71791 Public-Private Partnerships for Rural Water Services BRIEFING NOTE No.4 POINTS FOR ACTION Community management, the dominant model for rural For Governments: domestic water service, works in many contexts but faces ∙∙ Clarify and strengthen policy and legislation defining asset several critical challenges, particularly in regard to more ownership, legal mandates, and responsibilities for delegated complex water supplies. An alternative is to delegate contracts, especially in operations and maintenance, or maintenance only, to the common-law countries. private sector through formal contracts and performance ∙∙ Identify the entity that will design and bid the contracts. agreements. These public-private partnerships (PPPs) For NGOs: potentially harness market incentives to improve service ∙∙ Work within national policy and sector frameworks to delivery and leverage private capital for investment costs. support improved technical and managerial capacity of Rural water PPPs have proliferated in recent years mainly for piped new private operators. schemes, less often for handpumps and other point-source supplies. For Donors: Well-designed rural water PPPs have shown some success in countries ∙∙ with civil law—that is, legal systems that have statutes and codes Provide external technical and regulating public service contracting. Proof that this model will deliver financial support for government- sustainable rural water supplies at scale, however, awaits more led initiatives to promote PPPs. data on long-term costs, profitability, and performance. So far, most ∙∙ Discuss with government what support and regulation are countries have not demanded significant investments in infrastructure from their private partners, and thus external capital financing is needed to ensure that consumers still needed. receive acceptable services and are fairly treated. Interest in using the private sector as an alternative or supplement to community management stems from the following three challenges: Poor service delivery. Too many ‘improved’ rural water supplies are not functioning, or are functioning poorly. The extent of breakdowns varies widely among countries, but on average, about one-third of rural water supply facilities in developing countries fail to provide a safe and reliable service. Demand for higher service levels and increasing technical complexity. Rural water supplies were once virtually synonymous with the simplest technologies. Now, more complex and expensive piped schemes are being constructed. In Africa, 15% to 20% of the rural population lives within the supply areas of small piped schemes (Gia et al., 2010). A consumer inserts her token in the Grundfos LIFELINK water kiosk, Kenya. June, 2012 1 Investment financing. Some 742 million people lack safe PPPs for Handpumps water supplies, and the construction costs to remedy the situation are staggering. Leveraging private investment and Other and credit could help finance needed infrastructure. Point-Source Supplies Almost all community management systems for rural Where PPPs Can Work point-source supplies already outsource certain functions to the private sector: private shopkeepers stock and sell The delegated management of public services is spare parts, for example, and private mechanics repair codified in the legal systems of countries with civil law. the pumps. These systems have had problems1: For this reason, rural water PPPs are more prevalent and more ambitious (though still relatively novel) in countries with civil-law systems (e.g., francophone ∙∙ Pump mechanics who are paid for repairs lack incentives to ensure the continued Africa, Peru). functioning of supplies. Countries where common law prevails, as in the British Commonwealth, have used delegation in the ∙∙ New pump mechanics are not trained when existing mechanics leave. urban water sector, but rural water PPPs remain rare. People in common-law countries are more ambiva- lent about allowing the private sector to recover costs ∙∙ Communities or their water committees cannot save or mobilize funds for expensive repairs and lack and profit from providing public services, since the incentives to pay for preventive maintenance. tradition of delegating public service management is largely absent. As a consequence, contracting entities ∙∙ Shopkeepers—particularly in sub-Saharan Africa—often lack incentives to stock spare have less experience in creating incentives to achieve parts, especially expensive ones, because rural financial sustainability (PPIRC, 2012). population densities mean low demand. Here, we focus on the public delegation of rural water PPPs seek to address those challenges and differ service delivery to the private sector. In some countries, from outsourcing in that they delegate responsibility the public sector may delegate this responsibility to for maintenance to a private sector entity through community or civil society organizations, such as a a contract. village water committee or a cooperative.  elegation of Handpump Operation and Box 1: D Maintenance to Piped Scheme Operators In Lubango, Angola, the Dutch supported a pilot ‘handpump leasing’ project under which a small town water utility owned the handpumps in surrounding villages and was responsible for maintenance in return for a monthly fee paid by villagers. Mobile brigades from the utility company were supposed to visit the pumps regularly for preventative maintenance and repairs for each pump. However, a 2006 evaluation found that the system did not succeed in covering costs, and so rural handpump maintenance fell off. In Burkina Faso and Rwanda, the private operators of rural piped schemes also assumed responsibility for handpumps within the supply areas. Vergnet Hydro and its partner, Faso Hydro, were one such operator for seven schemes in Burkina Faso. Eventually, the operator closed down the handpumps within 500 meters of a standpost. It proved impossible to monitor sales from the handpumps, and the nonrevenue water supplied from them undercut the sales from the piped schemes. In Rwanda, most PPP contracts for rural piped schemes state that the operators must also maintain other improved sources in the supply area, which in Eastern Province included handpumps. The results from this experience have not yet been documented. Source: Kleemeier, 2010 1 Foster (2012) documents two examples, in Uganda and Uttar Pradesh, India, where forming associations or business groups of mechanics may have addressed some of these problems. Also see Triple-S Uganda Briefing Note ‘Hand Pump Mechanics Associations Improving Rural Water Service Delivery’ (www.waterservicesthatlast.org/HPMAs). 2 Public-Private Partnerships for Rural Water Services Three basic approaches for rural handpump PPPs have been tried: ∙∙ Handing over responsibility to a piped scheme operator in the area (see Box 1); ∙∙ Signing a manufacturer’s warranty with villages; and ∙∙ Contracting maintenance of all handpumps in the local government’s jurisdiction to one or a few companies. Box 1 describes the experience with the first approach. It did not lead to better handpump functioning in Burkina Faso and Angola; the results from Rwanda have not yet been documented. Vergnet Hydro developed the second approach, in which the firm contracted directly with village water committees in West Africa for the maintenance of Vergnet Hydro experimented with a warranty system for its Vergnet handpumps. The results were not satisfactory pumps; the HYDRO India handpump is pictured here. because the committees proved too weak to collect user payments and manage the funds (Kleemeier, 2010). Grundfos, a Danish pump manufacturer, has developed Currently, Vergnet Hydro is working to develop a meter the LIFELINK model, in which kiosks managed by a for handpumps that would allow a company to manage Grundfos affiliate sell water from a borehole fitted with a them much like piped scheme kiosks.2 solar pump. Consumers purchase water through prepaid Burkina Faso is implementing the third approach. tokens that are charged with credits via a mobile phone The local government (commune) signs a maintenance payment system. The same mobile phone network ena- agreement with a private individual or firm to handle pre- bles wireless monitoring of pump performance, alerting ventative maintenance based on regular inspections of the Grundfos affiliate to send out a local technician to all handpumps in return for a set fee.3 The contract also make repairs. LIFELINK systems have been constructed sets prices for various repairs. The commune simultane- by Grundfos in Kenya under build-and-operate contracts, ously signs a handpump management agreement with principally financed by donors. It remains to be seen each village’s Water User Association (WUA), which whether this system can compete with lower-cost alterna- obliges the latter to pay the firm directly for repairs, and tives available in rural communities. to pay an annual fee to the commune to cover the cost WaterHealth International, an American company that of the preventative maintenance. The WUA must also manufactures ultraviolet water treatment plants, markets hire local pump attendants to supervise the handpumps a system in which treated water is sold in reusable and collect water payments from the users, at a price containers from a distribution plant, either to consumers set by the commune to cover preventative maintenance, directly or to vendors who make home deliveries. The repairs, attendants’ salaries, and eventually handpump idea is that people will purchase their drinking water replacement (Foster 2012). The results from this in this way, and use unsafe water sources for other approach have not yet been documented. needs. WaterHealth has established systems in India, Finally, there are PPPs for point-source supplies other Bangladesh, Ghana, and the Philippines based on a than handpumps. These arrangements are specific to PPP model in which WaterHealth or its local affiliate the technologies and cannot be applied to handpumps. signs a build-and-operate contract for eight to ten Grundfos LIFELINK and WaterHealth International years. The financing comes from some combination of provide two examples. users, local government, donors, NGOs, philanthropic organizations, and commercial bank loans.4 2 Personal communication with Thierry Barbotte, Managing Director, Vergent Hydro, May 2012. Vergnet Hydro views community management as generally satisfactory for handpumps, provided a good after-sales network exists. Therefore, Vergnet works with local partners who will take charge of mechanic training, and spare parts importation distribution to local shops. 3 Large communes, or ones with several different types of handpumps, may require more than one maintenance firm. In Burkina Faso, 33 communes signed 39 maintenance contracts. 4 Foster (2012) provides examples of other companies who sell treated water from central distribution points. Public-Private Partnerships for Rural Water Services 3 PPPs for Typical PPP Arrangements Rural Piped Schemes More typically, rural water PPPs are small contracts, awarded to an individual or local firm, to manage one or Some urban water PPPs have required national operators a few small rural piped schemes. The key characteristics to supply small rural settlements as well as urban areas. of these PPPs are described in the following sub-sections. SODECI in Cote d’Ivoire and SEEG in Gabon both did this successfully. Under SEEG, service in the rural centres Contracting authority. The entity that holds the contract improved, tariffs decreased, and coverage expanded with the service provider or private operator may be (Tremolet and Neale, 2002). A review of three SODECI a central ministry, national or regional utility, local village schemes also documented improvements over the government, or even a water user association (Table 1). previous community-managed water services: bill collec- In Bangladesh, for example, the contracting authori- tion was good, leakage low, and consumer satisfaction ties have included: the water department, a non-profit high (WSP, 2001; Tremolet and Neale, 2002). foundation, and a national research institute. Table 1: Organisational options for contracting authorities Contracting authority Example Contracting arrangements Central government Paraguay Government created central agency (SENSA) to expand rural water supply provision. ministry or Although SENSA relies largely on local water user associations to manage schemes, it technical agency has used competitively bid build-and-operate contracts with construction firms to control capital costs, leverage private investment, and increase cost recovery from users. Mauritania Government formed nonprofit national organisation (ANEPA) to assume responsibility for managing and maintaining piped schemes, including those in small rural centres, from Ministry of Water. By 2006, ANEPA had signed contracts with private operators to manage almost 90% of country’s piped schemes. National or regional Morocco Government gave responsibility for rural water provision to national bulk water supply utility company utility (ONEP). ONEP is testing franchise approach, under which private operators will manage local networks. Vietnam Under World Bank–assisted project, several provincial governments formed utility companies to manage rural piped schemes. Companies would award operation and maintenance contracts to private firms; private sector would purchase utility company stock. Not implemented. Local government Burkina Faso Under French-assisted project, two firms won contracts to build (or rehabilitate) and then (central ministry plays operate 15 schemes for seven years. critical role in supporting local Benin As of March 2010, 132 schemes were operating under delegated management, most government contracting with private operators. for PPPs) Rwanda As of 2008, 70-plus rural piped schemes were managed by private operators under delegated management, of roughly 850 rural piped schemes in total. Madagascar Some 20 piped schemes under private management serving approximately 120,000 people (see Box 2). Water user association Kenya Local microfinance bank (K-Rep) has piloted loan programme for community self-help groups to build, expand, or improve piped water schemes. K-Rep requires loan recipients to engage private operators on management contracts until loan has been repaid. Niger Central ministry handles bidding process for private operators, which sign contracts with water user associations. Senegal Central ministry delegates responsibility for rural piped schemes to water user associations (ASUFORS), which sometimes contract operations (pumping, kiosk operation, billing, payment collection) to local private operators, who in turn hire pump and kiosk atten- dants, meter readers, plumbers, etc. Ministry has contracted with single firm to provide maintenance for all ASUFORS, each of which signs performance agreement with this firm. Sources: Kleemeier, 2010; Lockwood and Smits, 2011; Annis, 2011. 4 Public-Private Partnerships for Rural Water Services  uccess factors in Madagascar’s rural PPPs Box 2: S In 1999, Madagascar’s Water Code paved the way for PPPs by establishing that water supply infrastruc- ture is the property of the communes (local government), that communes are responsible for ensuring water services, and that they may delegate water services to third parties by means of management contracts. The model has proliferated slowly but steadily since. Annis and Razafinjato (2011) found that, in the case of Madagascar, PPPs have been most successful for piped schemes serving larger rural settlements of around 5000 people or more. Other factors that contributed to the success of the country’s PPPs according to their study: ∙∙ Political will – in particular the support of the town mayor, which involved considerable political risk since paying for water services was not a common or popular idea. ∙∙ Latent demand for modern services – demand for higher service levels among an emerging middle class. Successful PPPs offered a choice of service levels according to personal preferences and willingness to pay. ∙∙ Donor support – in addition to financial support for construction/rehabilitation, donors were also instrumental in creating an ‘enabling environment’ by increasing capacity of communes to oversee water service provision and serve as contracting authorities. Type of contract. Triche et al. (2006) analyse the types At the other extreme are Kenya and Senegal, where of contracts with local private operators. Table 2 groups the water user associations are the contracting authority. these types into four categories relevant to rural water Niger lies somewhere in between: the central ministry PPPs: management; lease; build and operate; and invest, controls the contracting process, but the actual contract build, and operate. This taxonomy of contracting repre- is signed with the water user association. sents a sliding scale of increasing transfer of financial risk from the asset holder or contracting entity to the operator. Communities may become important as monitors of operators’ performance. Mobile phone networks Role of the community. In some rural water PPPs, and attendant software applications are opening up community organisations have no role. Examples new opportunities: consumers can phone in perfor- are Mauritania, Morocco, and Gabon. In Benin and mance information on water services in their area or Rwanda, the commune may delegate responsibility to respond to text-message surveys. Punjab State in India, a community organisation, but if a private operator for example, has a mobile phone-based consumer wins the bid, there is no water user association role. complaint system for rural water supplies. Table 2:  Types of Rural Water PPP Contracts Contract type Level of risk Management contract. Operator receives fee to perform operations and routine maintenance. Asset owner pays for repairs, extensions, etc. Little risk to private operator. Asset holder Lease (affermage) contract. Operator keeps revenue but must pay specified operating and maintenance costs and lease fee, and possibly percentage of revenue. Operator loses money if costs and fees exceed revenue and thus has incentive to lower costs and increase water connections and bill collection. Build-and-operate contract. Eventual operators construct or rehabilitate and sometimes design water system, then manage operations under either management or lease (affermage) arrangements. Invest, build, and operate contract. Contractor-operator is also required to provide portion of investment costs. Schemes are operated as concessions, in which operators assume all costs and Private operator retain all revenue for extended period (e.g., 10 years in Paraguay, 18 years in Bangladesh). Sources: Triche et al., 2006; Kleemeier, 2010. Public-Private Partnerships for Rural Water Services 5 Markoye, a rural settlement in Burkina Faso with about 5,000 residents, has a piped water system managed by FASO Hydro. Regulation. Water regulation, covering contract standards for service delivery, maintenance, revenue compliance monitoring, tariff adjustment, dispute arbi- collection, financial management, reporting, and tration, and water quality monitoring, is a weak point so forth. The issue then becomes who monitors and in rural water PPPs. Lengthy disputes between operators enforces compliance and who arbitrates disputes. and consumers or local governments can undermine Typically, this falls to the contracting authority—either operations and sustainability (Gia et al., 2010). local or central government. However, these entities For example, some rural operators in Bangladesh may lack the capacity to enforce contract compliance were forced to sell water at unreasonably low prices or even to monitor it and may also have a conflict of because a system for adjusting tariffs was missing. interest: government represents the consumers who are making the complaints. Honduras, Colombia, Rwanda, Mauritania, and Mozambique assign regulatory responsibility to inde- Yet a third approach has been to give regulatory, or pendent agencies, in almost all cases the same agency at least auditing, responsibilities to an entity that also that regulates urban utilities. Most of these agencies are provides technical support to the private operators—an just beginning to cover rural areas. The approach can approach that likewise represents a conflict of interest create problems: rural schemes may be numerous and (Pilgrim et al., 2007). geographically widespread, and regulations, reporting requirements, and punitive measures that were External support services. Private operators may designed for urban utilities may be unreasonably harsh sometimes need specialised services that are uneco- for small rural operators (Lockwood and Smits, 2011). nomical to retain full-time. In practice, rural private operators likely need external support to build their Alternatively, regulation may be accomplished largely basic capacities, quite apart from any specialized skills. through detailed contracts that specify performance 6 Public-Private Partnerships for Rural Water Services In Mali the National Water Supply Directorate, with In Senegal, the water user associations delegate only German development assistance, set up a system routine operations and maintenance to local private for providing support and monitoring performance. operators and are required to sign an agreement with Suivi Technique et Financier (Technical and Financial a designated private firm for preventive maintenance Follow-Up), or STEFI, provides advice and assistance and repairs. In Mauritania, the private operators are to both community and private operators and collects required to use the central agency for major repairs and monitoring information for service authorities (i.e., a designated private firm for solar equipment repairs. the communes). The costs of STEFI are equivalent to US$0.34/person served. The ministry reports higher Pilgrim et al. (2007) lay out ways to provide network productivity, reduced water losses, better life external support services to operators in small towns, expectancy of small piped schemes, and lowered tariffs approaches that can be adapted to rural areas. due to improved efficiency savings (Smits et al., 2011). Recommendations The features of rural water PPPs are often determined by the status of the WASH sector in terms of policy and institutional reform, the extent of decentralisation, and progress in public administration reform. Clear rulings about who owns the physical assets, who is responsible for their long-term management and repair, and which institu- tions can legally let contracts are all vital to successful PPPs. In more practical terms, local entities’ capacity to solicit bids, write contracts, and monitor performance are also important, and local political support is needed to overcome initial doubts about involving the private sector (Annis, 2011). Immediate steps for promoting and improving rural water PPPs are as follows: ∙∙Identify the best opportunities for PPPs and support programmes to develop them. Rural water PPPs are most promising for piped schemes that can be made economically viable through better management and, possibly, reliable subsidies. ∙∙Ensure that any necessary subsidies from central government or other external sources are a part of the PPP. ∙∙Make available online information about costs, tariffs, and performance to encourage widespread analysis and understanding of the profitability and sustainability of rural water PPPs under differing conditions. ∙∙Link efforts to support PPPs with broader public administration reform and capacity building, especially for local government. ∙∙Provide more support for regulation and adaptation of urban regulations to rural conditions, to ensure that contract obligations are being met and the quality of service provision remains high. Public-Private Partnerships for Rural Water Services 7 References Annis, J. and Razafinjato, G., 2011. Public-private partnerships in Madagascar: A promising approach to increase sustainability of piped water supply systems in rural towns. Sixth RWSN Forum, Kampala, Uganda. Foster, T., 2012. Private provision of rural water services: A desk study for water for people. Denver CO, USA: Water for People. February. Gia, L.H., Fugelsnes, T. and Hawkins, P., 2010. Sustainable management of small water supply systems in Africa: Practitioners’ Workshop Report, October 6-8, 2010. Nairobi: Water and Sanitation Program. Gia, L.H. and Fugelsnes, T., 2010. Public-private partnerships for small piped water schemes. Nairobi: Water and Sanitation Program. Kleemeier, E.L., 2010. Rural private operators and rural water supplies: A desk review of experience. Water Unit, Sustainable Development Network. Washington D.C.: World Bank. Lockwood, H. and Smits, S., 2011. Supporting rural water supply: Moving towards a service delivery approach. Rugby, UK: Practical Action Publishing. Pilgrim, N., Roche, B., Klabermatten, J., Revels, C. and Kariuki, M., 2007. Principles of town water supply and sanitation: Part 1: Water supply. Water Unit, Sustainable Development Network. Washington D.C.: World Bank. PPIRC. 2012. PPP in Infrastructure Resource Center for Contracts, Laws and Regulation. Available at: http://ppp.worldbank.org/public-private-partnership/ppp-sector/water-sanitation/small-water-providers Smits, S. and Sutton, S., 2012. Leveraging household investment in rural water supply. The Hague: IRC Water and Sanitation Centre. Available at: www.waterservicesthat.org/self-supply Smits, S., Verhoeven, J., Moriarty, P., Fonseca, C., and Lockwood, H., 2011. Arrangements and costs of providing support to rural water service providers. WASHCost/Triple-S Working Paper 5, IRC International Water and Sanitation Centre. Tremolet, S. and Neale, J., 2002. Water and electricity services in Gabon. PPIAF, World Bank. London: Environment Resources Management. Triche, T., Rquena, S. and Kariuki, M., 2006. Engaging local private operators in water supply and sanitation services: Initial lessons from emerging experience in Cambodia, Columbia, Paraguay, the Philippines, and Uganda. Washington D.C: World Bank. Water and Sanitation Program (WSP), 2001. Multi-village rural water supply schemes: An emerging challenge. Washington D.C: Water and Sanitation Program. About Triple-S management—and provides evidence and examples from actual practice. Finding and recommendations are Triple-S (Sustainable Services at Scale) is an initiative based on the results of a multi-country study carried out to promote ‘water services that last’ by encouraging a by Triple-S and a review of broader sector examples shift in approach to rural water supply—from one that and research. focuses on implementing infrastructure projects to one that aims at delivering a reliable and lasting service. For more information about Triple-S and access to The initiative is managed by IRC International Water resources to support sustainable service delivery, and Sanitation Centre in the Netherlands in collabo- go to www.waterservicesthatlast.org ration with agencies in different countries and with funding from the Bill & Melinda Gates Foundation. About this Brief ‘Public-Private Partnerships for Rural Water Services’ About the Building Blocks was written by Elizabeth Kleemeier, Senior Water for Sustainability series and Sanitation Specialist, World Bank, and Harold This briefing series is a resource for people who make Lockwood, Aguaconsult. It was reviewed by decisions about rural water supply—financing, policy, Victoria Delmon, Senior Counsel, World Bank. and programme design and implementation. It outlines the basic building blocks for sustainable delivery of For additional resources on Public-Private Partnerships, water services—such as indicators and targets, aid go to www.waterservicesthatlast.org/PPPs harmonisation, and professionalisation of community © 2012, IRC International Water and Sanitation Centre an initiative of