Small Private Sector Providers in Water Supply and Sanitation –

an overview and some experiences from the World Bank and WSP

Meike van GinnekenSr. Water and Sanitation Specialist, World Bank

With thanks to Ede Ijjasz & Ella Lazarte (WSP) & MukamiKariuki (World Bank)

OECD Global Forum on Sustainable DevelopmentParis - November 29-30, 2006

Overview

Why bother?What kind of SPSPs are where?

What good practices do the World Bank & WSP have working with SPSPs?

What are the policy implications of what we have learned?

Water PPPs by country income categories

Water projects with private participation by income group, 1990-2005

0

5

10

15

20

25

30

35

40

45

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Low income

Upper middle income

China

Low er middle income

Projects

The context: Service levels

source: Global Water Supply and Sanitation Assessment 2000 Report

Urban water supply by type of service by region

Many with house connection still require small providers: India as an example

Accessibility to Water Supply in India: ∼ In 2001 74% of the population had access to a piped water

supply

∼ Water availability is at average of 2.9 hours per day

∼ Connections with 24/7 service in Delhi is 1% (compare to 90% in Jakarta, 88% in Manila, 60% in Colombo)

Source: Bridging the Gap between Infrastructure and Service, World Bank 2006

The water market in an African city

Why focus on SPSPs?

The “ultimate goal” - a household connection for all -depends on much more than service expansion. What to do in the meantime or in the long term?Ignoring the problem has not made it go away – in some countries coverage/access has declined. Is the best the enemy of the good?Put all the cards on the table –you can only “regulate it” once you recognize it Work with what you have - for the unserved or under-served the gaps is being filled by self provision or SPSPs. Reaching the MDGs through SPSPs?

Price of Water by Type of Service Provider

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Public Utilities PrivateNetworks

Point-sourceVendors

Tanker Trucks Carters

US

$ p

er C

ub

ic M

eter

PrivatePublic

UnitizedPiped

But there is a lot to do…..

Kariuki, et al, Small-Scale Private Service Providers of Water Supply and ElectricityA Review of Incidence, Structure, Pricing and Operating Characteristics, 2004

Overview

Why bother?

What kind of SPSPs are where?What good practices do the World Bank & WSP have working with SPSPs?

What are the policy implications of what we have learned?

Typology of SPSPs

Dependent SPSPs1.Piped network operator2.Point source3.Mobile distributor

Independent SPSPs4. Piped network operator5. Point source6. Mobile distributor

Utility

13

Consumers

2

54 6

Groundwater/surface water

SPSP Typology – main policy issues

IndependentDependent•Bulk price from utility? tariff structure/pricing, •Ownership of assets - laid at operators cost? •Hold contract/licence? –regulation by utility•Quality of water at point of sale (utility) •Authority to connect new customers – utility or operator

•Exclusivity/Monopoly –what regulation, who monitors?•Develop own source–groundwater abstraction permit? •Licensed to sell? –authority to connect new customers•Quality of water – testing frequency, monitoring

Estimated SPSP Coverage Percentage of households relying on SPSPs

Source:Kariuki et al., 2004

WSS Coverage Levels and SPSP Activity

Source:Kariuki et al., 2004

Additional characteristics

Motivation? – for profit or non-profit, own use (community) or business Organisational form? -cooperatives, self help groups, company, sole proprieter, family businessLegal status? – license, permit, contract with utility, registration with chamber of commerce Financing? – savings, family, commercial bank, loan shark, member fees, customers, micro-credit

Overview

Why bother?

What kind of SPSPs are where?

What good practices do the World Bank & WSP have working with SPSPs?What are the policy implications of what we have learned?

good practices from the World Bank & WSP

Fostering “subdelegation” from utilities to SPSPs∼ Kisumu, Kenya; Medellin, Colombia; Manila, Philippines

SPSPs for construction & operation of sanitation facilities ∼ Ulaanbatur, Mongolia; Mumbai, India

Fitting SPSPs in longer term sector policies∼ Paraguay

Using consumer surveys to inform reform choices ∼ Sri Lanka

Fostering SPSP associations

Subdelegated management models in Kisumu, Kenya

Water Services Coverage

Nyalenda

Existing situation in Kisumu, Kenya

Metered Connections

Illegal Connections

Spaghetti Network

Water contamination risks

Unaccounted for Water

Situation after project in Kisumu, Kenya

Focus on interface between SPSP & utility:Utility sells bulk water to a community private operatorThe selected operator acts as agent for utilityPerformance-based contractProfit-making social enterpriseReduced tariffs/fees

600m

Utility networkBulk supply, metered

Secondary branch Private master operator

Household Meter Chambers

Initial results include increased access to water and decreased prices…

Estimated 2,000 people served by the new operators

Monthly consumption is high at 30 cubic meters due to HH reselling

Fees have been reduced significantly

.02 or .92/cu.m

0.03 or 1.41/cu.m

Cost of water to end consumer

21.1656.41Connection fees

14.1025.40Household meter deposit

0.992.12Household meter rents

New Charges

Old charges

in US$ (1USD=71KES)

Project developed jointly by WSP and AFD, in support of € 20M infrastructure project

Key lessons emerge for scaling up the model in Kenya and rest of Africa…

Institutional: financial and technical support to operators

Increase confidence among stakeholders: utility-master operator-community

Marketing and (utility) communication strategy crucial

Encourage prepayments from community to minimize risk

The Contratación Social Program of Medellinpublic utility

Model: Institutional: direct relationship between utility-community - contract managed by newly-formed local organization that is run like a firm

Social: intensive capacity building

Financial: partly financed by the municipality’s Social Funds

Results (after 5 years):Approximately 41,400 users in five years

149 Contracts with community organizations

Total investment from 1998-2000: USD11.4 M

16,900 hours of training to the communities

6,900 jobs with an average duration of four months

Source: WSP-LAC Seven Cities Project

10 years of experience in subdelegation in Manila

1997: two concession contracts signed for Manila metropolitan area2005: 80% piped network coverage (12 million people)Since 1997, 1.1 million reached through sub networks (third party provision)2005 survey of 183 small providers and 271 of their customers in 5 locations within Manila:∼ 60% had access to piped water supply (38% of these rely on utility

network); 6% neighbors; 7% deep wells∼ Prices are 1.4% - 6.2% higher (compared to 10 - 20% in literature)∼ Prices have fallen since 1997 (tankers from $4/m3 to $2/m3)∼ Small piped networks offer lowest price ∼ Water reselling business is on the rise - treated (bottled) water ∼ Most small providers licensed∼ 58 - 68% SPSPs feel they’ll still be operating in 5 years

Source: World Bank/BNWP report, forthcoming

World Bank support to water and sanitation SPSPs in Ulaanbatar, Mongolia

Ulaanbaatar Services Improvement Project (1997 -2004) resulted in more reliable water supply services to about 140,000 people by connecting water kiosks to the networkSecond project (from 2004) – broaden approach to sanitation:∼ Social assessment showed on-site sanitation is very high on

the list of priorities for residents in the Ger areas∼ World Bank sponsored city wide sanitation plan based on

stakeholder consultation (a novelty)∼ Now pilot in some Ger areas: support to create enabling

environment for scaling-up of implementation of low cost sanitation by community groups

Source: World Bank, 2006a

Going to scale in Mumbai, India: CBO operated community toilet blocks

55% of Mumbai 14M population lives in slums IBRD/IDA $192 million Bombay Sewage Disposal Project (1995-2003) with 6% to Slum Sanitation component provided sanitation services for 400K slum dwellersModel:∼ municipality provide capital to build blocks, community groups

pay for O&M ∼ Community Based Organizations (CBOs) were created;

Municipality issues a building permit after 50% of the community contribution collected and sound plan endorsed by the community

∼ MOU municipality - CBO as service provider: defines standards ∼ CBOs can decide: direct user involvement or use private operator∼ Most of the CBO are performing well, raising enough funds

within their communities to efficiently manage the toilet blocks

Source: World Bank, 2006b

Paraguay: how to fit SPSPs into longer term sector strategy

Traditionally strong presence: 400 aguateros serving 30% of populationWorld Bank Project in rural & town WSS support transformation of SPSPs to formalized operators∼ Aim to attract private sector managers – aguateros, others∼ Competition for small settlements, simplify bidding process/contracts∼ provide financing - output based aid

Urban areas: 2000 law ensures that small systems can be integrated in normal grid∼ SPSPs get 10 year license from regulator; at end of license period, state

can appropriate infrastructure to include in grid∼ SPSP tariffs are regulated∼ Idea is to provide SPSPs clear framework: Jury still out

Source: World Bank/BNWP report, forthcoming

Sri Lanka: how consumer surveys can inform reform choices

2003: Government planned PSP in Negombo and Kalutra-Gallestudy of 1,800 households to inform the design of the transactionKey findings from the study:∼ 60% of poor households rely on wells; 28% on private connection∼ Poor use “unsafe” sources but treat water, quality not judged a problem∼ Poor do not consume significantly less due to free groundwater source∼ Diversity among the poor necessitates service differentiation∼ Uptake rate (willingness to connect) with connection fee: 50% overall,

27-32% among poor) instead of 95% assumed∼ Without connection fee: 70% uptake among poor

Conclusion: Access to and use of alternative to piped water as well as household perceptions and attitudes are critical in determining whether a household will connect to the network

Source: Van Den Berg, 2005

SPSP associations can play an important role: mutual support, voice to govts, utilities & donors

Association of tanker drivers in Kathmandu, Nepal first created to help members confront police harassmentalso supported members involved in accidentsassisted tankers to get registeredTried to install a shared borehole and treatment plant – but this failed and led to the association dissolving

Association of standpostoperators in Ouagadougou, BFProvides small grants to its members who are celebrating a wedding or baptism Extends credit to members who temporarily cannot pay their water billWill help members deal with troublesome clientsOrganizes members’participation in city-wide events

Association of 150 SPSPsin Bandung, Indonesiafee varies according to size association revenues are used to improve road conditions and traffic control ; support members emergency medical care or suffer work-related accidents related accidents; and support community events

Source: World Bank/BNWP report, forthcoming

Overview

Why bother?

What kind of SPSPs are where?

What good practices do the World Bank & WSP have working with SPSPs?

What are the policy implications of what we have learned?

Policy implications: Understand the market and consumers preferences

Review existing service delivery arrangementsWhat sources do the poor currently use – are they likely to move from existing sources to utility serviceWho provides them with WSS services – is the utility well placed to offer better servicesHow well are these services being provided – “drinking” water quality is a priority for poor

Assess customer preferencesWhat are they willling to pay for an improved service – both consumption and connectionWhat is the nature of “improvements” they seek (if any) -affordability, volume, service level, reliability, in house facilities

utility expansion may not be the logical next step!

Policy implications: Understand the utility’s supply constraints

Review the “primary” utilities plans and constraints – what is a realistic timeframe for meeting the goal of universal piped water supply? Expansion plans – need to increase production capacity, extend distribution networkPerformance with respect to improving cost recovery, revenue generation, achieving 24/7 service, reducing NRWExternal constraints – slum policy, land tenure, subsidy policy, etc., - and options for sidestepping themFinancial implications for accelerating service coverage –who will pay for expansion

Policy implications: Understanding small scale service providers

Third party provision can be a useful means of scaling up servicesAs a short to medium strategy, plan for and involve existing service providers, but find ways to improve their efficiency to the benefit of customersDistinguish between various providers: ∼ Independent/dependent∼ Motivation? – for profit or non-profit, own use (community) or

business ∼ Organisational form? -cooperatives, self help groups, company, sole

proprieter, family business∼ Legal status? – license, permit, contract with utility, registration with

chamber of commerce ∼ Financing? – savings, family, commercial bank, loan shark, member

fees, customers, micro-credit

Policy implications: what can we do more?

Sanitation, sanitation, sanitationEstablish appropriate country framework – Policy, legislation, regulations, standards allow for and regulate SPSPsBuild capacity for engaging small-scale providers – contract design, training, competition, guaranteesImprove quality and use of information collected - household surveys often not qualified (secondary sources)Foster community participation - Adapt to local context, involvement in planning & monitoring, tap local resourcesEnable monitoring - regulation or facilitation, establish benchmarks to improve service quality

Thank you !

This is work in process, more info:

www.worldbank.org/watsanwww.wsp.org