58256 NOVEMBER 2010 ABOUT THE AUTHORS Improving Rural Water Service in Rwanda CHRISTOPHE PREVOST (cprevost@worldbank.org) with Public-Private Partnerships is a Senior Water and Sanitation Specialist who In 2004, a field review commissioned by the World Bank found that half of worked in the Africa Region. He has managed rural water the piped rural water supply systems in Rwanda were nonfunctional due to supply projects in Rwanda and Madagascar and has poor management and poor cost recovery. In response, the government participated in 15 development shifted to a public-private partnership (PPP) management model. As of 2010, policy lending operations, including in Rwanda, to lead 235 rural water supply systems--28 percent of the 847 systems in the the policy dialogue on RWS reforms. country--are managed under PPPs serving 1 million people. This SmartLesson shares what the World Bank and Water and Sanitation Program (WSP) BRUNO MWANAFUNZI (bmwanafunzi@worldbank.org) learned in support of Rwanda's remarkable progress, including using best joined the Water and practices to make the case for reform; fostering ownership, simplicity, and Sanitation Program in 2005 as WSP Country Coordinator for flexibility of design; using peer-to-peer learning; and evaluating factors for Rwanda. Before that he was the director of the Directorate success. of Water and Sanitation in the Ministry of Land, Environment, Forestry, Water, and Mines in Background In 1998, the government of Rwanda embarked Kigali- Rwanda from 1999 to on a decentralized, participatory approach to 2005. In the 1990s, the rural water supply and development to ensure participation of the sanitation (RWSS) sector in Rwanda faced local population in the decision-making NITIN JAIN many challenges stemming from top-down process to foster reconstruction, reconciliation, (njain3@worldbank.org) joined WSP's Strategy and programming of investments, high per capita and community reintegration. Operations team in Washing- investment costs for system construction, poor ton in 2007 and is currently cost recovery, and low sustainability. At the same time, the rural water supply sector supporting the monitoring Furthermore, the sector's infrastructure developed a new strategy based on four key component of WSP's Domestic Private-Sector Participation suffered from considerable destruction during elements: (i) formulating a demand-responsive program in Rwanda. Prior to the period of civil war and the 1994 genocide. approach through which communities could working at the Bank, he was a Demands of postwar reconstruction placed choose a preferred service level based on their consultant with KPMG's Energy immediate emergency relief ahead of longer- willingness to pay, contribute to a portion of and Utilities Advisory Services. term sustainability considerations. investment costs, and pay in full the operation APPROVING MANAGER Jae So, Manager of the Water and Sanitation Program, TWIWP. Rwanda landscape and Lac Kivu (Credit: Simon Ndutyie) SMARTLESSONS -- NOVEMBER 2010 1 and maintenance costs of their facilities; (ii) decentralizing planning and management of services at the district level; Chart 1: Diversity of operator types (iii) supporting the private sector as the provider of all works, goods, and services; and (iv) redeploying the public sector as facilitator, with the Ministry of Water providing assistance and support to the district authorities and water users' associations. The World Bank has supported the government of Rwanda's rural water supply sector strategy through a combination of loans with a sector investment rural water supply and sanitation project1 and a series of development policy lending operations with a poverty reduction support credit/ grant from 2004 onward,2 comprising specific policy measures to support rural water and sanitation sector reforms. The WSP has provided technical assistance to support donor coordination and capacity building for private operators from 2006 onward. Since then, the rural water sector has made outstanding progress and successfully scaled up investment and reforms. Rwanda is on track to achieve the Millennium Development Goal3 and should achieve its target to increase access to 2002. Sector expenditures have increased tenfold to $32 potable water from 40 percent of the population in 2002 to million from 2006 onward, with a continuous increase both 85 percent in 2015. In 2009, 74 percent of the rural people in domestic funding and fiscal transfer to the districts. have access to a safe drinking water source. The number of functioning rural water supply systems has also increased The introduction of PPPs to improve the operations of piped from 50 percent in 2004 to 85 percent in 2009. rural water supply systems has been an unprecedented success. As of June 2010, 65 PPP contracts have been signed These results were achieved by effectively moving the sector for 235 public systems serving about 1 million people. The away from a projects approach to a sector-wide approach systems under PPP contract serve an average of 5,000 (SWAP) led by the government with the elaboration of a people, and a few systems serve more than 100,000 people. medium-term expenditure framework (MTEF),4 enhanced The network length varies from 6.5 km to 491 km. About 80 donor coordination, sector expenditure reviews, and an percent of these systems are gravity-fed systems, and 20 annual sector review with the participation of all percent are pumping systems. Ninety-five percent of the stakeholders, as well as by implementing a successful people are served by public stand posts, and 5 percent have decentralized approach to service delivery with the districts a household connection. Moreover, 64 systems are owned fully in charge. Sector service delivery capacity has improved, and managed by private institutions, including parishes, with an additional 600,000 people getting improved water monasteries, hospitals, and factories, which serve about service each year since 2005, against fewer than 60,000 in 100,000 people. Lessons Learned Graph 1: Number of Privately Managed Rural Piped Water Supply Systems 1) Use best practices and analytical work to make the case. Tailoring the PPP approach to rural water supply systems was not initially part of the government's or the World Bank's strategy. The initial approach was clearly to have community-based organizations manage their systems. The idea grew from a field visit in 2003 when the project team had the opportunity to visit three districts5 in the province of Byumba (now part of the North Province). The districts in Byumba had decided to tap into the financial and technical capacity of the private sector by contracting out the operation and maintenance of their water supply schemes to local private operators. The field visit marked a 1 RWSS Project, $20 million (2001­2007). turning point in the way piped water supply systems would 2 First PRSC/G: $65 million(2004); Second PRSG: $55 million (2005); Third PRSG: $50 be managed in Rwanda. Private-sector participation seemed million (2006); Fourth PRSG: $70 million (2008); Fifth PRSG: $80 million (2009). 3 The goal: to provide 85 percent of the population with access to potable water and like a remote possibility, but these districts had already 66 percent with access to hygienic sanitation by 2015. done it. 4 The MTEF is annual, rolling three year-expenditure planning. It sets out the medium- term expenditure priorities and hard budget constraints against which sector plans can be developed and refined. MTEF also contains outputs and outcome criteria for the purpose of performance monitoring. 5 The districts of Rebero, Mulindi, and Bungwe. 2 SMARTLESSONS -- NOVEMBER 2010 People fetching potable water at a stand post. (Credit: Alain Water kiosk (Credit: Han Sueur) Morel) In 2004, the World Bank RWSS project conducted field price,8 and districts were receiving a substantial fee from review of community management in the country and of the operators to add to their budget. The decision to use the experience with private operators in the three districts the experience of these districts to move to scale was critical of the Byumba province. The findings were discussed at in the development of PPPs in supplying rural water in the Medium Term Review of the World Bank project in Rwanda, because people accepted it as a locally developed May 2004. The review found that, for the community- approach that could be implemented locally. managed systems, about 50 percent of the piped systems were nonfunctional due to the absence of performance Each district developed contracts with very simple terms for incentives (volunteer status), the users unwillingness to potential operators with a minimum set of qualifications pay, mismanagement of funds, and technical weaknesses. based on the contracts used by Byumba Province. Given the Conversely, local private operators, which were placed in limited experience of operators and the districts, the challenging situations (some of them were managing contracts were a cross between management contracts costly pumping systems) had overcome these issues and where the operators are responsible only for the water were even able to self-finance system rehabilitation. The supply operation and lease contracts where the operators World Bank agreed on an action plan aimed at testing and have to assume some investments and commercial risks for supporting a wider PPP approach for the operation of the systems they manage. The length of contracts was quite water facilities. short in comparison to conventional international standards, but this was a necessary compromise, given the lack of data A few weeks later, the Minister of Water6 visited the three and the uncertainty of demand and willingness to pay in districts of Byumba to learn about the private-sector the market. approach and to determine whether to make this a national program. At that time, about 50 percent of the sector The selection criteria for the operator generally took into investment budget was dedicated to rehabilitation works. account the price of water, the fee paid by the operator to The systems in Byumba highlighted the potential of using the district, and the quality and reliability of the technical private-sector participation to help make public expenditures more efficient by reducing the burden of maintenance and rehabilitation costs and to expand services to more people. As is typical in Rwanda, once a decision is made, implementation follows. 2) Promote ownership, simplicity, and flexibility in the design. Even though it recognized some weaknesses and risks, the Ministry of Water decided to use the experience and approaches developed by the three districts of Byumba Province as the basic model. These privately run systems were better managed than the community-based systems. People now had access to reliable services7 at an affordable Woman fetching potable water at a stand post. (Credit: Simon Ndutyie) 6 Prof. Dr. Munyanganizi Bikoro, former Minister of State in charge of Water and Natural Resources, Ministry of Infrastructure. 7 The impact study and the operators' reports showed that water users are consuming 8 The water rates range from FRW 2.5 (gravity-fed systems) to FRW 15 (pumping 8.5 liters per capita per day (lpcd) at the spring catchments and 13 lpcd at the stand systems) per container of 20 liters (equivalent to US$0.25 to US$1.40/m3). Users with posts of the gravity-fed piped systems. Users with private connections consume 20 private connections pay FRW185 to FRW600/m3. The districts keep a list of vulner- lpcd. able households (widows, poor single-parent households), who get free access to water points. SMARTLESSONS -- NOVEMBER 2010 3 Box 1: Fixing Target Stimulated Actions and Results: A series of poverty reduction strategy grants (PRSG) sup- ported the government of Rwanda's PPP policy in the rural water sector, through policy dialogue and policy measures, including prior actions. The prior action of the second PRSG supported the Ministry of Water in developing guidelines to assist districts in contracting with private operators and to have at least one con- tract signed in each of the four pilot provinces by September 2005. The prior action of the third PRSG was to have 10 percent Water is paid on a volumetric basis the equivalent to US$0.25 to of rural water systems managed by local private operators by US$1.40/m3 (Credit: Hawkey, courtesy of Photoshare) September 2006. A target of 20 percent of rural water systems managed by local private operators by November 2007 was in- cluded in the fourth PRSG. All three policy measures were proposal. The Rwanda Utilities Regulatory Agency (RURA) achieved. endorsed this approach because of the diverse local contexts and of the uncertainty of demand for services. Although decentralization brought new opportunities, it While most of the operators did not have specific experience also came with significant challenges due to the lack of in managing water supply services, they all had an technical capacity of local governments and local service entrepreneurial spirit supported by basic business acumen. providers. The project helped bridge these gaps by adopting Their diverse backgrounds included former civil servants, a peer-to-peer learning approach to disseminate the concept local businessmen, small cooperatives, and informal of PPPs. We also took a learning-by-doing approach to associations of local residents. One third of the operators improving contracting process and management practices. were women. The project facilitated 10 exposure visits to Byumba for about The selection criteria had to be flexible in such a nascent 75 district representatives during 2004 and 2005. In addition, market, and it was not a process that could occur overnight. one national workshop in 2004 and several regional training As the PPPs have gained momentum in Rwanda and market workshops in 2005 and 2006 were organized to exchange information has become more available, more robust early PPP experiences. Participants included districts, private private operators have entered the business, and the operators, nongovernmental organizations (NGOs), and contracting and oversight processes have evolved and are regulatory agency and donor representatives. The rule was more sophisticated. that only people who had been active in implementing the PPPs in Rwanda would become the trainers. No external 3) Use peer-to-peer learning to disseminate knowledge consultants have been involved. This approach helped the and lessons. government gain buy-in from all the sector stakeholders. 4) An enabling environment determines the feasibility and likelihood of success for PPPs. In Rwanda, the enabling environment was definitely favorable for improving rural water operations. The government was committed to reform and willing to lead the processes of change. The legal environment was shaped to support private-sector participation in the delivery of water services. The Water Law allowed various options for managing a rural water supply service, either through municipal management or delegation to a water users' association or a private operator. The rural population was already accustomed to paying for operation and maintenance costs for improved water sources. The decentralization policy, which allocated full responsibility in infrastructure planning and service delivery and financial and human resources9 to the district, along with the election of district mayors, established the adequate framework and the legitimacy of the district authorities to shift the management of water facilities to PPPs. Water treatment plant (Credit: Simon Ndutiye) 9 30 percent of budget expenditures are decentralized from national level to district level. In addition, the civil service reform allowed redeploying the staff of the central government to the districts. 4 SMARTLESSONS -- NOVEMBER 2010 Conclusion tariffs and regulating the amount and usage of the fees collected by the districts. Viable The operational record of the PPPs is relatively water tariffs in rural areas tend to be relatively short as most of the contracts were signed in high, particularly in pumped systems. This 2006­2007. The experience of the first poses a challenge for rural households and contracts has been positive. The operators and encourages the use of alternative, unsafe the districts have been able to overcome sources of water supply. Options to achieve unforeseen problems and to adjust, as cost recovery while keeping tariffs affordable needed, the contract terms with some external include professionalizing service management, support. Recent assessment of the rural water selecting appropriate technologies, grouping PPPs10 that have been implemented revealed individual schemes, and targeting subsidies. that the majority of the customers interviewed declared themselves satisfied by the service Furthermore, the government needs to focus provided and the quality of water distributed. on ensuring the sustainability, reliability, and However, there are still a number of issues affordability of these services, and the wider that need to be addressed such as the issues of managing and protecting scarce regulatory oversight of PPP arrangements, water resources. Evidence from developed including selection criteria, contract and developing countries shows that it is not management, compliance monitoring, so much a question of who manages the accounting practices, and tariffs. services, but how the service and the assets are managed and how long the service A key issue for the success of the PPPs is to provider is technically and financially ensure financial viability by setting appropriate supported. DISCLAIMER IFC SmartLessons is an awards program to share lessons learned in development-oriented advisory services and investment operations. The findings, interpretations, and conclusions expressed in this paper are those of the author(s) and do not necessarily reflect the views of IFC or its partner organizations, the Executive Directors of The World Bank or the governments they represent. IFC does not assume any responsibility for the completeness or accuracy of the information contained in this document. Please see the terms and conditions at www.ifc.org/ smartlessons or contact the 10 Rwanda-Analysis of the delegated management of rural water program at smartlessons@ifc.org. supply system- HydroConseil & GeoTop- Final Report 2009. SMARTLESSONS -- NOVEMBER 2010 5