Feature stories WATER 46226 ISSUE 9 | March 2006 Visible Service Improvements Facilitate Reforms in Town Water Supply: PRAGUAS in Ecuador I n 2001, the government of Ecuador, with financ- ments--and the lack of financing for both water ing from the World Bank, started assisting mu- boards and municipal departments. An adjustable nicipalities and local communities to carry out the US$ 130 million IBRD loan supports PRAGUAS. Rural and Small Town Water Supply and Sanitation Municipalities and communities match these funds Project (PRAGUAS). By 2005, PRAGUAS had im- by a contribution of US$ 80 million. The program proved WSS services for over 250,000 people. The also supports the central government in the imple- town component of the project supports municipali- mentation of an overall WSS sector reform pro- ties which are willing to make their utilities more au- gram, covering both urban and rural areas. tonomous and to raise tariffs to obtain quick service improvements and choose their own management models. PRAGUAS has become the government's PROJECT FINANCING primary vehicle for addressing challenges in the wa- ter supply and sanitation sector. PRAGUAS contains a component specifically fo- cused on town WSS. The component combines financial incentives, technical support, and financing REsPONdING TO for quick service improvements. dECENTRAlIzATION PRAGUAS set up a bold incentive framework for WSS investment from the central government In the 1990's the Government of Ecuador decided to municipalities. Loan proceeds are provided as to decentralize the responsibility for the operation grants to municipalities that delegate WSS service and maintenance of water supply and sanitation provision to more autonomous and accountable (WSS) systems to municipalities and communities. service providers (public, private, cooperative, et- In practice, this meant that municipal govern- cetera). In addition, municipalities must set tariff ment departments provided water supply services in levels that cover at least operation, maintenance urban areas. In rural areas, water boards were set and replacement costs with adequate provisions for up to provide water services and occasionally sew- protecting low-income consumers. Incentive pay- erage.The PRAGUAS project was designed against ments are set up as matching grants. Resources the backdrop of decentralization as well as Ecua- can be used both for engineering designs and for dor's socio-economic crisis. goods and civil works. The objective of PRAGUAS is to increase the To help small municipalities in selecting a suit- coverage and effective use of sustainable WSS able management model for their WSS services, services. It focuses on rural areas and small towns PRAGUAS also provides technical assistance to where two thirds of the country's poor reside. municipalities. This is done throughout the process PRAGUAS tackles two interdependent problems in of model assessment, design and adoption. This in- providing WSS services: the limited autonomy of cludes support for preparing bidding documents for municipal water and sanitation departments--which goods and works and for screening and selecting often share staff and budgets with other depart- contractors. Ecuador at a glancE % below the basic needs poverty line: 35% Project Appraisal Document, Ecuador ­ Rural and COLOMBIA Small Towns Water Supply and Sanitation Project GALAPAGOS ISLANDS Population: 13.2 million ­ urban 61%, rural 39%; % with improved water access: 86% (Archipiélago de Colón) Quito 1.7% annual growth rate (PRAGUAS), World Bank, September 2000. % with improved sanitation access: 72% Pacific Project Information Document, Ecuador ­ Rural and Ocean ECUADOR Surface area: 283,600 km2 Small Towns Water Supply and Sanitation Project II Life expectancy: 71 years MorE InforMatIon (PRAGUAS), World Bank, November 2005. GNI per capita: US$ 2,180 PERU Lessons from small municipalities in Ecuador: Human Development Index ranking: Delegating water and sanitation to autonomous 82 out of 177 countries operators, WSP, February 2005. FEATURE SToRiES MANAGEMENT MOdEls Municipality WS residential Incentive (Mgt scheme) coverage tariff (uS$) PRAGUAS does not prescribe how to reform munici- pal departments. It provides municipalities and local Pedro Moncayo Before 77% 0.014 $/m3 129,000 Mun. enterprise After 90% 0.14 $/m3 communities with a range of flexible management models to choose from. The management models Pujili Before 75% 0.008 $/m3 162,000 include both public and private models. Addition- Mun. enterprise After 88% 0.120 $/m3 ally, the municipalities get support to take immedi- guaranda Before 78% 0.03 $/m3 191,000 ate improvement measures that will build popular Mun. enterprise After 95% 0.07 $/m3 support for the new management model. caluma Before 78% $0.5/mo 104,000 Mixed company After 95% $1+0.06$/mv Management options include municipal enter- Echeandia Before 72% $0.5 /mo 139,000 prises, mixed companies, and cooperatives. Many Cooperative After 98% 0.09$/m3 municipalities selected the municipal enterprise model, in which the utilities is owned by the munici- cayambe Before 65% 0.034$/m3 220,000 Mun. enterprise After 98% 0.10$/m3 pality but is managed at an arm's length by a cor- porate oversight board. In most cases, the board is dominated by representatives of the municipality. In coverage (see included table). Capacity has also one case (Pedro Moncayo), the municipality formed been built at the central government level. a municipal enterprise with a community majority A new water and sanitation Sector Law is be- on its board, which outsourced service provision to ing prepared to further strengthen the institutional a private contractor. setup of the sector. Capacity has also been built Others chose to transfer full ownership of the at the central government level. A new water and utility to an autonomous association of consumers sanitation Sector Law is being prepared to further (the cooperative model). This model further enhanc- strengthen the institutional setup of the sector. es citizen involvement. Some municipalities chose the mixed company ExPANdING ThE EARly suCCEss model, in which the municipality keeps 51% owner- ship of the utility, while the community obtains a Early project implementation shows how combin- 49% equity stake from in-kind contributions by the ing technical assistance and financial incentives users' association. The mixed company introduces a can encourage municipalities to adopt improved stronger community voice in decision making while management models and cost recovery tariffs for maintaining public control over utilities. their WSS services. The flexible approach in which municipalities are not to be steered towards a single model for service provision has increased public ACCOMPlIshMENTs TO dATE support for reforms. In addition, a focus on quick and visible improvement in service provision has en- To date PRAGUAS has provided new water supply abled the implementation of tariff increases. Such a systems for 252,000 people and on-site sanitation for learning-by-doing approach reduces the resistance 127,000 people, approximately 5% and 3% respec- of self-standing reform plans that will bear fruit tively of Ecuador's rural population of 4.5 million. for consumers only long afterwards. The lessons The town component of PRAGUAS has provided learned from the first PRAGUAS project are incor- technical assistance and financial incentives to a porated in the preparation of the second adjustable total of 39 municipalities, of which 16 have suc- IBRD loan. This phase aims to increase the number cessfully reformed their utilities, while 23 more are of beneficiaries by expanding the present incentive currently in the process of reform. An initial evalua- and support systems tion showed that the first batch of municipalities that have delegated their WSS services have significantly RElEVANT PROJECTs increased their operational efficiency and raised PraguaS I PraguaS II their tariffs to cover at least O&M costs. Individual municipalities have seen visible improvements in Project ID P049924 Project ID P095555 Water Feature Stories are published by the Water Sector Board of the World Bank. They are available online at www.worldbank.org/water and in hardcopy from whelpdesk@worldbank.org. 2