Making Services Work
for Poor People:
Water and Sanitation
December 18, 2004
Junaid Ahmad
OECD, Paris
The Traditional
Approach
 Pricing services
 Level
 Chilean subsidy
 Colombian subsidy
 Johannesburg mechanism
 Pricing services
 Transition
 Guinee-Conakry
 Time path for price increase
– Linked to service improvement
– IDA financing
 Access
 Lower connection cost
 welfare losses arising from higher utility tariffs triggered by the reform, are
more than compensated for by the welfare gains associated with expanding
access to services (McKenzie and Mookherjee, 2002).
 But subsidy and access for what?
2
Ground Reality
South Asia as an example
 Not one city or town in South Asia has 24 hour, 7 days a
week water supply
 Hyderabad and Karachi : 3 hours every two days
 Delhi and Dhaka: 6-8 hours a day
 Intermittent supply: health implications
 Unaccounted for water: over 50%
 Cities in South Asia: leaking bucket
 Cost recovery: very low --- 20% of O&M
 Sanitation
 Open defecation
 Little waste water treatment (less than 8-10%)
 Decaying infrastructure: no O&M
 Scale without sustainability
 30-40% not connected
 Use of infrastructure for patronage and politics!!
3
Re-defining the problem
 The “ground realities” suggest that “pricing of services” is
not the problem of making a system “pro-poor”
 Making services work is essential to making services work
for poor people
 Going from 15-16 hours of water a day to 24 hours (or
increasing access by 10%) is a matter of money and technical
solutions: it’s a managerial problem
 Going from 3 hours every other day to 24 hours (or increasing
access by 40%) is not a matter of money and technical
solutions, it is an institutional problem
 Don’t fix the pipes, fix the institutions that fix the pipes
4
Messages of the WDR
 What kind of institutional reforms? Ones that ensure that
the institutional relationships between key players in
service delivery chain are such that they:
 Empower poor people to
 Monitor and discipline service providers
 Raise their voice in policymaking
 Strengthen incentives for service providers to
serve the poor
 Pricing/subsidies/access are the tails that wag the dog
 So, what are these institutional relationships?
5
A framework of
relationships of accountability
Poor people
Providers
Client power: short route of accountabilty
6
A framework of
relationships of accountability
Long route of accountability
Policymakers
Poor people
Providers
7
A framework of
relationships of accountability
Policymakers
voice
Poor people
Providers
8
Mexico’s PRONASOL, 1989-94
Large social assistance program
(1.2 percent of GDP)
Water, sanitation, electricity and education
construction to poor communities
Limited poverty impact
 Reduced poverty by 3 percent
 Even an untargeted, uniform per capita transfer would
have reduced poverty by 13 percent
9
PRONASOL expenditures according to
party in municipal government
10
Source: Estevez, Magaloni and Diaz-Cayeros 2002
A framework of
relationships of accountability
Policymakers
compact
Poor people
Providers
11
Policymaker-provider:
Contracting NGOs in Cambodia
 Contracted out: NGO managed & could hire, fire, &
transfer staff, set wages, procure drugs
 Contracted in: NGO managed and could transfer but
not hire and fire staff
 Control group: Services run by government
12 districts randomly assigned to each category
12
Contracting for Outcomes:
health services in Cambodia
Use of facilities by poor people ill in previous month
13
Source: Bhushan, Keller and Schwartz 2002
Applying the framework to water
and sanitation
Urban water networks:
politics and patronage
Policymaker
Provider
Client
15
Strengthening the compact in
urban water networks
 Government owns assets, sets policy, regulates,
delivers: judge and the jury are one and the same
 For accountability: Separate the policy maker and
the provider
 Decentralize assets
 Service and political jurisdictions fit each other better
 Regulation & service delivery can be separated by tiers
 Centre can use legislation & fiscal incentives to shape wellbenchmarked local compacts and capacity growth
 Freed of responsibility for service delivery, centre has incentives
to ensure local service delivery works
 Use private sector participation




Direct, powerful way of separating roles
But information, good regulation, parallel sector reform needed
Third-party regulation may be required
Multi-tiered government provides further opportunities
16
 Information and benchmarking
LOCAL
GOVERNMENT
P
PS ract
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co
customer complaints
user charges
n
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AGENCY
ns
o
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ele
l
a
c
lo
POOR
PEOPLE
a
liz
ra
nt
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de
CENTRAL
GOVERNMENT
SERVICE
PROVIDERS
17
Strengthening client power in
urban water networks
 User charges: back to where we started
 can increase accountability of providers
 strengthen voice
 Help separate policy maker and provider
 Small independent providers can offer choice &
competition
 Legalize
 No exclusive service contracts for formal providers
 Enable contracting between formal provider and independent
provider
 Allow poor people to use subsidy to pay independent
providers
18
Rural areas:
the problem
Policymaker
Client
Provider
Donors,
NGOs
19
Rural Areas
Low density areas
Rural Drinking Water
Center/State
Monitoring & Evaluation
Society
SRP
Public Agency
LG
Capacity Support
Transition Costs
Communities
21
Rural sanitation: A problem of
demand
price
D1: Private demand
D2: Optimal demand
D2
D1
quantity
22
Measure rural sanitation
outcomes correctly
Usually measured as building latrines
Creates incentives to construct, not to use
latrines
Outcome to measure: extent of open
defecation
Orients accountability correctly
23
What does a latrine subsidy do?
Sanitation is a community outcome
So, co-production of sanitation is key
Household subsidy distorts community
participation and co-production
Paves the way for patronage
24
How to create community
outcomes and co-production?
 Techniques and mechanisms of mobilization of
communities
 VERC in Bangladesh
 NGO Forum and others
 Reward the community and co-production
 community subsidies for outcomes
 Nirmal Gram Purashkar program in India
 Use local governments to facilitate community
participation
25
Total sanitation
National and Local policymakers
Communities
Poor people
Providers
26
Implications for urban sanitation
Supply of sanitation, not demand, the
problem for networks
 Property rights and regulation
 Dar-es-salam cesspit cleaners
 Orangi style co-production linked to networks
 Community toilets in Pune
27
Donors and service delivery
Policymakers
Project
implementation
units
Global
funds
Poor people
Providers
Community driven
development
28
Services work for poor people
when accountability is strong
Policymakers
Poor people
Providers
http://econ.worldbank.org/wdr/wdr2004
29
Targeting Poor People: Minimum
Service Delivery
 Minimum standards and cost (India)
 40 lpcd – 120 lpcd
 Choice of technology: hand-pumps to piped network
 Target uncovered areas, special groups, 90 percent capital costs
 Expenditure on basic services (Chile)




Below poverty level
Expenditure < than 5%
Through service provider
Monitored by Local Governments
 Support to poor people (South Africa)
 Grants to municipalities
 Based on number of people below poverty level
 Lump sump grants: service choice left to local governments
In the context of India, poor people are better served by making
services work: focus fiscal transfers on institutional reform rather
than poverty targeting
30
Reforming Institutions
 Which path?
 Through local governments: South Africa
 Through the WSS: Chile
 Which path for India?
31
Reforming Through Local
Government: South Africa
State
capital
capacity
operating
City
incentives
towns
Utilities,
Departments,
Regional systems
towns
towns
32
Reforming Through Utilities: Chile
State
City Utility
City
Regional Utility
towns
towns
consumers
33
Co-locating Reforms: 74th
Amendment
State
towns
City
Regional Utility
City Utility
towns
consumers
34