By Kathleen Slattery
Many countries are experimenting with alternative approaches to providing water services in poor and peri-urban areas with the support of multilateral development banks such as the World Bank and Inter-American Development Bank. This trend has important implications for any company interested in pursuing PSP contracts internationally. Bidders' strategies for serving the poor are increasingly a critical factor in awarding PSP contracts.
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About the Author... Kathleen Slattery manages the Water Practice with the Washington, D. C. based Institute for Public-Private Partnerships (IP3), where she lectures and consults on privatisation and regulatory reform in the water and wastewater sector. |
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Private sector participation (PSP) in typical water management contracts leverages private capital and improves utility management while reducing water costs. The goals of PSP in poor and peri-urban areas are the same; however important distinctions between these areas and more developed countries call for new approaches.
Consumers in developed countries take for granted a direct household connection and good quality water. Many consumers in developing countries and emerging economies do not have access to either of these-a situation with serious implications for human health and the public economy. The World Bank estimates that some 25% of the urban population of Latin America and at least 50% of the urban population of Africa are not connected to official utility networks and rely on alternative sources for their water supply.
Waterborne pathogens result in lower infant mortality and cause sicknesses such as diarrhoea and giardia. These curable conditions can be deadly in the developing world, where many people cannot afford or do not have access to adequate health care or medications.
Where household connections are a luxury, many consumers must spend time transporting water to their homes. Women and girls, who are mostly responsible for this task, are unable to hold paying jobs because they spend most of the day gathering water. Girls often drop out of school at an earlier age.
PSP is often the only means of raising the enormous amounts of capital required to meet demand and improve the quality of water in the developing world. Providing water services to poor and peri-urban areas, however, can be particularly challenging for a private operator.
The poor live often in squatter settlements, where populations are transitory and lack land tenure. Typically, these areas are difficult for the utility to gain access to, either because they lack infrastructure such as paved roads, or because they are in geographically inhospitable areas such as unstable hill and mountainsides. The cost of installing household connections in such areas is often more than poor consumers are able to pay. Because many poor consumers are not part of the formal tax base, it is generally difficult to compile data on their number, consumption patterns, demand, and willingness and ability to pay. Their low incomes and inability to save money impede poor consumers' ability to pay connection charges and budget for water. Ironically, many are forced to pay private vendors significantly higher prices for their water because they do not have a household connection to a local water distribution network.
It is not necessary and is sometimes uneconomical to require a private operator to extend service to all consumers through the construction of piped networks and direct household connections. Rather, many countries are experimenting with alternative approaches to providing water services in poor and peri-urban areas with the support of multilateral development banks such as the World Bank and Inter-American Development Bank. This new focus has important implications for any company interested in pursuing PSP contracts internationally. Bidders' strategies for serving the poor are increasingly a critical factor in awarding PSP contracts. For example, the country of Ghana is currently in the process of accepting bids for two lease contracts for urban water services, and has requested that bidders provide a strategy for serving poor and peri-urban areas, which will be considered in the bid evaluation process. A similar approach is being used to award a performance-based management contract for water services throughout the country of Guyana.
By staying abreast of current developments in this area, and becoming familiar with existing examples of alternative approaches to serving the poor, private operators can enhance their competitive advantage and improve the quality of service for their consumers.
Some interesting solutions include small-scale independent providers, participatory schemes, shared management, micropayment, water wholesaling and cost-effective technology.
In many developing countries, consumers buy water from small-scale independent vendors because they do not have access to piped supply from the utility. These vendors, including tankers, handcart vendors and water resellers, operate outside of the law and are not subject to regulation. As a result, the price for water from illegal vendors is often very high and quality is low. In the Ivory Coast, private operators are experimenting with licensing arrangements whereby these illegal vendors become legal on-sellers of the utility's water. This development has resulted in stabilised prices and improved water quality.
In smaller cities or towns, some service providers are experimenting with participatory schemes that allow poor consumers to barter labour for a network connection. In larger cities, where such schemes may be too administratively complex or costly, job creation units have been formed. In this case, operators hire local contractors (financed by the government or private operator) to carry out network extensions. Poor consumers reimburse the cost of the contracted labour over an extended payment period. In Buenos Aires, Argentina, more than 120,000 people received connections through local contractor schemes.
Under shared management schemes, the private operator contracts with private individuals or community groups to manage the water supply system The contractor collects payments from consumers and his remuneration is linked with the volume of water sold. This model is often used for the management of standpipes, water kiosks and public wells, and is in widespread use in countries such as Burkina Faso, India, Haiti, Bangladesh and Morocco.
One of the biggest problems facing poor consumers of water is their inability to budget for the cost of water and pay their bills. Water utilities' billing periods, which range from monthly to twice yearly, compound this problem. Private operators can make water more affordable for poor consumers by developing mechanisms for the frequent payment of small amounts of cash for small amounts of water. This allows poor consumers to control their expenditures and avoid over-consumption. For example, operators in South Africa are experimenting with pre-paid metering and debit cards for water services.
Water wholesaling is one way to overcome the legal hurdles of providing service to squatter communities where consumers lack land tenure. Under wholesaling schemes, the operator runs a piped supply of water to the border of the community and installs a meter at the community connection point. One bill for all water consumed at the community connection is sent to a local community group or a third party, which is charged with managing the service and collecting individual bills.
Traditionally, private operators of water supply systems have been contractually required to extend conventional piped water supply to all consumers within the service area. Often, poor consumers are unable to pay for this level of service and would be satisfied with a simpler, less expensive solution. Some utilities experimented with offering consumers a "menu" of service options from conventional house connections to yard taps, communal standpipes and boreholes. In all cases, the water provided must meet minimum standards for water quality (World Health Organisation guidelines). The World Bank's Prosanear program used this strategy successfully to provide water in the urban slums of Brazil.
What does this mean for companies pursuing international contracts? Private companies that are able to demonstrate an understanding of solutions for providing water services to poor areas will have a competitive advantage when bidding for PSP contracts. The incorporation of innovative solutions for poor areas will set one bidder apart from others. Additionally, private operators will build consumer confidence and provide an important public service in the community by improving services to poor consumers.
Source: World Bank, World Development Report, 2000.
Enlarged quotes: "…Ghana is currently in the process of accepting bids for two lease contracts for urban water services, and has requested that bidders provide a strategy for serving poor and peri-urban areas, which will be considered in the bid evaluation process." - Kathleen Slattery, IP3
"Private companies that are able to demonstrate an understanding of solutions for providing water services to poor areas will have a competitive advantage when bidding for PSP contracts." -Kathleen Slattery, IP3