Overview Papej - I 23724 ae anJanuary 2001 Water and Sanitation Serving Poor Consumers Program S An international v partnership to help C6 the poor gain sustained access to improved water supply and sanitation services This paper is part of a research 6 and dissemination initiative which the Water and Sanitation . Program-South Asia (WSP-SA) is carrying out into private sector participation and the poor in the E urban water sector. Proposals to _ involve the private sector in water supply and sanitation sometimes raise fears that the poor will be priced out through higher tariffs and costly connection fees or overlooked because they live in hard-to-reach locations. The reality is that the private sector has the capacity and the interest to serve the poor, is willing to experiment with low-cost options and different levels of service, and with greater efficiency, can benefit all consumers. There are examples of this in other parts of a "-= 1 the world but not as yet in any of 4i _ the countries of South Asia. This t:i_ series will document best - practices and show how service to the poor can be addressed by L,A the skillful design of private sector contracts; by strengthening the regulatory system and making sure it protects the interests of the poor; and by creating partnerships between civil society, local authorities and private operators. The series also analyzes lessons learnt and explores how international experiences can - be adapted to this region. ___ BERVING I 1THE POOR WATER & SAN ITATION Introduction be priced out due to increasing ways to deliver services to low- tariffs; that social goals, such as the income areas, including the use of provision of hygiene education or low-cost options and different levels In most South Asian cities today, low-cost sanitation, will not be met; of service to serve the poor. There public sector agencies are strug- and in general that private sector are examples of this in other parts of gling to provide water supply and providers will favor easy-to-reach, the world, but not as yet in any of sanitation services. Inefficiency, low high-return consumers. In South the countries of South Asia. investment levels, a lack of financial Asia, where the poor represent a viabilityand an absence of consumer high percentage of the urban popu- Scope and orientation mean that consumers lation', there are several cases in face an inadequate and unreliable which private sector projects have Structure of supply of low quality water. Ironically been proposed but not come to frui- t P the poor are particularly badly tion due to opposition based on this Paper served, despite a strong tradition of these concerns2. viewing water as a basic need and a The reality is that the private sec- The way in which the private sec- human right. High levels of subsidy, tor has shown interest in serving the tor might enter the market for or policies of providing 'free" water poor, is willing to learn and innovate, water and sanitation service pro- to the poor, have not necessarily and promises greater efficiency vision is a function both of policy brought the anticipated benefits. which can benefit all consumers. decisions taken at the highest level Badly designed subsidies are often Concerns regarding service to the and of the nature of the market at regressive, benefitting the rich or poor can be addressed through the the local level. Thus major private middle classes more than the poor. skillful design of private sector con- sector operators will weigh up the Moreover, many poor people are tracts/concessions, by creating part- risks and likely gains from investing quite simply not connected to the nerships between NGOs, CBOs, pri- in the sector in any given situation network and unable to benefit from vate operators and local govern- and may or may not decide to bid formal subsidies or lifeline supplies. ment, by making service to the poor for work. Many external factors, such In addition, unreliable water supply a part of the regulatory framework, as the state of the domestic and is more problematic for the poor, who and by encouraging technological international finance markets, the cannot afford coping strategies such innovation and non-conventional degree of perceived political risk, as storage, pumps and individual water delivery that the wealthy use. - . e The poor who, it is assumed, cannot _ afford to pay for water, are rarely X . considered as "consumers" and by .. virtue of this have few rights and cannot demand better service. In the face of growing dissatis- faction and frustration with public i,,. sector management, bringing in the private sector is often suggested as a solution. However, when private !. A6* sector provision of water supply and - sanitation services is proposed, one of the common concerns is that the L poor will be adversely affected. - There are fears that the poor will C 'Thirly-two percent of the urban population in India, for example, is categorized as poor (Planning Commission, 1993/4 figures). These percentages are rising along with the relative size of the urban population as a whole - it is estimated that by the year 2011 up to 46% of India's population will be urban. 2 There are, of course, other concerns, such as high cost, lack of transparency and the difficulties of transaction preparation. and the availability or otherwise of areasofSouthAsiaarecurrently"net- The objective of this paper is to information on the current operations worked" (piped water and sewerage). state some hypotheses regarding the of public sector water utilities may all Networked services have specific issue of private sector participation impact on these decisions. Similarly characteristics that distinguish them and the poor, based on what is the decisions of small-scale local pri- from non-networked services (such as admittedly limited experience, and to vate sector operators (such as tanker handpumps and on-site sanitation). propose some approaches which suppliers or entrepreneurs who run Importantly, they are services which could be used in the preparation of latrine pit emptying services) will be cannot be provided by a household new transactions in South Asia. determined as much by the nature of independently; so service provision is the local market as by policy state- therefore a function of both overall Serving the ments and official strategies. network planning and design deci- It is not the purpose of this paper sions (such aswhethertoservea par- Poor - Luxury to analyze the state of the market for ticular area or group of customers), or Necessity? water sector operations in South and relevant household level deci- Asia, either for the large or the small- sions (such as whether to connect to scale operators. Rather, this paper the service or not). In general, dis- The impetus that drives improve- looks at practical interventions which cussion of major private sector par- ment in urban water supply and sani- can be made in the design of major ticipation focuses on such networked tation services usually has little to do private sector participation transac- services alone, but this paper will also with concern for the needs of the tions, assuming that the market is touch on the possibility of an opera- poor. Wealthy residents wanting a attractive and operators are pre- tor providing non-networked services high level of service have far greater pared to bid for work in the sector. (such as latrines or water tankers) political influence than the poor who The intention is to provide govern- either directly or through sub-con- want basic levels of service, and ments with information which will tracts, as part of the solution to the therefore many reform measures are enable them to ensure that such trans- challenge of serving low-income con- skewed disproportionately towards actions benefit poor consumers at sumers within the "network" service providing improved services for the least as much as they benefit the rich. area. In this way the important role of rich. There is, in addition, often an It is assumed that most water and the small-scale independent provider assumption that general improve- many sanitation systems in urban of services will also be examined. ments in city infrastructure will have _______________________ ~~~a knock-on effect on the economy as a whole and thus benefit the poor indirectly. However, without specific *~ ~ _r - ,> 4 ˘r; >' -8j indeed may be adversely affected by 4k hgw~'. _-z *; amany reforms (making tanker opera- tors illegal may, for example, remove - the source of water from many poor urban communities). Some very grave inequities arise out of this par- 4 , ticularly because development funds, S- . * Z;j: in the form of development bank loans which have to repaid out of -' government budgets, and bilateral ' grant funds which could have been _: .: - _ ..... :. es ' ..I. A - used elsewhere, are often mobilized -3 to support reform. The poor should - therefore benefit more, rather than - less, from the impact of the use of these funds. The poor of a city are also impor-t tant residents who supply many of _ ,J / the goods and services that keep it' -, l-S running. They are rickshaw pullers without whom no one can get to work, domestic servants who keep the middle and upper class dressed Nr and fed, and low-paid workers who keep the factories running. Their wel- - fare should be just as important as r the wealthy and there is sufficient evi- , , dence to show that incremental i improvements in water supply and sanitation can have major impacts on health, efficiency and productivity. region seems reluctant to move on that South Asian utilities are typically In addition to this is the fact that to implementation of large-scale suffering from high unaccounted-for poor health among the poor is an private sector management and water, overstaffing and substantial issue for the rich - inadequate sani- operations. While five countries political interference. tation impacts the city as a whole (Argentina, Malaysia, Mexico, Bra- The problem is that bringing in and causes serious negative health zil and China) account for 50% of a private operator with a clear externalities. the investment in private water and mandate to improve efficiency sewerage service provision in the through better management and Private Sector developing world, South Asia cur- system rehabilitation is unlikely to rently accounts for none (Silva: benefit the poor, most of whom, in Participation 1998, Tynan: 2000). South Asia, are not properly con- and the Poor - Nonetheless interest has grown. nected to the water supply network The Government of India, for at all. The poor have traditionally W hat's the example, has held several major been supplied with free water at international seminars on the sub- public standposts, find their own Big Idea? ject over the last five years. Interest alternate sources such as shallow is growing in India's metro-cities and tubewells, or buy expensive water In South Asia, private sector par- in Kathmandu while there is lively from water vendors. The level of ticipation in the public provision of debate on the topic in Pakistan, service from these sources may water and sanitation services has and to some extent in Bangladesh. leave much to be desired, but reha- so far been limited to sub-contract- By and large the rationale for bilitation of the existing system will ing of certain core services (such seeking greater private sector par- do nothing to improve them. as operation and maintenance of ticipation is the efficiency gains that However, experience in other pumping stations, design and con- specialized water companies can countries shows that it is possible, struction of new facilities and, to a bring. They have management skills, with innovation and effective part- more limited extent, financial and technological innovation, and expe- nerships, to benefit the poor, and in commercial functions such as billing rience. One of the reasons that these fact the poor can benefit dispropor- and collection - Mehta, 1999). The efficiency gains are so important is tionately. Privatesectorparticipation 4 must be carefully designed to ensure However, the public institutions poor consumers. There is no doubt that this happens. which currently deliver water are in about the genuine, passionate, and The traditional concern of South urgent need of reform. They are committed concern expressed, for Asian politicians for the poor (at least characterized by non-transparent example, in Karachi recently by a in rhetoric) provides both a stumbling legal and policy frameworks and consortium of local NGOs and com- block and an opportunityfor change: weak or non-existent regulation. The munity groups who, through the projects which fail to address the paramount feature of service deliv- courts, successfully prevented ongo- needs of the poor are unlikely to be ery organizations is that they are ing debate about private sector successful in the current environment deeply risk averse. Long established involvement in the management of of skepticism of private sector par- conventions, long-term job security the Karachi Water and Sewerage ticipation, and this in itself provides at lower ranks and short-term plan- Board. A desire to protect the inter- a clear incentive to consider carefully ning horizons at higher ranks lead ests of the poor may paradoxically the approach to the poor, for politi- to inefficiency and low quality. These have been the motivation for putting cians, decision-makers, managers, civil organizations are dominated by an a stop to a debate which fundamen- society and the private sector itself. 'engineering' culture with little tally aimed to serve those very inter- capacity or inclination to be con- ests, and to bringing development of Private Sector sumer-responsive. The most com- the project as a whole to an end. monly used instrument for working Understanding where this resis- Participation in inpartnershipwithanyoneelseisthe tance comes from is important for South Asa - .traditional civil engineering contract those who wish to see a change in voutn zsl a - which is fundamentally adversarial the status quo. Those with a stake in W here Does and creates many opportunities for the current system, particularly poli- well-established opportunistic Resistance behaviors (Wade: 1987). C o m e F ro m ? Resistance to change comes from many quarters including politicians, the existing service providers and civil There is a commonly held view society (including advocates for the that the provision of basic water and poor, labor and the environment). In P sanitation services is the job of the fact, the resistance may not be to * .r =I government, and that the population private sector participation in particu- - l has a right to access such services, lar but change in general. Politicians irrespective of their ability to pay for have a stake in the current situation ! them. While evidence mounts up where the provision of "free" services to indicate that in fact the poor of- represents a form of political patron- '. i ' ten pay much more, on a per liter age, and where access to services is basis, than the rich, that subsidies often seen as a short-term favor for water mainly benefit those who rather than. a long- term right. The zL ";. are not poor, and that the invest- existing service providers also have ment requirements for water are a stake in the status quo; it is not far too great for governments to clear what their future would be in a - afford, this sense of the social obli- reformed, efficient and innovating -- gation to serve the poor has per- utility oriented towards serving the 3 sisted, and with it an idea that the poor. Civil society organizations = - , government should be the direct often raise concerns that more clearly provider (WSP: 1999). relate to safeguarding the welfare of _ _ '5 ticians, incumbent staff of public utili- seem to be few explicit "pro-poor" of the key challenges of private sec- ties and civil society, must be part of features of existing contracts, at least tor participation arrangements is to the process of change, otherwise at the design stage. Many pro-poor ensure that the service provider can- their combined resistance will be too arrangements seem to develop in an not do this or, better still, has a posi- much for reformers to overcome. ad hoc manner after agreements tive incentive to serve these particu- Bringing in the priyate sector may be have been signed and are therefore lar consumers. To understand how a reaction to a crisis situation, such hard to document and transfer. to do this it is important to consider as impending bankruptcy of the util- Much of the innovation in serving the why the poor are often neglected. ity, or political opportunity, such as poor has grown out of the need of Firstly, low-income consumers are the election of a strong majority gov- operators to respond to general ser- often perceived to be high risk, low ernment. In either case, it may be vice expansion requirements. return customers - the costs of serv- an indication of a willingness to For this reason it is necessary to ing them are perceived to be high, change. The issue for the poor then consider the particular nature of and indeed may be high for both becomes how to make this particu- poor consumers and perhaps to technical and social reasons, and the lar type of change (transition from look at some cases where things return in terms of visible politically public to private management) ben- have gone wrong, or where unex- useful improvement in services is low. efit them too. pected outcomes have arisen for Poor communities often present a poor consumers. challenge because they live in areas The Private which are dense, with unplanned Nature of poor consumers layouts and narrow roads, and Sector Serving Poor customers are often willing often on land which is insecure - the Poor: W hat to pay considerably more than is prone to flooding or on steep hill- conventionally thought for access sides. Service providers find it diffi- Have W e to reliable water and sanitation ser- cult to get reliable information about vices. Service providers, however, households; what levels of service Already often resist serving the poor and theywant and are willing to payfor Learned? sometimes simply ignore them. One and their credit-worthiness. A formal Designing "pro-poor" arrange- ments can mean a number of things. - , N - . ' ' One writer observed that "pro-poor -1 arrangements should at a minimum avoid harming the poor" (Komives: 1999) and this seems like a good * place to start. But one of the major problems in trying to design pro-poor -.--A private sector participation in water and sewerage services is the lack of good models to use; in all there are 4 ,V barely one hundred major private J0At. sector operations in water and sew- r f, , erage in developing countries (Silva: . r - 1998, Tynan: 2000) and very few of Jd i these have a long track record. Even IF. if examples could be used, there X 6 T-oi r, ~~~~~~~~~~~~~~tures which are pro-poor; and 4 t P j j z use the contract. Pay aftention to process and be informed -_____7___ . -It is important to start thinking ._711 ... # about the poor early in the design of ( '-.'!0; . - private sector arrangements. Water 7 ns; ; s > rs ~~~~~~~~~~~~~~service providers often find they know little about the poor, particularly 1 5 4 :t .tSJ ' : -* - 9 what services they are actually -_ ,. s"' % 45 ), j P 6 _ _io using and what they are paying. For - instance, in Kathmandu, where the F-- :; - t . -- h , - - ^ fl Government is in the process of x designing a lease contract for water # i e- ] t * o supply services, the National Water ; Supply Corporation did not realize a '. _ 9 9 - i Bthat poor consumers were not using corporation water, but relied to a contractual relationship directly the private sector, must aim to great extent on other sources, some with a client household is considered reduce the "distance" between the of them new, some traditional. If impossible, and service providers utility and its poor consumers, and people are not connected then it is usually resort to providing free com- must actively seek new innovations important to know why: is it for rea- munal services to be shared by the which can overcome the financial, sons of cost, lack of access connected whole community, a solution which legal and social constraints faced by to land tenure or overly lengthy and rarely provides a reliable and last- the poor. bureaucratic procedures involved in ing service. obtaining a connection? It is then Secondly, many governments Tools to use to protect important to determine how many of establish policies which explicitly pre- the interests of the poor these obstacles could be addressed vent "informal" settlements from Because the poor represent a cus- under a private sector participation accessing all but the most basic tomer base which is "distant" from arrangement. municipal services until the land on the utility operator and "unattractive" Finding out about poor consum- which they reside is "regularized" in to serve, explicit instruments need to ers is not easy. They can be hard to some way. This is partly due to the be put in place to ensure that the identify and reach. NGOs that work politics of land ownership but is also operator does indeed have an incen- with the urban poor and have expe- driven by valid concerns about the tive to serve them, and can do so in rience with data collection, particu- viability of settling land in the long an effective and appropriate way. larly with participatory techniques, term. The process of regularization This is where governments can act can be useful partners. is highly political, cumbersome and to structure private sector participa- However, it is not enough just to far from transparent; low-income tion to secure service improvements study the poor - like all consumers, families often wait years to be given for poor consumers. This can be done they must also be full participants in some kind of tenure status although in four broad ways: a process of consultation. This con- they may eventually retain the right pay attention to process and be sultation should cover service levels, to reside where they live. informed; tariff structures and expansion pri- Clearly the objectives of any get the policy environment right; orities. Consultation with consumers reform, including the introduction of establish robust regulatory struc- is seldom carried out well, and is particularlylikelytoexcludethepoor. In addition to knowing about councilors to build their under- NGOs which have a membership poor consumers, it is important to standing of the business of water base among the poor (for instance, understand and deal with resis- supply and the operation of the util- organizations which establish com- tance to change upfront. Broad- ity, and in understanding their munity groups such as savings based consultation and information objectives and priorities (N. groups, users groups, youth clubs, sharing is an important way to neu- McLeod, personal communication). etc) may provide valuable links and tralize opposition to reform as well This is one of the factors which has may be good advocates for the poor, as creating an opportunity for cre- enabled Durban to innovate in a but NGO consultation must not be ative discussion of approaches (see climate of political support rather taken as a fully adequate proxy for Box 1: The Cancellation of the Pune than opposition. direct consultation with the poor. Water Supply and Sewerage Many NGOs are operating in South Project). For example, the Chief Get the paficy Asia, and there is a well informed Executive Officer of Durban Metro environment righE and vocal civil society tradition which Water in South Africa invests up to Policy reform needs to be dealt can be tapped into to ensure full and six weeks after each municipal elec- with up-front in the reform of the constructive consultation. tion in working with newly elected water sector. Private sector partici- pation is not a substitute for good BOX 1: THE CANCELLATION OF THE PUNE WATER policy-making. Two examples will SUPPLY AND TH E WCANCELLATIONGOE PROJECT WATserve to illustrate this point; the SUPPLY AND SEWERAGE PROJECT design and enforcement of tariffs/ In 1998 the Pune Municipal Corporation attempted to implement an subsidies, and land tenure. urban environmental infrastructure project valued at approximately A large part of the policy environ- US$ 185 million through construction and management contracts with a ment will have to do with subsidies, private sector firm. The project was an integral part of a 25-year strate- the way they are delivered, and the gic plan that aimed to gradually extend, to the total population, a way tariffs are, as a consequence, 24-hour water supply and sewerage service, and was designed to en- structured. Tariff structure is usually sure that Pune remained an attractive economic destination for inves- determined by the government, and tors. In March 1997, the Government of-Maharashtra approved propos- is an important tool for sending mes- als to invite competitive tenders from the private sector. On October 7, sages to the public regarding the 1998, two weeks before tenders were due to be opened and the contract value of water and its efficient use. awarded, the Pune Water Supply and Sewerage Project was unexpect- Social objectives can also be built edly canceled. into the design of tariff structures A combination of reasons underlie the last-minute failure to reach the through, for example, the use of operational stage, but essentially the project lost political support and "social" or "lifeline" tariff elements. the cancellation was effected through political processes. This was Lifeline tariffs provide a minimum despite the project being consistent with the state government's policy amount of water at low-cost, often on public/private partnerships for improvement of urban infrastructure, below the cost of supply (it may even and having attracted broad cross-party support through the preparatory be free in some countries), which is stages. However, local and national elections changed the political land- sometimes cross-subsidized by scape, criticism, especially in the press, began to mount and the absence higher priced water in higher con- of a well managed public relations office resulted in poor media man- sumption blocks (this is then referred agement and a lack of accurate well informed debate in the public arena. to as an Increasing Block Tariff or IBT). The failure of the project reflects the need to have a structured, continu- In a concession, the operator may bid ous and focused consultation process, which keeps all stakeholders abreast on the tariff itself, or may negotiate of developments, tariff increases, but the underlying structure, including the requirement 8 to offer water to some customers at tantly, debate on tariff design needs less than cost, is usually a govern- BOX 2: INCREASING to start well ahead of the implemen- ment decision. In other contractual BLOCK TARIFFS tation of reforms, build on practical relationships (commonly in manage- IN KATHMANDU lessons from elsewhere, and include ment contracts or lease arrange- In Kathmandu, there is an IBT in a wide range of stakeholders. ments) the operator may not be con- which the first block of 1 0 m3 is Another important policy issue is cerned with tariff at all, and here the charged at Rs 40 (about $0.60), land tenure. As is common else- role of the government in establish- and additional consumption is where, many South Asian cities do ing tariff remains equally important. charged at Rs 9.7 perl ,000 liters. not allow people without official land Tariff design is challenging The effect of this for two house- tenure to obtain water connections because of the conflicting objectives holds, one middle class one with (even though they may have been which government aims to meet an individual connection and one resident on the land for many years, (objectives of economic efficiency poor one using a shared connec- and even though other services, such and demand management may tion, is shown below: as electricity, may be made available often conflict with social objectives). Household A has a metered pri- to them). In a place like Dhaka, Furthermore, outcomes can be vate connection and con- this results in a vicious water black unexpected. Social tariffs and IBTs sumesl'0,000 liters per month market, where the same slum land- have built-in inequities and ineffi- Total charge 40 lords who control illegal land settle- ciencies (Boland: 2000). More seri- Price per 1,000 liters 4.0 ment, provide employment opportu- ously, they are only beneficial to the nities, and run organized crime rings, poor in those cities where all poor shared tap used by 20 house- also control illegal connections in consumers have a household con- . squatter areas and sell water at high nection. In cases where people use hlds, ea h ons n , prices. Refusal to connect squatters, liters per month shared connections, the increasing r . . or at least to find some way to pro- block tariff is detrimental to the poor T vide them with a legal, adequate and - a number of families using one First 10,000 liters: 40 affordable service, may have serious connection will rapidly use the dis- 110,000 liters @ 9.7 1,067 negative impact on the lives of the counted water and most of their Total charge 1,107 poor, the health of the city, and lead consumption will be in the upper Price per 1,000 liters 9.2 to corrupt practices both within and blocks, meaning that they effec- Charge per household 55 outside the utility. tively subsidize their wealthy The poorer of the two house- Tenure is an issue that belongs in neighbor in a single family home holds, using a lower level of ser- the realm of policy. It is incumbent who uses less than the first block vice and consuming less water, on governments to sort out this policy each month (see Box 2: Increasing in fact pays 38% more on a well ahead of a private operator Block Tariffs in Kathmandu). monthly basis, and 130% more becoming involved as this is not While there is insufficient knowl- on a per liter basis than the something that the operator will be edge of the impact of tariff structure wealthier household. in a position to deal with. If the policy in private sector arrangements, we climate is wrong the objectives can clearly see that, in a conces- prospect of not only not recouping of serving poor consumers may sion arrangement, lifeline tariffs pro- his costs, but being required to pro- be constrained. vide a powerful disincentive to the vide discounted water. operator to connect the poor. He may Fundamentally the design of a 1EZsUsht mobus0 U-00Da00@7 find himself faced with installing workable tariff is a challenging SOrQDtuUZes WM m Glre PV0-Por costly connections (especially if the issue for government; debate and While a full discussion of regula- poor are in areas distant from decisions need to be both well tion is not within the scope of this existing tertiary networks) with the informed and well regulated. Impor- paper, it is important to point out that 9 regulation should be carefully provide different quality levels to dif- possible (see Box 3: Contract Types). designed to be responsive to the ferent customer groups, allow alter- Two aspects of the contract which are needs of the poor. Of course, inde- native providers to provide services of paramount importance are how pendence and autonomy will equip too, and leave the consumer to the operator obtains his revenue: a regulator to make decisions that decide whether to accept the lower whether it is through a fee (as in a benefit all consumers, but it may be quality option from the main provider management contract) or through necessary to ensure that the regula- (Baker: 2000); the tariffs directly (as in a conces- tory body is well informed of the spe- contract compliance - ensure the sion); and how new connections are cific impact of its decisions on the compliance of the operator with funded: whether by the operator poor, and to empower it to be inno- respect to his contractual obliga- himself or from public funds. vative and deviate from convention tions for service to the poor; peri- In a concession or lease arrange- if it sees that this will be beneficial. odically ordering, or requiring the ment, provision of service to the poor It is also important to make sure that operator to commission, special may actually cost the operator more the regulator has a well established audits of the operator's perfor- than he collects in revenue, either way to listen to the concerns of con- mance in this regard; through tariffs or his lease fee sumers, and that this mechanism is consultation - establish a city-wide (especially if there is a social tariff inclusive of the poor. Fundamentally forum, made up of advocates for the which is below the cost of supply). In a regulator requires a clear policy poor, to debate regulatory decisions these cases, positive contract incen- environment in which to function - and advise or rule on their impact tives, rather than penalties, are much it is not the role of the regulator on poor consumers; more likely to result in satisfactory to set policy but to ensure that it "I monitoring - develop and moni- outcomes, and also reflect the fact is implemented. tor performance indicators based on that the operator should be remu- In particular, regulation must be consumer satisfaction, including nerated for putting in connections for pro-poor in terms of: that of the poor. which he is unable to recover the full abstraction - for instance, prevent incremental cost. large-scale abstraction of groundwa- Use the contract Contracts that are structured to terbyindustry,yetstill allowthesmall Finally, the contract between the include general coverage targets, handpump tubewells of the poor to government (the "employer") and based on the assumption that cover- operate if they provide reliable and the private sector firm is in itself a age of the poor will be addressed affordable service; powerful tool to address the special through universal coverage, are not .' choice - allow alternative service needs of the poor. The potential to realistic. Reasons can always be found providers to operate, and regulate the use the contract will vary according not to include hard-to-reach areas in market as a whole so that it optimizes to the type of contracting mecha- the targets, and the level of service options for and benefits to the poor; nism, and so will the types of obli- designed for 80% of the population ' quality - allow the main provider gations put on the operator, and the may not be at all appropriate for the to diversify the quality of service and incentives and penalties that are other 20%. Instead, contracts need to BOX 3: CONTRACT TYPES Option Asset Operation and Capital Commercial Duration Ownership Maintenance Investment Risk Service Contract Public Public & Private Public Public 1-2 Years Management Contract Public Private Public Public 3-5 Years Lease Public Private Public Shared 8-15 Years Concession Public Private Private Private 25-30 Years 10 allow for flexibility in designing ser- dards - in poor areas where there is BOX 4: EXPANSION vice to the poor, while ensuring that no vehiculartraffic it may make more BUENOS AIRES all the poor are reached. sense to lay small diameter pipe in Targets based on geographical shallowtrenches,oreventorunplas- In May 1993 a 30-year conces- zones, however, can be successful tic pipe above ground (this also sion contract was awarded to a in places where many poor people makes illegal connections and van- private company to operate the live in well defined areas (peri-ur- dalism easier to control) - contract water and sewerage services in ban slums, for instance) which can stipulations should not prevent this, Buenos Aires. By specifying pre- be prioritized for service expansion and employers should think carefully cise geographical expansion tar- (see Box 4: Expansion Targets in what minimum standards are desir- gets the contract attempted to Buenos Aires). able and feasible (see Box 5: Low- enforce service provision to areas of very low coverage, which Fundamentally, contracts should Cost Water Supply in Manila); were largely poor neighbor- allow for flexibility within a clear avoiding or limiting exclusivity - if hoods. The population without mandate to serve the poor. Employ- the operator is awarded the exclu- water and sewerage connections ers can maximize flexibility by: sive right to provide water supply and (30% and 42%, respectively) were carefully considering input stan- sanitation services in an area, this mainly located in the rapidly growing suburbs where low- income households were scat- BOX 5: LOW-COST WATER SUPPLY IN MANILA tered throughout. However, at the start of the concession socio- The private operator in the West Manila concession decided to pro- economic data was unreliable, vide individual connections to the poor through the Bayan Tubig ("Wa- and to address the challenge of ter for the Community") project in various areas. The project aims to hard-to-reach households, the fulfill the service expansion contractual obligations by devising ap- operator engaged an NGO propriate technological options, adapting solutions to the social con- whose research into housing characearic and service text, developing strong cooperation with the communities, and using characteristics and service' demand in low-income areas local partners such as community-based organizations and NGOs. It helped to shape the operator's is designed to benefit 600,000 low-income households by the end of Service Expansion Plan. This five- the concession period. year plan is the main vehicle for The private operator finances, constructs and maintains the infrastruc- service provision to the poor and ture. The barangays, which are the lowest level of local government, is based on priority areas defined have to give their approval before implementation. The community- by each municipality and based organizations and the NGOs play a key role as they help to map approved by the regulator. For the network, provide socio-economic data, and help motivate people example, to enforce service pro- the prti vision to poor areas the first five- to take part. year expansion targets for the In order to provide rapid expansion of services, a low-cost technical poorly-served south zone aimed solution has been adopted to reach each individual house. The to increase the number of house- densely populated poor communities are provided with a buried main- holds connected to services from line as far as possible, but where it is not possible to bury the pipe, 49% to 79% for water and from the rest of the network is above ground, partially covered or attached 21% to 40% for sewerage. to a wall. This line goes up to a battery of meters, usually at the Although It will still take 15 years flthor ghwater illsl toach 9% o perimeter of the community. From the meters, each homeowner for water to reach 92% of the population,thetargetsunderline makes his own connection, above ground, usually using low-cost the attempts being made to plastic pipe. The main advantages of the Bayan Tubig schemes are prioritize service provision to easy implementation, speed and low-cost. The average cost of a con- poor households. nection is estimated to be US$ 97. service - household connections and nizations such as water user groups. BOX 6: CONDOMINIAL fully plumbed systems may be desir- SSIPs are common in illegal settle- SYSTEMS IN EL ALTO able but unaffordable for the poor, ments, where they can provide non- In El Alto, the concession contract and if an operator is compelled to networked, decentralized services to specified that the operator had offer only this level of service he may households who are not entitled to to provide house connections for be unable to reach the poor. Instead, formal services. Low-income house- innovation must be allowed to find holds report that they use the ser- both water supply and sewerage. other ways to provide acceptable lev- vices of these informal providers However, the price Of a conven- tionawater, and srcewrag convn- els of service, like shared connec- because they provide the right ser- nctional waser fid byetheragego- tions, shallow sewerage, roof tanks, vice at the right price. Even if the nection was fixed by the regula- on-site sanitation, etc (see Box 6: cost of water from a vendor is higher tor at an amount well below the real cost. Having to provide Condominial Systems in El Alto). than the nominal tariff charged by the utility, poor consumers may in-house connections at below Implications for operators prefer the former because the sup- cost price was a disincentive to The four tools mentioned above ply is reliable and flexible (particu- service expansion in poor areas should enable the employer to create larly in terms of hours of supply) for the concessionaire, and min for the concessionaire, and in an environment in which the operator and there is no excessively high addition even the regulator'sI aixeddprition as eenothe aoreulaor' has the right incentives to address the "connection fee". fixed price was not affordable forg poor families. The concessionaire needs of poor consumers on a equal considered a number of techni- [ priority with those of others. But the Intermediaries for cal alternatives to address t-his j question remains: what tools does the improved customer links problem, and requested approval operator himself use to meet the Specialized intermediaries have f t requirements of the regulatory provedtheircapacitytodevelopand from the regulator to use "condominial" systems in low framework and contract design? One support the "customer relationships" income areas. These systems are key mechanism is in working in "part- which are so difficult and costly for nership" with small-scale indepen- large-scale providers to establish based onsmletgroudiametuserpips dent providers, intermediaries to with densely settled informal cus- which connect groups of users improve customer links, and interme- tomers. A local intermediary (NGO, reslthe min suchemajor Tishavs, diaries for customer education. CBO, user group or small-scale resulted in such major savings, entrepreneur) can provide informa- particularly In sewerage, that now condomnarly systwesare, used nmall-scale tion on the customer base, help cthroughoutn sthcoemssio area use independent providers establish viable pricing strategies, throughout the concession area. Because of the failure of conven- develop an understanding of the tional utilities to serve low-income nature of demand and aggregate makes all other providers illegal, and households, they often buy their this demand. Intermediaries can may drive out affordable alternatives water and sanitation services from also provide appropriate small-scale - it also precludes the operatorfrom small-scale independentprovidersor financial services (savings and making use himself of efficient retail other informal sources who retail credit, and establishing realistic service providers (such as water kiosk water or sanitation services, bought financial guarantees) to help poor operators or water delivery services) in bulk from the utility or sourced consumers get over the constraints by on-selling bulk water (however, independently (Collignon: 2000). of high connection fees. Specialized denying an operator exclusivity may SSIPs take a number of forms, rang- intermediation can also facilitate the add to his perception of risk as he ing from a subsidiary of a largish formation of effective user groups, may fear that he will have to com- operation, through small-scale which is particularly importantwhen pete with other large-scale providers); entrepreneurs to cooperatives, indi- individual connections are not .' avoiding specifying high levels of viduals and community-based orga- affordable, and shared connections 12 are provided instead. An example of assistance they can request. Poor of this type of intermediation can be clients, new to network services, found in the power sector (which sometimes need to be educated to often provides interesting parallels j be "good customers" and need ;n- to the water sector) where, in the struction in paying their bills, report- Indian state of Orissa, a private elec- ' # ing leaks, practising water conserva- tricity company has partnered with tion and not blocking sewers. In an NGO and community groups addition, hygiene education is needed (see Box 7: Electricity Committees = to ensure that people get the full in Orissa). X r health benefits that improved water supply and sanitation offer. There are on0lrmed6lr5qs for eexamples of NGOs and small private eus~omeŠ e 1du= n- sector firms playing a role in these Another important set of interme- tasks in several parts of the world as diary services relates to customer part of private sector participation awareness and education. Poor ; arrangements(forinstance,in Manila people need to know what arrange- g and El Alto) and in South Asia it is ments are being made on their , common to find NGOs providing edu- behalf, what types of services they B cation and awareness building in the will have access to, and what kinds r rural water supply sector. BOX 7: ELECTRICITY COMMITTEES IN ORISSA In July 1997, the Grid Corporation of the Indian state of Orissa offered majority participation in its entire distribution business to private investors. Two private firms took over the four distribution zones. At that time, about 40% of power was not being paid for; about half of this was due to technical losses, and the other half was being stolen, or not being paid for even if it was correctly metered and billed. Badapandusar village had 287 connections, of whichl32 were illegal connections which overloaded the transformer, and burnt it out. The supply became so irregular that even consumers with legal connections were reluctant to pay. The linesman did not read the meters regularly, the bills were often wrongly prepared or, due to poor postal services, were delivered long after they were due. Poorer consumers could not afford to pay the large amounts in infrequently and irregularly presented bills. For the private sector operator, Gridco, now a cost-conscious entity, revenue from the village was insufficient to justify repairing the trans- former again and again, let alone upgrading it. Things were at a crisis stage, and the solution lay in using a local NGO as an intermediary to mobilize the community. The company assured the villagers that supply would quickly improve if everyone got legally connected, and if they paid their bills regularly. The NGO was asked to set up an electricity committee, and the company offered to pay it the fee it paid private bill collectors. The committee employed three young men to do meter reading, bill distribution and minor electricity repairs. The committee started organizing monthly bill pay- ment meetings, where billing and technical problems were also discussed and sorted out with company staff. 132 illegal connections were converted into official ones, and 73 more households connected. Revenue more than doubled. Not only were current bills being paid regularly, the committee worked out repayment schedules for arrears. The company could now afford to add a new transformer and repair the old one, and supply improved dramatically (Ghate: 2000). '13 contracts with NGOs often takes fo- cus away from the more challeng- - -. ing job of securing sustainable relationships. (This phenomenon is - i well understood in the rural water sup- ply sector and valuable lessons could A- be learned from these experiences.) However, the operator chooses to address the challenge of serv- __ ing poor consumers, it is clear that he would need to develop suitable skills (including social intermedia- tion, financial services for the poor, hygiene promotion, social - *i c marketing, customer outreach), ! either to carry out activities di- - rectly or to effectively partner with ; others. Whether these special v skills need to be housed in a "spe- cial unit" or can be dispersed Uhe chaIgeege af capacity and see any relationship through the organization would [buiding pagnersh6ps as an opportunity to develop new depend on the nature of the con- Working in partnerships such as skills. Operators who could take ad- sumer base - including the these creates new potential for the vantage of this willingness to learn numerical significance and geo- operator, but the identification and are often unable or unwilling to con- graphical distribution of the poor selection of suitable intermediaries tract in a way that is sufficiently Wherever they are housed, how- is likely to be challenging for large- flexible to accommodate this ever, it is important that serving scale service providers who have little (WaterAid: 1999). In addition, they the poor is mainstreamed within experience with "soft" developmen- are often naive about the costs of the operator's business. In orga- tal work. Similarly, formalizing rela- these support services and also the nizations dominated by engineers, tionships with civil society partners capacity of NGOs to absorb both fi- special units to serve the poor such as NGOs is notoriously difficult nancial inflows and new responsibili- odscadutecnologaenofte per- for service providers. Each side may ties. Finally, many of the services ceived as unimportant or low have unrealistic expectations; NGOs which these civil society organiza- status, and the units need high- often resent being "contracted" as tions could perform for the operator level management support and their relationship with a community do not necessarily lend themselves 9 PP is often perceived in a longer term to the sort of performance monitor- effesentation. framework with wider objectives than ing with which service providers are those required by the service pro- familiar - while it is possible to as- vider, while traditional service pro- sess whether a community user Conclusions viders (often engineering-based group has been formed it is harder organizations) have little experience to measure its capacity and reliabil- 50M!Qs for $u [1n LAzDG in developing innovative contrac- ity as a "consumer" for the op- The above sections have illus- tual relationships. Many civil erator. Atendencyto include quan- trated that involving the private society organizations have limited titative measures of performance in sector in water and sanitation ser- 14 vice provision does not have to would have the advantage of sectors and these must be taken adversely impact on either the well-equipped potential partners into account. quality or the cost of services to both for service delivery and to Furthermore governments must poor consumers. However, it should support the process of public con- be committed to releasing control be clear that there is a need for sultation. The tradition of democ- over the direct provision of services. innovation in every case - examples racy in much of the region also Three distinct responsibilities must be of complete and successful reform supports the potential for an inclu- clearly demarcated: policy remain- are rare, and there is a limited sive consultative process and ing with government, regulation database of previous experience existing community-based initia- becoming an independent and which can be used to design appro- tives provide models for replica- trusted institution and service provi- priate interventions for every situ- tion. Finally, the impending crisis sion being carried out by profession- ation. Where there is a commitment of failed service provision, envi- als. This implies a commitment to to innovate and a willingness to ronmental damage and public building capacity for effective regu- move beyond rhetoric to the search health disaster is a powerful argu- lation and dispassionate monitoring for practical and realistic solu- ment for taking radical action and evaluation of performance. The tions, it will be possible for South now - and it should be clear that benefits that the private sector Asian utilities to effectivelyserve the radical action does not have to can bring will not be realized poor. What is more of a concern is exclude the poor but could mate- unless water and sanitation that there has to be a commitment rially benefit them. service provision and regula- to the overall reform process to tion are separated from the enable improvements to service The future business of governing. delivery for poor consumers to For the future, governments in Meanwhile civil society needs occur at all. This may be the great- the region who are prepared to also to be informed and construc- est constraint to improving condi- consider introducing the private tive within this debate; it is not tions for the poor. It requires an sector to a major role in water enough to voice the concerns of acknowledgement up-front that and sanitation service provision serving the poor - all players business as usual is no longer should take careful note of the need to be engaged in a construc- acceptable. The reluctance of lessons from elsewhere. It is not tive search for real solutions to politicians to initiate reform, enough to simply make provisions the challenge of serving the mil- linked to a lack of strong orga- for lifeline tariffs and require pri- lions of poor consumers in South nized consumer demand, has led vote sector operators to extend Asia's cities. Where local and to stagnation in the sector with services to poor areas. There national governments will create little willingness to innovate and needs to be a clear commitment room for debate, civil society must seek new solutions. up-front that serving the poor is contribute from its rich store of one of the major objectives of any experience and ideas. vac%ors 6n fe3vor of innovafon new private sector participation Finally, private sector service Ironically, however, South Asia arrangement. Once this commit- providers probably need to open is endowed with strong existing ment is secure, time and resources their thinking to new forms of institutions; most of the countries must be put aside for exploring partnership. They, too, need to in the region boast impressive the nature of poor consumers, be prepared to learn from other training capacity, have a culture their demands and willingness to sectors, be open to partnerships of planning and some have already pay, and to designing appropri- and to build their own capacity to launched programs of reform in ate technical and institutional ar- deliver more effective services other sectors. Civil society is also rangements to serve them. New more effectively to poor people strong and many potential private lessons are continually emerging who would thereby finally become sector participation arrangements from other countries and other legitimate customers. 15 -~ 3|| [Water and Sanitation Program - South Asia S* ^55 Lodi Estate New Delhi 110 003 India Phone: (91-11) 4690488, 4690489 Fax: (91-11) 4628250 In j t il 0E-mail: wspsa@worldbank.org Web site: http://www.wsp.org References Other publications in this series: Baker, Bill, and Tremolet, Sophie, Department for International Develop- The Buenos Aires Concession: The Private 2000. Regulating Quality Standards to ment, New Delhi. Sector Serving the Poor Improve Access for the Poor, Viewpoint Silva, G. Tynan, N. and Yilmaz, Y., Case Studies from El Alto; Manila; Note No. 219, The World Bank, Wash- 1 998. Private Participation in the Water Jakarta; Durban ington D.C. and Sewerage Sector - Recent Trends, BolandJ.andWhittington,D.,2000. Viewpoint Note No. 147, World Bank, The political economy of water tariff Washington D.C. design in developing countries: Increas- Tynan, N., 2000. Private Participation ing block tariffs versus uniform price and the Poor: Water and Sanitation Paper with rebate, in "The Political Economy prepared for the conference on "Infra- of Water Pricing Reforms", Ariel Dinar structure for Development: Private Solu- Ed. Oxford University Press, Oxford. tions and the Poor, May 31 -- June 2, 2000, Collignon, B. and Vezina, M., London, UK. 2000. Independent Water and Sani- Van Den Berg, Caroline, 2000. Water tation Providers in African Cities - Concessions: Who Wins, Who Loses and Summory of a 10-country study, What to Do About It, Viewpoint Note No. Water and Sanitation Program with 217, The World Bank, Washington D.C. the World Bank Institute. Wade, R., 1997. Management of Com- Eade, D., 1997. Capacity Building mon Property Resources: Finding a Co- Prepared by Clarissa Brocklehurst and - An approach to people-centred operative Solution, Research Observer Barbara Evans, Water and Sanitation development, Development Guide- Vol 2 No. 2 July 1987, IBRD. lines, Oxfam, Oxford. WaterAid, 1 999. Contracts or Partner- Program-South Asia. Ghate, Prabhu 2000. Electricity Sup- ships?: Working Through Local NGOs in ply to Villages in Orissa, Economic Ghana and Nepal - a WaterAid report by January 2001 Times, Wednesday August 30 2000. Andrew Claydon, WaterAid, London. The Water and Sanitation Program is Komives, K., 1999. Designing Pro- Water and Sanitation Program, an international partnership to help the poor Water and Sewer Concessions - 1999. Water for India's Poor - Who Pays poor gain sustained access to improved Early Lessons from Bolivia, PSD Policy the Price for Broken Promises?, Water water supply and sanitation services. Research Working Paper 2243, IBRD, and Sanitation Program - South Asia, The Program's funding partners are the Washington D.C. New Delhi. Governments of Australia, Belgium, Mehta, M., 1999. A Review of Pub- World Bank, 1 997. Toolkits for Private Canada, Denmark, Germany, Italy, lic-Private Partnerships in Water and Sector Participation, The World Bank, Japan, Luxembourg, the Netherlands, Environmental Sanitation in India, Washington D.C. Norway, Sweden, Switzerland, and the United Kingdom; the United Nations Development Programme, and The World Bank. Created by Write Media E-mail: wrilemedia@vsnl.corn Printed at PS Press Services Pvt Ltd