegis of the GPs) to improve O&M cost recovery, principles; collection efficiency and thereby achieve financial sustainability of the schemes in the rural WSS sector. .inance the transition toward full cost recovery in a transparent manner; Price the Service According to Sound Principles. In the urban WSS sector, user charges are currently set by Create financial incentives to reduce O&M, capital, politicians with short-term objectives. They should and financing costs; instead be set by autonomous local service providers according to principles set by policy makers and Expand the role of programs sponsored by the GoI reviewed by independent regulatory mechanisms to be to support reform; and established, in most cases at the State level. Encourage the use of other sources of financing to Best practice suggests that WSS tariffs should meet promote reform. four main principles. .irst, tariffs should meet financial Pg 19 objectives: user charges should eventually cover O&M usual scenario). A better practice scenario envisages costs and yield a return on net fixed assets in (.igure 6) that operating costs (O&M, depreciation and operation sufficient to depreciate assets and cover financing costs) would be recovered from user charges financing costs. Some mega-cities already achieve this, by the end of the 11th Plan (2012) and that thereafter but in most cases user charges do not even cover revenues would be sufficient to contribute about one O&M costs. Second, the tariff structure should be third of the Capex from cash from operations. This simple. Multiplying blocks and rates should be scenario would eventually result in an average tariff of avoided, since it is impossible to design tariffs that Rs 17 per cubic meter (US$0.40/m3), still low by serve every social purpose. In addition, large cross- international standards, and lower than tariffs even in subsidies between industrial and commercial customers countries much poorer than India. and domestic customers should be avoided: if businesses opt out of the WSS service, as is already To support the transition toward full cost recovery, a happening in some cities, the service providers transparent mechanism should be used to assist revenues could drop sharply. Third, tariffs should service providers willing to improve their financial reflect the economic value of water, as reflected by its situation. Support complementing revenues of these long-run marginal cost. Because of the strong providers could be provided as part of Output Based competition for water sources, it is essential that .inancing (OB.) schemes, with payments linked to customers receive the right signals about its economic performance. Service providers submitting financing value and adjust their consumption to what they can applications would need to prepare detailed financial afford. When economic and financial pricing principles forecasts based on realistic assumptions, particularly lead to conflicting results, financial objectives should with regard to reduction of non revenue water (NRW) be given priority. And fourth, tariffs should be as part of their PIP. equitable. Because the provision of drinking water has a strong element of a public good mostly in terms of A similar principle could be applied in the rural sector better public health, it often makes sense to subsidize for piped water schemes whose O&M costs initially lifeline consumption for those who might otherwise be exceed what the operators could reasonably be unable to afford it. The subsidies would need to be expected to recover from users. .or handpump based well targeted and phased out over an agreed period. schemes, still expected to serve an average of 250 million people during the coming decade, one In rural WSS recovering 100% of O&M costs and possible route toward full recovery of O&M costs from requesting small contributions toward capital costs users is to shift responsibility for the maintenance have been shown to lead to sustainable service in function from state agencies to local private artisans. many countries. But in India, despite these principles Replacing handpumps that are out of order with pumps being part of Swajaldhara, there is evidence that they that can be operated and maintained at the village level are not implemented consistently. In particular, energy could aid this devolution of responsibility. bills often are not covered from user charges. It is important that the GPs initiate a payment culture for Create .inancial Incentives to Reduce O&M, Capital, recovering full O&M cost of handpump & simple single and .inancing Costs. Increasing tariffs is not the only village schemes, as well as affordable contributions way to improve cost recovery. Most urban WSS for high cost single and multi-village schemes. operations could achieve significant efficiency gains by Transparent State subsidies (in excess of affordable reducing O&M, capital, and financing costs and household contributions) should be provided for high increasing sales. Besides reducing NRW, PIP should cost single / multi village schemes. focus on increasing energy efficiency and reducing staffing ratios: energy and staff costs account for a .inance the Transition Toward .ull Cost Recovery in a significant share of O&M costs. Because private Transparent Manner. In urban WSS a large gap companies respond much better to financial incentives persists between the costs to be covered and the than public agencies do, properly designed contracts revenues generated from user charges. As a result, if with private operators could greatly help in reducing GoI carries on with business as usual, it will have to O&M costs. To help reduce capital expenditures, provide operating subsidies of the same order of design criteria should be revisited, to ensure that the magnitude as capital grants (.igure 6 business as dimensioning of new assets correspond to the least- Pg 20 India Water Supply and Sanitation BRIDGING THE GAP BETWEEN IN.RASTRUCTURE AND SERVICE cost solution. In addition, the quality of construction purely by engineering concerns, needs to be assessed should be improved to help extend the useful life of by independent technical auditors. WSS assets. To help lower financing costs, most PIP would need to consider the possibility of transforming Expand the Role of Programs Sponsored by GoI to part of the current debt attached to (mostly bankrupt) Support Reform. Programs sponsored by the GoI for WSS operations into State equity. And of course urban WSS have been limited and have tended to future borrowing should be considered only when allocate financial support on the basis of the gap revenues from user charges are sufficient to service between existing infrastructure capacity and future the debt. demand assessed according to BIS norms. Despite clear guidelines to the contrary, the release of funds In the rural sector the key to better use of scarce public has not always been linked to the performance of the funds appears to be ensuring that true demand-driven service providers. Establishing reliable and sustainable approaches are implemented and that communities service will depend on linking the provision of financial make informed choices on the basis of their financial support to the successful implementation of the PIP. contribution. Rural projects should be independently The National Urban Renewal Mission (NURM) is appraised by the financing agencies to ensure that they designed to provide grants to reforming States and correspond to the least-cost solution and that proper local governments, indeed aims at addressing many of arrangements for O&M have been designed. In the shortcomings listed above. To qualify for grants, particular, the justification for more expensive multi- local governments would have to implement basic village schemes, whose choice is sometimes driven reforms such as double entry accounting, improved .igure 6 : Two Cost Recovery Strategies for Urban WSS. Implications for Tariff Support Opex : Operation and maintenance expenditures Capex : Capital expenditures Rs/m3 : Rupees per cubic meter Pg 21 .igure 7 : Changing Allocation of Reform-linked Incentive .unds for Rural Water Supply and Sanitation 100% 80% Central government assistance 60% State funds Swajaldhara 40% State funds (ARWSP) 20% 0% 1 2 3 4 5 Year ARWSP: Accelerated Rural Water Supply Program cost recovery, increased efficiency, pro-poor WSS mostly in mega-cities and large cities. Bonds should be tariff structure, professionalize service providers and secured by revenues generated from user charges seek public private partnerships. Urban WSS, unlike rather than general municipal revenues (such as tax most other municipal functions, is a commercial and octrois), which are not linked to the investment for activity; many countries that have developed a well- which the bonds are issued. performing urban WSS sector have done so by supporting a specific WSS program. The GoI could Improve the Environmental Sustainability consider a special financing window under NURM to provide grants to qualifying WSS service providers as of Service part of a national Urban WSS Recovery Program. The environmental sustainability of the WSS service could be improved by applying a few key principles in In the rural sector, Swajaldhara is a reform-based both the urban and the rural sectors: fund, and its share of financing should increase significantly as the traditional supply-driven (gap Price water according to sound economic based) funds of the Accelerated Rural Water Supply principles; Program (ARWSP) are phased out (.igure 7). To provide further support for reform, special financial Strengthen water rights and develop water markets; incentives could be provided to States for taking up Swajaldhara schemes and scaling up reforms. Limit depletion of groundwater; Use other Sources of .inancing to Complement the Protect water quality; Support for Reform. The discontinuation by the GoI of Plan infrastructure to achieve realistic environmental equity investment in HUDCO shares and the reduction objectives; and by many States of guarantee ceilings on HUDCO loans can only be beneficial, as these changes will compel Support behavioral change toward better sanitation the main provider of debt to the urban WSS sector to practices. enforce stricter appraisal procedures and to scrutinize more closely the PIP submitted by service providers Price Water According to Sound Economic Principles. with their financing applications. .inancing from Protecting a scarce resource increasingly subject to international financial institutions for the urban sector, competing demands requires giving consumers the which has been minimal recently, should be used right signals about its actual cost. .or urban WSS, this primarily as a catalyst for policy, institutional, pricing, usually means using long-run marginal cost (LRMC) and incentive reforms. Capital markets should be pricing. Estimates of LRMC should include the cost of tapped by the few creditworthy WSS operations, addressing environmental externalities, such as the Pg 22 India Water Supply and Sanitation BRIDGING THE GAP BETWEEN IN.RASTRUCTURE AND SERVICE proper collection and disposal of wastewater. But they These conflicts about water rights are mirrored by should exclude operational inefficiencies, such as similar conflicts among user groups within States. high levels of NRW and O&M costs, and capital Sensible trades offer the potential for enormous gains, inefficiencies, such as investments in wastewater but most States have yet to develop mechanisms for infrastructure that are not subjected to the least-cost making informed decisions about proper allocation of test. These inefficiencies should not be passed on to water sources. Drinking water is in theory given first consumers. priority, but farmers, often believing that they will not be properly compensated, are usually reluctant to give Seeking the least cost option is essential for achieving up their rights. economic and environmental sustainability of WSS systems. But in India this type of analysis is seldom Developing markets for water rights is probably the done when planning systems, even in mega-cities. only option that would enable most cities and towns .igure 8 illustrates this problem using the example of to establish environmentally sustainable WSS service. Chennai, a city of six millions people that had suffered Coping strategies, such has heavy reliance on local from recurrent droughts lately. aquifers, obviously have physical limits as well as high financial, economic, and environmental costs. Strengthen Water Rights and Develop Water Markets. Many urban WSS systems rely on surface water Limit Depletion of Groundwater. In urban areas sources that affect several States, but lack of clear depletion and contamination of aquifers has become rules for allocating such water sources among States the norm. Because groundwater abstraction is chiefly a have led to growing conflicts; cities are the first to mechanism to cope with deficient public piped water suffer. Many States pay more attention to laying service, however, improving the performance of WSS claims to future water rights than to using present utilities could help rejuvenate urban aquifers. allocations efficiently: this applies in particular to surplus States that may doubt that they will be In rural areas, highly subsidized power rates for properly compensated by States taking their water. farmers have encouraged the proliferation of motorized .igure 8 : Potential Sources of Water for Chennai of water 400 Supply Desalination sea 60 350 Krishna aquifers 50 300 yeara A-K 40 250 meter meter tank 200 tank 30 cubic cubic Industry of sources per 150 for Veeranam 20 Millions 100 Rupees sewage aquifers Existing Chembaram-Bakkam 50 Palar 10 Recycled 0 0 Raw water supply Cost of water Source: Briscoe 1996. Pg 23 pumps, leading to over-exploitation of aquifers for effective program for monitoring water quality, perhaps irrigation and sometimes to their depletion. Where by outsourcing this function to private laboratories. aquifers are over-exploited wells and boreholes for drinking water have to be deepened and sometimes Plan Infrastructure to Achieve Realistic Environmental abandoned and to be replaced by more expensive Objectives. Despite substantial investments in piped schemes relying on surface water. Most wastewater collection, treatment, and disposal States are addressing the depletion issue by taking throughout India, the environmental condition of water up groundwater recharge initiatives, but these bodies in and near urban areas remains very poor. programs may not increase the supply of drinking The reasons commonly cited include explosive urban water unless groundwater management activities are growth and financial constraints that limit both new simultaneously undertaken for overexploited investment in wastewater infrastructure and adequate aquifers. Also critical is to implement a more operation and maintenance of existing systems. Yet transparent and targeted power subsidy mechanism there is growing recognition that the primary reason is for agriculture in compliance with the recently a chronic lack of strategic sanitation planning. passed Electricity Act, which mandates the metering Investments are typically made in an ad-hoc way and of electricity supplied to farmers within two years. often at high cost to meet effluent standards. Little In addition, assessments of the availability of attention is paid to ensuring cost-effectiveness in groundwater by the water resources departments achieving environmental objectives, which tend to be should be shared with PRI so that they can ensure vague and unrealistic, nor to comparing the cost of that local agricultural practices are adapted to improving pollution control infrastructure with the sustainable water use. A few States have enacted expected environmental benefits. groundwater acts, but enforcement has been problematic and independent regulators need to be To address these planning weaknesses, objective established to help resolve disputes. methods should be developed for analyzing wastewater schemes and comparing the benefits of Protect Water Quality. Water quality has deteriorated in different options at the catchment or river basin level. many receiving bodies as a result of uncontrolled To aid decision makers, possible schemes should be discharges of raw domestic or industrial wastewater as ranked on the basis of their environmental benefits well as agricultural runoff. In urban areas, the solution relative to their financial costs. too often has been to build more wastewater treatment infrastructure rather than to improve the collection of Another environmental issue often overlooked in sector wastewater. In many cities, only a fraction of the planning is the disposal of sludge. Strategic sludge wastewater generated and discharged into sewers management plans, considering both utilization and actually reaches the treatment facilities, because disposal of sludge, should be developed as part of any sewers are silted up as a result of poor maintenance water supply and sanitation scheme. and because the operation of pumping stations is hampered by unreliable power supply. Thus the Support Behavioral Change Toward Better Sanitation solution of building more treatment capacity has Practices. To improve sanitation coverage and practices seldom been successful. River basin agencies, the in rural areas, the Total Sanitation Campaign (TSC) proper mechanism for addressing comprehensive promotes sanitation facilities and works to eradicate improvement of water quality, have been created on open defecation. The TSC has just started, however, paper but do not yet exist in reality. and effective implementation and scaling up will be required to realize its full potential. The campaign In rural areas, despite the launching of a Water Quality focuses on the provision of low-cost sanitation options Monitoring and Surveillance Program, State-level (household latrines, community sanitary complexes, agencies rarely have a well-defined mandate, or Anganwadi toilets) and the use of information, sufficient budget and qualified staff, for routine education, and communication materials to trigger monitoring of water quality. As a result, WSS behavioral change. It also provides rural sanitary marts departments must rely on sporadic information and production centers of latrine slabs, to be operated collected by health departments. To ensure safe water on a commercial basis by NGOs or PRI. In another effort, in communities, States need to institutionalize an the GoI has launched the Nirmal Gram Puruskar Pg 24 India Water Supply and Sanitation BRIDGING THE GAP BETWEEN IN.RASTRUCTURE AND SERVICE (Incentive Cash Reward) to recognize efforts by related to the depletion of aquifers and public health. individuals and PRI and other institutions that have This assessment should support a more aggressive contributed significantly to full sanitation coverage. move toward internationally accepted water distribution standards; piped water can be safely Improve the Affordability of Service distributed only if provided 24 hours a day, seven A few common principles, applied to both the urban days a week. and the rural WSS sector, could improve the affordability of service, allowing consumers to In the rural sector an independent exercise could abandon costly and unsafe substitutes: investigate technology and O&M options for handpump-based schemes, again by thoroughly Reduce costs by adapting design criteria and comparing investment and O&M costs. Multi-village technology; schemes should be implemented only when independent technical audits have proved that more Reduce costs by adapting operation and affordable single-village schemes are not possible. maintenance arrangements; and Reduce Costs by Adapting O&M Arrangements. Implement a cost recovery strategy adapted to the .ighting inefficiencies built into systems by perverse poor. incentives is essential to achieve sustainability. In urban WSS, this calls for preparing programs to Going back to .igure 5, key elements of the reduce NRW, increase energy efficiency, and adjust accountability framework to achieve affordability in the staffing as part of PIP, and supporting these urban WSS sector include the pricing and subsidy programs through OB. schemes to be provided by policy to be defined by the policy maker, its the States. .or most service providers, a key enforcement by the independent regulator, the element of financial recovery is likely to be operation contract between the owner of the WSS improving metering, billing, and collection and assets and the provider of the WSS service aimed at regularizing illegal connections, all activities in improving efficiency and reducing O&M costs, and which the private sector could be helpful. All this the feedback mechanism between the customers and should be facilitated by consolidating the role of the regulator. promoter of infrastructure with that of provider of service and decentralizing these responsibilities Reduce Costs by Adapting Design Criteria and to the lowest appropriate level of government. Technology. In the urban sector, design criteria for water production and distribution systems as well as Similarly in rural WSS, adopting demand-driven wastewater collection and disposal facilities should be approaches and transferring O&M responsibilities to revisited. Least-cost options for all assets, but PRI and village water committees should result in particularly for wastewater treatment facilities, need to significant savings. This is particularly true for large be identified by comparing discounted values of multi-village schemes, which should be designed investment and operation and maintenance costs. and managed more as simplified urban water There is a clear need to develop a systematic metering supply schemes than as upgraded rural water program to monitor water production and supply schemes. consumption, and to assess the elasticity of demand to pricing, since highly subsidized user charges Implement a Cost Recovery Strategy Adapted to the encourage high consumption and waste. There is also Poor. The poor suffer most from current pricing a need to assess the costs of intermittent water practices that are portrayed as specifically aimed at supply: (i) the technical cost, particularly when water benefiting them. In urban WSS these pricing practices production is sufficient: distributing 250 lpcd in four involve implicit and untargeted subsidies that not only hours clearly requires larger pipes, pumping equipment are inefficient but also benefit mostly better-off and storage capacity than distributing the same customers able and willing to pay for service. amount in 24 hours; (ii) the direct coping costs for Moreover, the subsidized prices seldom support customers; and (iii) the indirect costs, such at those improvement in sector performance. Pg 25 Tariffs should be designed to ensure that the poor recruitment freeze in effect since the mid-1990s has have access to a minimum amount of service through prevented the injection of new skills to add to those connection to a piped water supply. Because of health (mostly engineering) typically available in Indian WSS externalities, subsidizing minimum consumption of service providers. Even if the sector were able to water through targeted subsidies may be economically recruit, it would have to compete with other sectors to efficient9. The tariff for low-income customers should be attract good professionals with the skills now missing, based on a detailed assessment of willingness to pay, such as in accounting, customer relations, commercial and the lifeline tariff should be set at a level comparable management, and information technology. PSP may to O&M costs to avoid creating a financial disincentive well be the only option now available to address to providing service. Since a direct connection to piped this issue. water is strongly correlated with household income, reducing the initial connection fee is an efficient way to A professional association of service providers could promote consumption of piped water. work to help improve the image of the urban WSS industry so as to help attract skilled professionals. Good subsidies are transparent, targeted, linked to The association could also do important work by performance, and time limited, objectives easier to disseminating best practices in O&M , initiating full- achieve through output- rather than input-based scale performance benchmarking, and organizing financing. Since the issue at stake in India is provision training and certification of utility managers and key of service rather than of infrastructure, linking OB. to professionals. The Indian Water Works Association water actually delivered to poor customers is likely to could play a role in the creation of such an association. be more productive than linking it to, say, the number of connections made available to them. OB. is even Adapt Training Programs to the New Needs of the more efficient if subject to competition and associated Urban WSS Sector. The training programs now with bidding for contracts by private operators. provided by specialized institutions need major Build the Capacity of the WSS Sector revision and updating, to broaden their content and their target audiences. In addition, as service providers The WSS sector faces formidable challenges, as progressively engage in reform, the training rate must outlined above. To build the sectors capacity to be greatly accelerated to meet demand. With the global address those challenges, the following actions WSS community possessing a great deal of learning are recommended: and capacity building material, one way to update curricula and scale up delivery would be to establish Build an identity for the urban WSS industry; partnerships with training institutions in other countries. As Indias training institutions expand their Adapt training programs to the new needs of the urban WSS sector; programs, their capacity to assess stakeholder needs and provide the full range of capacity building services required will need to be evaluated and strengthened. Develop special information programs for key stakeholders; and Courses should be developed on general industry topics, such as regulation, institutional options, PSP , Build the capacity of PRI. and monitoring and evaluation, as well as more utility- specific ones, such as marketing, benchmarking, Build an Identity for the Urban WSS Industry. This creditworthiness, water audit, tariff structures, asset report argues that the provision of reliable, sustainable, management, and NRW reduction. Capacity building and affordable urban WSS service can be achieved programs should also be developed for large WSS only by creating autonomous, ring-fenced service boards that may face the challenge of securing bulk providers at the most appropriate level of government. water in such areas as public awareness of water The urban WSS industry needs not only adequate scarcity, interstate water transfer and negotiations, and policies but also well-trained human resources. The water trading and swaps with other sectors. 9Say, up to 6 cubic meters a month, corresponding to about 40 liters per capita a day for a household of five. Pg 26 India Water Supply and Sanitation BRIDGING THE GAP BETWEEN IN.RASTRUCTURE AND SERVICE Develop Special Information Programs for Key consumers, consulting firms, and the community of Stakeholders. Also essential is to build the capacity of water supply and sanitation professionals. Special all stakeholders to understand and support the attention also should be paid to small-scale local proposed sector reforms. Attention should be focused private service providers, which could play a key role on such key stakeholders as the media, consumer in the delivery of services in small towns. associations, local and state-level politicians, NGO advocating improved service for the poor, and NGOs Build the Capacity of PRI. State governments need to opposed to any form of private sector participation. organize special training programs to build the capacity Messages and delivery mechanisms would need to be of PRI to plan, implement, and operate rural schemes. tailored to each audience. In addition, training The training programs should cover simple water institutions should design targeted programs that quality testing, promotion of sanitation and hygiene, include training of trainers, to expand the reach of monitoring and evaluation of schemes, and financial, information programs to such stakeholders as accounting, and disbursement systems. Pg 27 References World Bank 2005a. India Water Supply and World Bank. 2005b. India Water Supply and Sanitation: Bridging the Gap between Infrastructure Sanitation: Bridging the Gap between Infrastructure and Service Background Paper: Urban Water and Service Background Paper: Rural Water Supply and Sanitation Sector. South Asia Region, Supply and Sanitation Sector. South Asia Region, Washington, D.C. Washington, D.C. Pg 28 The World Bank 70, Lodi Estate New Delhi - 110003 Tel: (91-11) 2461-7241 .ax: (91-11) 2461-9393 Photo Credits: Suchitra Chauhan, Guy Stubbs/WSP-SA, Indo-USAID Website: http://www.worldbank.org Designed and produced by: Roots Advertising Services Pvt. Ltd.