Beyond Boundaries Extending Services to the Urban Poor€¦ · Beyond Boundaries: Extending Services to the Urban Poor is a collection of cases from Asian countries where the private

Second Title Running Head Here

Beyond BoundariesExtending Services to the Urban Poor

Beyond Boundaries

© 2002 by the Asian Development BankAugust 2002

This publication was prepared under RegionalTechnical Assistance 5926: Public-Private-Community Partnerships in Urban Services for thePoor by the Social Sectors Division of the South-east Asia Department, the Asian DevelopmentBank (adb). The findings, interpretations, andconclusions expressed do not necessarily representthe views of adb or those of its member countries.

i s b n 9 7 1 - 5 6 1 - 39 4 - 2

Publication Stock No. 0 8 0 6 0 1

In this publication, the term “country” does notimply on the part of adb any judgment as to thelegal or other status of any territorial entity.

Please address inquiries for copies of thispublication to the Chief, Office of ExternalRelations, Asian Development Bank, P.O. Box 789,0980 Manila, Philippines.


Beyond BoundariesExtending Servicesto the Urban PoorEdited byALMUD WEITZ and RICHARD FRANCEYS

Beyond Boundaries

ContentsAbbreviations and Acronyms viPreface viiiForeword x

Poverty in Asia and the Pacific 13

Environmental Health Services for the Poor 15

Universal Service Obligation and Reform 17

Public-Private Partnerships in Urban Services 19Spectrum of Private Sector Participation

and Potential for Serving the Poor 19Recent Trends in Asia 23

Stakeholders and Partnerships 25Deciding and Acting Together 25Organizations and Contingency Theory 27Organizational Change to Serve the Poor 29

The Case Studies 31Filling the Void: Nonnetworked and Decentralized Services 32Breaking Through the Performance Ceiling: Reform

Public-Private Partnerships 42Efficiency and Participatory Development:

Public-Private-Community Partnerships 56

Requirements and Techniques for Serving the Poor 65Networked Services 65Nonnetworked Services 78

Serving the Poor: Conclusions 79

References 82Appendixes

Appendix 1: Buenos Aires, Argentina: Concession 95Appendix 2: England and Wales: Divestiture 102


Tables1 Potential of Public-Private Partnership Models to Serve the Poor 222 Contingency Theory for Organizations 273 Cities and Case Studies 334 Affordable Water and Sanitation 805 Reported Capital Expenditure and Population Served,

Operational and Planned, 1990–2001 81Figures

1 Improved Urban Water Supply and Sanitation in DevelopingMember Countries 16

2 Rise in Population Covered by Reported Operational Public-PrivatePartnerships in Developing Countries, 1991–2001 23

3 Reported Operating Public-Private Partnerships in Asiaby Contract Type, including (3.1) and excluding (3.2) Service Contracts 24

4 Map of Case Studies 32Boxes

1 Defining Poverty 142 New Connections in Jagriti Tole 353 Building Toilets in Srijana Basti 354 Water Points: Improving Access to Water 365 From Factory to Composting in Mirpur 376 Low-Cost Solutions for the Poor 487 Water Quality Concerns in Blacksands 518 No Water Connections in Kebon Baru 559 Water Theft in Barangay Parola 5710 Group Taps in Liwanag Area 5811 Bayan Tubig in Makati 6012 From Improved Water Supply to Livelihood 6113 Are the Rich Stealing Water from the Poor? 6314 Water and Sanitation Services for Poor Households

in La Paz and El Alto, Bolivia 6715 Water Consumption Subsidies through the Welfare System in Chile 68

A CD containing the book and full version of the cases undertaken in the study “Public-Private-Community Partnerships in Urban Services for the Poor” is enclosed.

Beyond Boundaries

Abbreviations and AcronymsOrganizational TermsADB Asian Development BankBCCI-UNDP Bank of Credit and Commerce International–United Nations

Development ProgrammeBPD Business Partners for DevelopmentDCC Dhaka City CorporationDSK Dustha Shasthya Kendra (Nepal)DWASA Dhaka Water and Sewerage AuthorityETOSS Ente Tripartito de Obras y Servicios Sanitarios (Tripartite Entity

of Sanitation Works and Services) (Argentina)IDEAS Institute for Development of Educational and Ecological Alternatives

(Philippines)IIED-AL International Institute for Environment and Development–America Latina

(Latin America)IPAS El Alto Pilot Project (Peri-Urban Initiative for Water and Sanitation) (Bolivia)IWK Indah Water Konsortium (Malaysia)LdE Lyonnaise des EauxMWSS Metropolitan Waterworks and Sewerage System (Philippines)NEAC National Economic Action Council (Malaysia)NSCB National Statistical Coordination Board (Philippines)NWSC Nepal Water Supply CorporationOCWD Olongapo City Water District (Philippines)Ofwat Office of Water Services (United Kingdom)PMML Prima Mulia Mandiri Lestar (Indonesia)PSPC Private Sector Participation High-Level Committee (Nepal)PWD Public Works Department (Bangladesh)SAEC San Antonio Environmental Council (Philippines)SBMA Subic Bay Metropolitan Authority (Philippines)UNELCO Union Electrique du VanuatuUNICEF United Nations Children’s FundWHO World Health Organization

Technical TermsBOO build-operate-ownBOT build-operate-transferCBO community-based organizationDBO design-build-operateGDP gross domestic productGNP gross national productNGO nongovernment organizationO&M operation and maintenancePPCP public-private-community partnership


PPP public-private partnershipROT rehabilitate-operate-transferSSIP small-scale independent provider

Measurement Unitskg kilogramkm kilometerm meterm2 square metersm3 cubic metersmld million liters per day

Beyond Boundaries

PrefaceBeyond Boundaries: Extending Services to the Urban Poor underscores the overarching goal of theAsian Development Bank (adb): to reduce poverty in Asia and the Pacific. Despite dramatic achieve-ments in economic growth in the 1990s, the region is still home to two thirds of the world’s poor.

Following the regional economic and financial crisis, poverty reduction and sustainable eco-nomic growth have received renewed attention. The standards of living for all citizens, includingthe poor, must be improved.

The title of this publication reflects the goal of adb’s regional technical assistance (reta), Public-Private-Community Partnerships in Urban Services for the Poor, approved in 2000 and carried outfrom January 2001 to June 2002. It aimed to find ways to move beyond the invisible boundaries be-tween neighborhoods connected to formal urban services and those that are not. Most of those liv-ing “beyond boundaries” are vulnerable poor people, often without the security of tenure in the formof a land title or rental agreement, which prevents them from receiving municipal services. In addi-tion, areas beyond municipal jurisdictions also need to be taken into account, as informal settle-ments in many countries are increasingly located outside the formal city borders. Overcoming thesebarriers within cities and redrawing the boundaries beyond cities is important if the standards ofliving of all urban citizens are to be raised.

This book contains the major findings of a study focusing on three basic urban services—water,sanitation, and solid waste management. A team of consultants led by Richard Franceys prepared19 case studies in 10 adb member countries:

Bangladesh – Iftekhar EnayetullahCambodia – Hervé ConanIndia – Srinivas CharyIndonesia – Alizar Anwar and Meike KencanawulanMalaysia – Mohammad Iskandar Shah AliNepal – Suman SharmaPakistan – Nadim AnsariPhilippines – Arlene Inocencio and Delfa UyVanuatu – Sarah Anne MecartneyViet Nam – Nguyen Trung Viet

In January 2001 the team met at adb for an inception workshop to deliberate on the focus of thecase studies. In June 2001 adb hosted a regional forum to present the findings of the case studies.Participants from private utility operators, governments, and nongovernment organizations ex-changed experiences in providing services to poor urban communities. The discussions confirmedthat partnerships between the public and private sectors, and the community are the best means todeliver clean water, adequate sanitation, and solid waste management in poor urban areas.

In October 2001 the team collaborated with CityNet (Regional Network of Local Authoritiesfor the Management of Human Settlements) to disseminate the study’s findings during the 3-dayCityNet Congress in Bangkok, Thailand. The team organized a full-day workshop that includedselected case presentations. A dissemination workshop was also held in April 2002 in Jakarta,Indonesia, in cooperation with the Jakarta Water Supply Regulatory Body.


Almud Weitz, urban economist and reta leader, who conceptualized and led this exercise;Victoria de Villa, reta coordinator, who managed the day-to-day affairs of the project; and RichardFranceys, who provided the framework for this publication and synthesized the inputs of the indi-vidual consultants, worked tirelessly to prepare this publication. Special thanks go to Araceli Knaikand Gladdys Santos-Nave, who provided administrative support; editor Muriel Ordoñez; FidelRillo, who designed the book; and Professor Om Prakash Mathur for writing the foreword. Thisbook has a cdrom containing the full case studies and links to related resources. The cdrom versionwas developed by Michael Ignacio and Edwin Pantig, with Rhommel Rico’s technical advice, andedited by Maryann Asico.

We would like to thank all those who contributed to the success of the reta, including the par-ticipating cities, local consultants, resource persons, private utility companies, multilateral organi-zations, and the many community organizations that were involved in this exercise. We hope thatthis publication will add value to the continuing search for better interventions to achieve ad-equate service provision for all citizens, particularly the poor.

Peter L. FedonDirector

Social Sectors DivisionSoutheast Asia DepartmentAsian Development Bank

Khaja H. MoinuddinDirector-General

Southeast Asia DepartmentAsian Development Bank

Beyond Boundaries

ForewordLifting close to 1 billion people out of poverty is amajor challenge for Asian countries. Many of the240 million–260 million poor living in cities andtowns suffer from inadequate service and otherforms of deprivation. That the numbers of thepoor have changed little over the years demon-strates how the medium-to-high rates of eco-nomic growth registered by many Asian countrieshave failed to improve living conditions. Years ofexperimentation with approaches that go beyondeconomic growth and often even direct provi-sioning of education and health have not had anoticeable impact on the lives of the poor. Publicpolicies and public sector initiatives via programssuch as sites and services, slum improvement andupgrading, income-earning opportunities forwomen, urban basic services, and microfinancehave also not reached the poor.

What, then, are the alternatives to publicpolicies and public sector initiatives in attack-ing poverty?

As the search for sustainable alternativescontinues, many Asian countries have begun toexperiment with private sector initiatives andpublic-private partnerships to reach out to thepoor. Beyond Boundaries: Extending Servicesto the Urban Poor is a collection of cases fromAsian countries where the private sector eitherindependently or in partnership with the publicsector, nongovernment organizations (ngos),and community-based groups has stepped in toprovide services such as water supply, sanita-tion, and solid waste management. This bookseeks to deepen our understanding of privatesector participation in providing urban servicesto poor communities, and to set out an agendafor Asian countries to improve private sectorparticipation in urban services for the poor.

The book rests on two postulates:• Water supply, sanitation, and solid waste

collection services are a key componentin any poverty reduction strategy. In Asia,

nearly one third of the urban poor have noaccess to safe water, and more than twothirds do not have access to adequatesanitation. Extending services to the poorwill have a direct and immediate impacton their quality of life and productivity.

• The private sector has a vital role in pov-erty reduction through expansion of ser-vices. The public sector, even when itclaims to serve nearly 90% of Asia’s ur-ban population, has failed to meet theservice needs of the poor. Many Asiancountries have, as a result, turned to pri-vate provision of urban services, reflect-ing the private sector’s capacity to supple-ment public provision and creativity inreaching out to the poor.

The book has three parts. The first presents anoverview of urban poverty in Asian countries,admitting that as urbanization accelerates, pov-erty may worsen and services become even moreunavailable. Stressing that public provision hasits limits, this part establishes a framework for pri-vate sector participation in providing urban ser-vices, showing that the modes of participation aremany and that countries can choose the one thatsuits them most. The second part presents casesof private sector participation, shedding light onmany key questions: What propelled the privatesector to engage in the provision of urban ser-vices? What approaches did the private sectoremploy to reach the poor? What were the keyfeatures of public-private partnerships in ex-tending services to the poor? What were thepartnerships’ strengths and weaknesses? The fi-nal part draws lessons from the experiences ofprivate sector participation in urban services,and underlines the importance of the conditionsthat will ensure that services reach the poor.

Delivering services to the urban poor is acomplex activity requiring competencies and


capacities that water utilities usually do nothave, and an understanding of the range ofstakeholders who must be enabled to work to-gether. Stakeholders have different skills andstrengths; each is necessary but not sufficient toreach out to the poor. The key to poverty reduc-tion lies in bringing stakeholders together andforging partnerships between them to make ser-vice provision efficient and effective, and to en-sure stakeholder recognition, representation,and flexibility.

The case studies are grouped into three.Those in the first group show how the publicsector fails or is unable to provide urban ser-vices to the poor, often on the ground that thepoor do not fulfill the conditions necessary tosecure a water or sewerage connection. Casesdescribe how small-scale independent provid-ers and ngos in Kathmandu and Dhaka filledthe service void by intermediating betweenpoor communities and government serviceagencies. Intermediation meant seeking relax-ation of conditions that government agencieswould normally impose on those seeking ser-vice, and also ensuring that poor householdspaid for services even if they were costly and ofinferior quality. For such intermediation to beeffective, two conditions are necessary:

• Cooperation with the government. TheKarachi experience demonstrates thatnone of the stakeholders can successfullyoperate in isolation. The government,community, and ngos have to work to-gether if they are to be effective.

• Mobilization and capacity building ofcommunities. The case of solid wastecomposting in Dhaka shows that com-munity mobilization is a core strategy formanaging waste and providing other ur-ban services. Community mobilizationand capacity building are long-term,time-consuming processes but essentialto sustain the benefits from such services.

Cases in the second group document expe-riences of private sector participation in provid-ing urban services ranging from simple con-tracting to major concessions, with ngos andother stakeholders often substituting for theprivate sector. Simple contracting has enabledprivate contractors in such cities as Port Vila(Vanuatu) and Silang (Philippines) to operatealongside city governments and provide solidwaste services to unserved but economicallyviable informal settlements. In Depok (Indone-sia), a private operator has taken over from thelocal government the operational responsibilityfor waste collection and management, and isplanning to formally engage scavengers, wastepurchasers, middlemen, and industries oncecomposting techniques are established.

Long-term concessions for water provisionhave emerged as a potential form of reformthrough private sector participation in manySoutheast Asian countries. Water supply con-tracts have significantly improved services forall customers in Port Vila (Vanuatu), Olongapo(Philippines), and Kota Kinabalu (Malaysia),with some real benefits for the poor. Experi-ences of these and other Asian cities show thatprivate sector participation is seriously beset bythe following:

• absence of a regulatory framework,• lack of transparency in awarding con-

tracts to private operators,• weak link between service charges fixed

for private contractors and costs of ser-vices, and

• high interest rates.

Malaysia’s recent decision to retake controlof the sewerage system, which was contractedout to a private consortium for 28 years, signalsthat private sector involvement does not auto-matically bring reform. Karachi’s attempts to in-troduce contracts for solid waste collection alsoillustrate the sometimes uneven path to reform.

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Private sector participation needs continuingsupport and nurturing and sustainable rev-enue streams.

A third group of cases represents experiencesof public-private-community partnerships inwater and sanitation services. These conces-sions have permitted the private sector to extendservices to the poor in different ways—by ex-panding networks and giving connections topoor households; installing standpipes for thepoor; and, indirectly, permitting households thathave secured connections, and other small pro-viders to resell water to poor communities. Apro-poor approach involves (i) expansion of theservice network, (ii) provision of multiple ser-vice levels, (iii) cross-subsidy of connection fees,and (iv) presence of strong community leader-ship and participation. The Manila water andsewerage concessions are a prime example ofpublic-private-community partnership. In 1997the Philippine Government privatized the Metro-politan Waterworks and Sewerage System ofMetro Manila for reasons that included inefficientoperations, financial difficulties limiting serviceimprovement, and uncompetitive salaries to at-tract competent personnel. The concessionshave improved water supply, lowered the staff-connection ratio, and, to a limited extent, re-duced nonrevenue water. Of particular signifi-cance is the two concessionaires’ reach to thepoor through a string of measures: (i) establish-ment of public standpipes; (ii) provision of grouptaps for 2–5 households, where users form groups,register connections, and share the cost for usage;(iii) introduction of community-managed waterconnections with a metered master connection;(iv) water distribution by community associa-tions; and (v) individual connections. The con-cessionaires also sell water to private companiesthat manage water distribution in squatter areas.

The cases here seek to enhance our under-standing of private sector participation and part-nerships in services that affect the poor most,and set out actions to make such participation a

viable proposition. Compared with LatinAmerica, Asia has fewer experiences that can becited as best practices. Many Asian private op-erators operate under serious constraints, rais-ing questions about their sustainability. Whatcan be learned from field experiences? Whatshould be done to eliminate the constraints andstrengthen private sector participation in urbanservices? The following points emerge:

• Public-private-community partnerships mustbe pro-poor. Public-private partnerships donot automatically ensure that serviceswill reach the poor.

• A framework must specify the role of dif-ferent stakeholders, who have differentskills and strengths.

• Only if universal service coverage is theoverarching principle will the private sec-tor be able to be creative and innovativein extending services to the poor.

• A regulatory framework must have powersto monitor service provision arrangements.

• A viable tariff must be established as it isan essential instrument to understand thetrue value of water as an economic good.

• Governments must support ngos and com-munity groups, which need help to fill theservice void of urban poor communities.

Asian cities have phenomenally large ser-vice needs, most of which continue to be in thepublic domain. A creative and innovative privatesector must be involved in overcoming the re-straining forces of public provision. Public-privatecommunity partnerships offer a viable optionfor change and service delivery to the poor.

Om Prakash MathurProfessor of Housing and Urban EconomicsNational Institute of Public Finance and PolicyNew Delhi


Poverty in Asiaand the Pacific

1 This does not include the People’s Republic of China.2 The who and unicef definition of Asia does not coincide with the Asian Development Bank (adb) developing membercountries as it includes Western Asia.

Of the 1 billion urban dwellers in Asia, an average of 24.7%1 are poor,living on less than $1 per day. Poverty incidence is over 30% in India andnearly 50% in Bangladesh (adb 2000). As the rural-to-urban transitiontakes place, a process that is occurring later in Asia than the rest of theworld, these numbers are rising rapidly, with some cities having tostruggle with “doubling periods” of just 10 years. The World Health Or-ganization (who) and United Nations Children’s Fund (unicef) estimatethat by 2015, 595 million more people will be living in urban areas inAsia,2 with about 20–50% in informal housing areas, slums, and shanties.

Many poor people live on a minimal and uncertain income, with ex-tended families living in single rooms in multi-occupancy tenementsor in illegal settlements, in haphazard structures with irregular access

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routes that act as dirty drainage channels ratherthan roads. Children and adults are employedin informal and irregular jobs and often workfor very long hours. The poor, especially singlemothers, find it extremely difficult to get healthcare and education, particularly for children.

Quantitative measures describe people liv-ing below the poverty line, variously defined byindividual country measures or internationallyas those living on less than $1 per day (usuallyadjusted for purchasing power parity) or thosehouseholds earning less than $100 per month.Quantitative measures may also include thesize of a dwelling space or distinguish between“moderately poor,” “hardcore poor,” and “des-titute,” as in Bangladesh. The quantitative defi-nitions are vital to monitoring performanceagainst measurable goals.

Qualitative descriptions of poverty include“poor quality of life combining low income,poor health and education, deprivation inknowledge and communications, and the in-ability to exercise human and political rights”(adb 1999). The dimensions of poverty are de-scribed as material lack, physical weakness, in-security and vulnerability, bad social relations,low self-confidence, and powerlessness.

Box 1 Poverty Defined

“Poverty is a deprivation of essential assets and op-portunities to which every human is entitled.

“Poverty is measured in terms of basic educa-tion; health care; nutrition; water and sanitation; aswell as income, employment and wages. Such mea-sures must also serve as a proxy for other intan-gibles such as feelings of powerlessness and lackof freedom to participate” (ADB 1999).

Box 1 Defining Poverty

Consultations with the Poor (World Bank1999) states that “the poor are the true povertyexperts.” The study describes how the poorclaim “they are worse off now, have fewer eco-nomic opportunities, and live with greater inse-curity than in the past.” The qualitative descrip-tions of poverty are necessary to understandwhat it means to be poor and to determine theapproaches to achieve public health and devel-opmental goals. Development experienceshows that participatory and empowering ap-proaches are critical to overcome bad social re-lations and powerlessness and improve envi-ronmental health.

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Extending Services to the Urban Poor

EnvironmentalHealth Servicesfor the Poor

Everybody, rich or poor, must have access to water. For some of the urbanpoor this can mean drawing water from unprotected, possibly polluted,springs or wells. For others it means a long walk to an irregularly suppliedgovernment standpipe. Often, women have to queue for hours in themiddle of the night until the water arrives at a standpipe, then carry homea heavy container of water, or wait for a government tanker to fill a watertank somewhere at the edge of an informal housing area.

“Quality-of-life poor” may have a slightly higher income than “thepoor” but suffer from the same lack of access to services by formal pub-lic providers. The “quality-of-life poor” purchase water from privatevendors at prices often 10–20 times higher than those from an officialsupply or at high cost from neighbors or landlords.

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Figure 1 Improved Urban Water Supply andSanitation in Developing Member

Countries

Source: Richard Franceys’ analysis of WHO and UNICEF (2000).

Sanitation for the poor can require an earlymorning visit to the side of a main road or to adistant and dirty public toilet, an unimprovedpit latrine, or even the humiliation of “wrap andthrow” where excreta is deposited in a plasticbag or newspaper and disposed of in the near-est garbage dump or drainage channel.

Solid waste management for the poor canmean having a festering, stinking pile of gar-bage near their homes, perhaps where childrenwant to play, with occasional and irregularwaste collection by a municipal agent.

Although adequate for some level of survival,such quality of service is dangerous for publichealth, is time-consuming and degrading, anddoes not promote life sustenance, self-esteem, orfreedom from servitude (Todaro 1992).

Over 84 million urban dwellers in the devel-oping member countries of the Asian Develop-ment Bank (adb) are without improved watersupply, and 255 million are without improvedsanitation (who and unicef 2000). About onethird of the urban poor thus do not have accessto improved water supply and most do nothave access to adequate sanitation.

Figure 1 shows the reported coverage of urbanwater supply and sanitation in Asia along withthe challenge to meet population growth.

The effectiveness of the apparently high cov-erage of improved urban water supply needs to bereexamined as who and unicef (2000) reportthat more than half the improved urban watersupplies operate intermittently, with 21.5% ofwater samples contaminated. The same reportsays that Asia has the lowest median unit produc-tion cost in the world for urban water supply atabout $0.20 per cubic meter (m3), which shouldbe of considerable benefit to the poorest if only

they could obtain conventional connections. Amore dangerous sign is the ratio of median tariffto unit production cost, which at 0.7 is also thelowest in the world. This calls into question thefinancial sustainability of the service and is oneof the main reasons why services are not beingextended to the poor.

The $0.14 per m3 quoted median tariff forsewerage is remarkably low, representing notonly a lack of wastewater treatment but also aprobable cross-subsidy to the rich, who havesewerage connections.

Global statistics on solid waste are notablylacking. Most developing cities have erratic col-lection service of variable quality, with the poor-est areas receiving the worst service if they re-ceive any service at all.

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Universal ServiceObligation and Reform

Every household should have adequate water, sanitation, and solidwaste services. However, public providers of environmental health ser-vices usually meet the needs of higher-income groups but generally notthose of the poor.

Universal service provision includes a basic supply of potable waterof about 20–30 liters per person per day to meet survival and publichealth needs, ideally with the opportunity to buy more. Householdswant water at times convenient to them, not as it suits a water provider.Hours of supply in the house and at any standpipe or franchised waterpoint need to be convenient, with queuing time minimized.

Adequate sanitation involves the safe disposal of human excreta alongwith any wastewater used for flushing as well as the “gray” water frombathing, washing, and cooking. “Disposal” is important; households

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Residents prepare a site for water-sealed toilets in Port Vila.

care little about how this is achieved as long as it isdone conveniently and with dignity. Disposal canbe by on-plot sanitation using improved house-hold latrines and septic tanks, on-site sanitationusing communal septic tanks and/or wastewatertreatment, and gray water drainage, which mightbe combined with storm drains. Where the hous-ing density and/or relative wealth justify it, “re-duced cost” or conventional piped seweragewith centralized wastewater treatment is a con-venient, if expensive, solution.

Solid waste management requires the hy-gienic removal of solid waste from the dwelling,with earliest possible segregation and on-sellingof recyclables, with possibilities of on-sitecomposting, for example, and regular transferof any residuals to safe sanitary landfill, andstreet sweeping. All these services need to becomplemented by an information, education,and communication process that promotes hy-giene awareness and practice.

Technical experts are often tempted to con-sider only standard provision of full-pressurewater supply, sewerage, and garbage trucks.

However, service standards may bedifferentiated and yet attain thenecessary qualities and potentialsavings that, while insignificant tohigher-income planners, can becritical to the poor.

It is difficult for governments tofocus specifically on the needs ofthe poor when the whole sector is indire need of reform because servicesare expensive to provide, usuallyunderpriced, and of poor quality. Itis especially difficult when the poorare living in rapidly growing, spon-taneous, and often illegal settle-

ments that are outside government control andwhich public providers may be restricted by lawfrom serving.

The overall weakness of public sector provi-sion of services tends to drive the present re-form process and persuade governments toconsider involving the private sector in a newway after unsuccessful reforms of the existingpublic providers. It is easy to confuse the twoimperatives of overall sector reform and provi-sion to the poor. Many governments focus onreform, hoping that the universal service obli-gation will automatically include delivery ofservices to the poor. However, middle- andhigh-income groups also need to be involvedto achieve economies of scale and efficient ser-vice provision, create the potential for cross-subsidies, and incorporate the lobbying powerof these groups to achieve overall publichealth benefits.

The next chapter describes the general pat-tern and forms of private sector involvement inurban services in developing countries, particu-larly in Asia.

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3 A detailed description of the various public-private contract forms can be found in Developing Best Practices for PromotingPrivate Sector Investment in Infrastructure—Water Supply (adb 2000); and Toolkits (World Bank 1997).

Public-PrivatePartnershipsin Urban Services

Spectrum of Private Sector Participation and Potential for Serving the Poor

Recognizing the limitations of public providers in providing adequateurban services, and the impossibility that nongovernment organizations(ngos) will meet the needs of all the urban poor, governments aroundthe world are now experimenting with radical institutional reform in-volving the private sector. Many of these reform approaches are deliver-ing better-quality services at lower prices. The challenge is to make thereforms benefit the poor.

The basic types of private sector involvement are the following:3

• Service contracts. Individual aspects of infrastructure provision—meter reading, pumping station operation, solid waste transport,for example—are contracted out to a private contractor for periods

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Contracting out is part of reforming public service provision.

from a few months to a few years, usuallygenerating 20–30% savings when com-pared with public provision. Contractingout is a powerful tool to challenge thepublic provider, particularly labor inter-ests, and generates efficiencies. However,these benefits may not reach the poor.

• Management contracts. For a fee—oftenperformance related or profit sharing—aprivate management team runs the pub-lic operation, wholly or in part. A man-agement contract, which does not greatlychallenge the existing system, can be anattractive first step to private sector in-volvement but may not tackle the prob-lems of entrenched interests and reluc-tance to charge viable tariffs. Becausesuch contracts are short—typically 5years—and do not directly link invest-ment to service provision, they usuallyfocus only on improving service to exist-ing customers rather than reaching theurban poor.

• Lease contracts. Usually up to 15 yearslong, lease contracts typically give the

private operator full control over supply-ing services and recovering tariffs, in ex-change for payment for use of the fixedassets, which remain the responsibility ofthe public agency. Because services in de-veloping countries often need some levelof investment to upgrade distribution sys-tems, reduce leakage, and extend ser-vices, the “enhanced lease” concept hasbeen developed. Under an enhancedlease, small improvements are the re-sponsibility of the operator, and major in-vestments for treatment and disposal fa-cilities, for example, remain the responsi-bility of the government. Enhancedleases give national contractors an excel-lent opportunity to become involved inserving secondary towns.

• Build-operate-transfer (BOT) contracts.bot and its many variations are primarilyused for specific large, one-off investmentsin water production, wastewater treat-ment, and sanitary landfills. For up to 30years, the length depending upon the sizeof investment that has to be amortized,

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Private contractors install sewage pipes in Karachi.

the operator sells or treats guaranteedamounts of water or waste in exchangefor guaranteed prices, although usuallyincluding some amount of demand risk.The operator takes the risk to design,build, and operate the facility at specifiedquality standards in exchange for a guar-anteed cash flow. Efficient production,treatment, or disposal are critical to serv-ing all customers, but unless the distribu-tion and/or collection network is alsoupgraded or extended to poor unservedareas, the efficiency gains of bots may begradually lost and never reach the poor.

• Concessions. Lasting on average for 25years, these contracts transfer all respon-sibilities for capital investment and op-eration and maintenance (O&M) to aprivate operator. The fixed assets legallyremain the property of government, andthe operator might pay a fee to use them.Tariffs may be lowered by reducing thecapital amounts to amortize, which will

benefit the poor if they are connected.Concessions with clear coverage targetstoward universal service for all citizens—including the poor—can be an excellentmeans of using the skills of the privatesector to leverage investment, providehigh-quality service, relate to customers,and collect a viable tariff. Under this ar-rangement, the government continues toregulate the tariff level through its regula-tory system and monitors the quality ofservice provision.

• Divestiture. Under the most radical formof private sector involvement, existing op-erations and assets are sold to the privatesector, perhaps with a time-limited license.Like the concession, divestiture has thesame potential to use license conditionsand regulation to ensure universal servicecoverage. Only Chile among the develop-ing countries has chosen this route. Beforedivestiture, Chile set up a system wherebythe poor receive conventional services for

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Table 1 Potential of Public-Private Partnership Models to Serve the Poor

Potential to Asset Operation and

Option Serve the Poor Ownership Maintenance Capital Investment Commercial Risk Duration

Household management ** Private household Private household Private with public Private household Indefinite

Community management *** Community Community Public with community Public with community Indefinite

Small-scale IP *** Private business Private Private Private Variable

Service contract — Public Private and public 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

Build-operate-transfer * Private and public Private Private Private 20–30 years

Indefinite (may be

Divestiture ** Private Private Private Private limited by license)

*** = most potential, — = neutral, IP = independent providersSource: Adapted from World Bank (1997).

the standard tariff that is partly paidthrough the municipal social welfare sys-tem (see Box 15 on page 68), allowing theprivate operator to concentrate on its coreskills of service provision and removing theneed for cross-subsidies.

Variations of private sector participation existalong a continuing spectrum and can be appliedin different ways to different parts of the environ-mental health “supply chain”: abstraction, treat-ment, transmission, distribution, collection, treat-ment, recycling, and disposal (of solid waste andwastewater). Table 1 summarizes the main con-tract types with relevant additions and a rankingfor their potential to serve the poor.

The reason most often given for involving theprivate sector is that it can provide the invest-ment capital that governments cannot. It has yetto be proven that this is the main benefit. What

seems to be of greater importance is that privateoperators can “break through the performanceceiling” by being allowed to charge viable tariffsand to manage their operations without unduepolitical, individual, and labor interference,which often hampers public providers.

Figure 2 shows the rise in numbers of re-ported public-private partnerships during thepast decade in developing countries. However,these figures only include reported data on thelarger water and sanitation partnerships andcannot do justice to the myriad micro- andsmall enterprises, ngos, and community-based organizations (cbos), which are privateorganizations and have been serving the poorwithout much support or recognition from theformal providers.

Reform should be designed to deliver theuniversal service obligation. For networked wa-ter supply—and sewerage where affordable—

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Figure 2 Rise in Population Covered by Reported Operational Public-Private Partnershipsin Developing Countries, 1991–2001

Source: R. Franceys, Public-Private Partnership Database, January 2002, unpublished.

with its inherent economies of scale, the con-cession form, including the enhanced lease(i.e., a lease linked to investment), appears tobe the most pro-poor model. The private op-erator is required to take over the entire pro-cess, under the umbrella of a regulator, oftenwith the protection of international contacts,taking advantage of economies of scale andexpertise, with the facility to invest to improveperformance. The operator also has a chanceto provide differentiated services to meet theneeds of the poor.

For nonnetworked services such as solidwaste management and on-plot sanitation, thecompetition between ngos and small enter-prises should remove the need for complex pri-vate contracts or partnerships. Disposal andtreatment of the residuals does, however, re-quire the active involvement of government.bots are ideally suited for establishing indi-vidual sanitary landfills, and for building andrunning small sludge treatment plants wherethere is no large-scale sewerage and wastewa-ter treatment system. The challenge for govern-ment is to ensure that these “pay as you use”disposal and treatment systems are actually

used and paid for and not simply bypassed bysmall contractors looking to save costs.

Recent Trends in Asia

Formal public-private partnerships have tendedto use

• service contracts in South Asia, wherethe idea of private sector involvement ap-pears to be most threatening to the estab-lishment; and

• bots of water treatment plants in EastAsia, keeping the private sector awayfrom direct contact with the customer.

Neither approach necessarily impacts di-rectly on serving the poor although increasedoperating and capital efficiency should lowercosts. However, where tariffs do not reflectcosts, lower costs are of limited value to thepoor, and where the poor are not connected tothe network, lower tariffs for a service they arenot getting have no benefit at all.

The region reportedly has 215 water andsanitation partnerships involving the privatesector, 56 of which remain at the planning stage

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5 The critical task of regulation is discussed in detail in,among other publications, adb. 2001. Regulatory Sys-tems and Networking of Water Utilities and RegulatoryBodies. Manila.

Figure 3.1 Figure 3.2

Figure 3 Reported Operating Public-Private Partnerships in Asia by Contract Type,including (3.1) and excluding (3.2) Service Contracts

4 Formerly known as Lyonnaise des Eaux.

DBO = design-build-operate, BOO = build-operate-own, ROT = rehabilitate-operate-transfer, BOT = build-operate-transfer.

and 14 have been postponed or canceled. Ofthose operating (Figure 3.1), a large number areservice contracts, particularly in India.

Most of the large-scale operating public-private partnerships (Figure 3.2) are repre-sented by 44 bots and rehabilitate-operate-transfers, mainly shared between Ondeo Ser-vices4 and Vivendi, and 24 concessions, alsoshared between the two companies, alongwith Cascal, Thames, and International Wa-ter/United Utilities. International contractorsare preferred as, apart from some recent devel-opments in Malaysia, concessions have beenlet to operators who can demonstrate interna-tional experience.

Of the water and sanitation concessions inAsia, five are reported from the Pacific, serv-ing only small populations: two are for bulksupply of water, and three are for provision toformer military bases in the Philippines, withlimited service to the poor. Compared to otherregions, notably Latin America and EasternEurope, Asia has limited experience in public-private partnerships.

Private sector delivery of a monopoly ser-vice requires regulation to ensure fair benefitsto all partners. Attempts to regulate the sectorsare very recent in Asia, and numerous public-private partnerships are struggling because ofan inadequate and weak regulatory system.5

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Stakeholdersand Partnerships

Meeting the needs of the poor through successful public-privatepartnerships requires an understanding of the range of stakeholders andhow they can work together with and within organizations.

Deciding and Acting Together

Serving the poor is more complex than serving higher-income customersand requires an understanding of the range of partners and partnershipsnecessary to provide service access:

• The public sector. Traditionally the sole provider of urban services,this sector is taking a “step back” from service provision toward criti-cal indirect functions such as policy guidance and regulation to en-sure that urban services benefit all. Key players include ministries,regulators, reformed or residual public utilities, and municipal bod-ies, along with international public entities such as multilateral andbilateral organizations.

• The private sector. The spectrum includes small, medium-sized,and large international operators, all of which strive to provide

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efficient service to ensure an adequate re-turn on capital. Small-scale independentproviders operate on the same profit ratio-nale as multinational companies and havebeen highly flexible in using technologiesand in pricing to serve poor areas.

• The community. This group includescbos and ngos, which are innovative,creative, and flexible in achieving theirsocial goals in service provision, or helppromote the issues to the governmentand the public through advocacy groups.Other partners such as the media, civil-society lobby groups, global ngos, andthe academic community should alsojoin these partnerships to maintain thepressure for change and sustainability.

Each stakeholder is necessary but not self-sufficient. If governments only want reform ofthe existing services, contracting the privatesector is sufficient. cbos and ngos, in turn, maydeliver impressive gains in the slum areaswhere they work but have difficulty doing thesame elsewhere simply because they lackfunds and manpower. Private companies mayeasily comply with quality upgrading butstruggle to increase coverage levels specified incontracts if they do not cooperate with gov-ernments and ngos.

The involvement of so many disparate inter-ests requires formal agreements between thestakeholders to promote efficiency and effec-tiveness as well as informal relationships to en-sure recognition, representation, and flexibility.The power of these partnerships—contractual,institutional, and relational—is critical to thesuccess of reform and universal service.

The term “partnership” describes the rela-tionship between the stakeholders, based onthe understanding that more benefits can beobtained for the poor more quickly when orga-nizations work together toward a commongoal. Each entity contributes its particular skillto make the sum greater than the parts, with a

commitment to support other partners. In themost successful relationships, the partners re-main fully committed to the overall goal, know-ing that they are each giving resources and re-ceiving benefits as appropriate.

Stakeholders participate in a wide variety ofways, from a large utility merely informinghouseholds that a new supply pipe is about tobe installed, to an ngo enabling a communityto decide on the type of sanitation it wants in-stalled and how to manage it. Similarly, a com-pany can have a legalistic, contractual relation-ship with the government, municipality, orpublic regulator, or try to develop a trusting,creative, proactive partnering arrangement.

Wilcox (1999) reinterprets Arnstein’s ladderof participation (1969) as follows:

• Information: “The least you can do is tellpeople what is planned.”

• Consultation: “Identify the problems,offer a number of options, and listen tothe feedback.”

• Deciding together: “Encourage othersto provide some additional ideas andoptions, and join in deciding the bestway forward.”

• Acting together: “Not only do differentinterests decide together what is best, butthey form a partnership to carry it out.”

• Supporting independent community ini-tiatives: “Help others do what they wantperhaps within a framework of grants,advice and support provided by the re-source holder.”

Genuine “partnership” is defined as “de-ciding together” and “acting together” (Wilcox1999). At the levels of information and consul-tation the power remains with the externalbody, whereas in supporting community initia-tives the power lies with the community. Thedegree of empowerment is vitally important inany relationship with poor stakeholders becauseit is the nature of poverty to disempower peoplein so many ways. From the wider development

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Market Demand/ Large Demand, Mass Markets Local Demand, IndividualTechnological Sophistication or Batch Markets

Simple technologies Mechanical organization Craft organizationComplex technologies Mechanical-organic organization Organic organization

Source: Hage and Finsterbusch (1987).

Table 2 Contingency Theory for Organizations

perspective, any approach that includes em-powerment, building self-confidence, and jobcreation through community involvement ofthe poor takes precedence over others.

Organizations involved need to inform andconsult each other but can deliver more whenthey decide and act together, which is whatgovernment, private operators, and the com-munity should do to find creative and compre-hensive ways to serve the poor.

The Vision 21 exercise of the Water Supplyand Sanitation Collaborative Council for theSecond World Water Forum, as well as the ex-perience of solid waste management ngos

around the world, confirm that the poor wantto and can be partners. The greater the degreeof empowered participation shared with poorhouseholds, the more effective efforts are to re-duce poverty. Over time, the poor can expect tohave the same rights as any other customer,paying for a service that they can then forgetabout and getting on with other more impor-tant things in life.

Public-private partnerships thus need to incor-porate the community in services for the poor. Tri-partite partnerships are not necessarily easier toimplement, but the benefits are worth the costs.

Organizations and Contingency Theory

Large organizations such as water and sanita-tion utilities must also recognize how their vari-ous elements need to focus on their particularstrengths to work together to serve the poor. Thedegree of vertical and horizontal integrationwithin these utilities varies from country to

country and also over time. Meeting the needsof the poor requires additional competenciesthat traditionally are not present in a utility orga-nization. Choosing to create that competencewithin the organization (vertical integration) orto out-contract the activity depends on the typeof skills required and where they are available.

One approach to understand the skills re-quired and the form of organization suited tomake best use of them is known as contingencytheory: the organization should be designed to be“contingent” upon its environment and the typeof product it delivers, and the way it delivers it.

Contingency theory at its simplest level rec-ognizes the different environments of a largemass market compared to a small local market,each related to the sale of “simple” or “com-plex” technologies. The resulting four types oforganization are shown in Table 2.

Small solid waste collectors and recyclers maybe seen as examples of “craft” organizations, re-quiring a degree of skill but tending to operate inisolation from others, that is, without significantneed for linkages and a large organization.

Utility water and sanitation providers tend tobe classic “mechanical” organizations, designedto take advantage of economies of scale in effi-ciently delivering a simple product to a mass cli-entele. In developing countries administrativesimplicity is often subverted by weak gover-nance as politicians and employees compete forindividual benefits. To use another simple in-sight of management teaching, organizations indeveloping countries tend to be “relationshiporiented” rather than “rules based.” Individualexperience suggests that organizations in every

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A woman makes her point during a group discussion.

culture are influenced by the power of relation-ships as well as rules, but certain cultures tendto overemphasize the importance of meetingpersonal needs at the expense of the organiza-tional ones.

Privatization—imposing a new managementat the head of the existing workforce, particu-larly if the operator is foreign—reinvigorates themechanistic aspects of the organizations withquality assurance and rules-based discipline.The private operators report that although ittakes time and hard work, and requires reducingthe number of workers so that those remaininghave a valid job, privatization is achievable.

These standard organizations have been de-signed to serve most of the population, whowant the same standard, homogenous product.However, serving the urban poor requires aflexible, creative approach, producing a non-standard “complex” service, often varying fromslum to slum, which, in turn, requires a cre-ative, “organic” element in the institution.

Government providers have generally notset up this organic element, as an organizationthat has difficulty controlling its mechanistic el-ements will not dare empower something thatmight spin out of control. Another reason isthat these types of bureaucracies are typicallybiased in favor of construction engineering

rather than service delivery. Exter-nally aided projects in all sectorshave traditionally overcome thisproblem by establishing specialproject units, which tend to be di-vorced from their host depart-ment, particularly where staff arepaid special incentives. Theseunits tend to exist as long as theproject and have repeatedlyshown to be unsustainable overthe long term.

Public-private partnerships of25–30 years (5–7 years for solidwaste) make it possible to build theorganic element into the ongoing

work of the utility for the long term. Even withthe drive for universal coverage, flexibility will beneeded to serve the poor by improving servicesand ensuring bill payment.

Whether organic expertise is provided in-house or through out-contracting depends onthe private provider and the skills available.ngos are typically organic in their work style buthave varying limits on the degree to which theywish to be co-opted into the service of a privateoperator. For the poor customer there remainsthe need for a single interface to the single-serviceprovider, irrespective of who employs the staff.The same debate is under way in higher-incomecountries where some utilities are out-contractingcustomer relationship services (revenue cyclemanagement) while others believe that relating tocustomers is the core competence of a utility,more important than the technology, which mustbe retained in-house.

Mukami Kariuki (2001) reminds us that“the bulk of future utility customers will be low-income urban households.” Utilities shouldthus establish the organic capacity to meet theneeds of the poor, and involve the private sec-tor, whose professional management and free-dom to use incentives without being bound togovernment job descriptions make it generallybetter able to integrate the mechanical and the

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organic into the same organization. Interna-tional private operators have had the most ex-perience in combining the disciplined me-chanical approach with organic research anddevelopment expertise.

Organizational Change to Serve the Poor

In achieving the special qualities of partner-ships between stakeholders in addition to de-veloping “organic” capabilities and reforming a“relationship-based” organization into a “rules-based” one, large-scale mechanical service pro-viders face a major challenge: the same staffwho failed to deliver services before the public-private partnership are now expected to deliverquality service to everybody. Organizationalchange thus becomes a high priority.

To understand how this change can beachieved and maintained, it is helpful to con-sider the work of Lewin as interpreted bySchein (undated) who writes about “unfreez-ing” before “changing” before “refreezing.” Thetheory also describes “driving” forces and “re-straining” forces relative to change.

As Schein explains:Unfreezing as a concept entered the

change literature early to highlight the obser-vation that the stability of human behaviorwas based on “quasi-stationary equilibria”supported by a large force field of driving andrestraining forces. For change to occur, thisforce field had to be altered under complexpsychological conditions because, as wasoften noted, just adding a driving force to-ward change often produced an immediatecounterforce to maintain the equilibrium.The equilibrium could more easily be movedif one could remove restraining forces sincethere were usually already driving forces inthe system. Unfortunately restraining forceswere harder to get at because they were oftenpersonal psychological defenses or groupnorms embedded in the organizational orcommunity culture.

Transferring the service to a private opera-tor is powerful enough to unfreeze the existingsystem to challenge the stability of human be-havior and the patterns that have previously re-warded that behavior. Private sector takeover isnecessary to start the reform process. However,because it is impossible to establish a perfectlong-term public-private partnership when thepolitical and social environment is continuouslychanging, driving forces within the organizationmust be strong enough to enable it to continueserving the poor, who are most likely to be for-gotten when a situation becomes strained. Con-tinuing powers must also be available to chal-lenge the new restraining forces as the contractmoves forward.

The foreign or international aspect of largerpublic-private partnerships gives the privateoperator the potential to appeal above the levelof national politics when the need arises. Thisreduces the risk involved in contracting, allow-ing external funding to be more certain of a re-turn on the capital invested.

“Foreignization,” when introduced in atransparent and competitive manner, can bepowerful enough to challenge the restrainingforces. Foreign investors always have the last re-sort of formal systems for appeal, such as theWorld Bank-supported International Center forSettlement of Investment Disputes. However,employing such procedures suggests that thecontract has failed. It is the more informal, day-to-day political nature of foreignization thatgives impetus to change and a consistent focuson the needs of the poor, which is dependentupon the international community’s consistentsupport for the private operators. The major pri-vate operator in Asia, Ondeo Services, makesthe point that the work of the international sup-port agencies and donors does not end with thesigning of the contract: only ongoing supportwill bring benefits to all, particularly the poor.

The need to oppose restraining forces is thereason for recognizing the wide range of stake-holders in urban services provision, over and

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above the traditional utility and/or municipaldepartment, and for considering the wide spec-trum of partnerships, each with their own char-acteristics, strengths, and weaknesses in serv-ing the poor.

The explanations for progress in serving thepoor appear to unduly emphasize the role offoreign operators. However, this considerationof simple organization theory is not meant tojustify foreign involvement but to help under-stand the reasons for its apparent success, asdescribed in some of the country cases pre-sented below. With a long-term goal of develop-ing national private utility “champions”—which could well become international them-selves—as well as global expertise, externalsupport agencies need to consider how theycan build similar conditions for success intonew contracts with national private operators.The external support agencies might have tointervene with a government when tariffs orcontracts or labor relations become compli-cated just as some foreign ambassadors do onbehalf of their national companies, or to helpnational private operators find internationalsocial consultants to act as partners in develop-ing organic capacity to serve the poor.

For governments, particularly as they beginto consider reform and service to the poor insecondary cities and towns, there is a signifi-cant risk in employing national private opera-tors. For the reasons given above, such con-tracts can easily go wrong. For the governmentit might appear to be safer to continue with asecond-rate public provider than to risk gettinga third-rate private provider with no nationaltrack record in utility provision. The least-cost

bidder may not only be incapable but also lackthe management capacity to learn how to be autility, lack suitable high-level “protection”(without being too expensive), and may not beprepared to invest in learning how to be creativein serving the poor.

There can be no doubt that there is nationalmanagement capacity to carry out such opera-tions. One only has to consider national com-petitors such as the beer brewers and soft-drinkcompanies, which demonstrate sophisticatedunderstanding of the need for mechanical-organic organizations, employ rigorous me-chanical quality assurance of drink production,and have imaginative and creative organic mar-keting departments to sell the products. Tomeet the criteria suggested above, all such op-erators would need is the international supportto set viable tariffs, a reason for ensuring effec-tive regulation. However, there is no sense ofsuch companies becoming involved at presentor of that degree of protection being availablewhere needed.

In summary, the provision of high-qualityservices demands a rules-based, mechanical or-ganization, which requires the sort of powerfulshock or “unfreezing” that the introduction of theprivate sector delivers. To overcome the everpresent restraining forces requires some level ofsupranational intervention, and to deliver ser-vices to the poor in a participatory, empoweringmanner requires a co-option of the craft-levelservice of ngos and small-scale independent pro-viders into an organic capability within the re-formed provider. Examples of servicing the poorare presented to show how change is happeningin small and large cities of many countries.

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The Case Studies

The case studies represent three service sectors—water supply, sanitation,and solid waste management—and show how the urban poor are beingserved and what roles the various stakeholders play. The countries rangefrom the highly populated subcontinent to the Pacific Islands, and the ur-ban settings range from metropolitan megacities to secondary and smalltowns. The various public-private-community partnerships are also rep-resented in the case studies. It is a matter of debate whether ngos

should be considered under the heading of community or the privatesector, as the lines of distinction are often blurred. In addition, the pri-vate sector ranges from the small-scale independent provider to thesmall and medium-sized enterprise contractor to the national-levelconcessionaire and the international (foreign) private operator.

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Figure 4 Map of Case Studies

With such a wide variety of options to con-sider, the 19 cases described here cannot hopeto draw definitive conclusions as to ideal insti-tutional patterns of service, especially as someapparent failures are also described. In reality,all the cases are “works in progress,” with theirindividual strengths and weaknesses.

The case studies are grouped into three. Thefirst group recognizes the critical and widespreadinfluence of ngo initiatives in serving the urbanpoor by “filling the void” left by the failure of publicservice provision, even where those initiativesmight be limited in coverage. The second describeshow environmental service provision can be re-formed by involving larger-scale private enterprise,without special consideration of the poor. The

third looks at public-private-community partner-ships, which seek to combine the best qualities ofthe first two groups: ngo participatory develop-ment and the private sector reform approach.

Filling the Void: Nonnetworkedand Decentralized Services

The widespread failure of governments to pro-vide adequate urban services has resulted in anincreasing number of unserved urban poor. Theservice void is filled by various forms of self-provision, by small-scale independent provid-ers as well as by ngos, which offer discrete,nonnetworked services. The small providersmay deliver poor-quality and expensive service,

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Country and City Sector Case Study Type of Contract Grouped UnderHeading

BangladeshDhaka Water supply NGO contract 1

Solid waste NGO contract 1Cambodia

Phnom Penh and small towns Water supply Concessions 2India

Hyderabad and Vijayawada Sanitation Lease 1Indonesia

Jakarta Water supply Concession 2Kota Depok Solid waste Concession 2

MalaysiaKota Kinabalu Water supply Build-operate-transfer 2Malacca Sewerage Concession 2

NepalKathmandu Water supply and sanitation NGO contract 1

Water supply Enhanced lease 3Pakistan

Karachi Solid waste Management contract 2Sanitation NGO contract 1

PhilippinesMetro Manila Water supply and sanitation Concession 3Olongapo Water supply Concession 2Quezon City Solid waste NGO contract 1Silang Solid waste Service contract 2

VanuatuPort Vila Water supply Concession 2

Solid waste Service contract 2Viet Nam

Phan Rang-Thap Cham Water supply Concession 2

Case Studies Outside AsiaArgentina

Buenos Aires Water supply and sanitation Concession Appendix 1England and Wales

All cities Water supply and sanitation Divestiture Appendix 2

Table 3 Cities and Case Studies

yet consumers are prepared to pay for it. Smallproviders also create jobs and are generally ableto adjust to their clients’ needs, but their servicecan be influenced by criminals.

Community-oriented ngos are creative, in-novative, and flexible, often enabling and em-powering the poor to control service provi-sion. However, ngos may demand too high an

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Women in Kathmandu carry water for their families.

involvement from the poor beyond serviceimplementation. Poor households find it diffi-cult to stay committed to involvement in O&Mover the long term.

Kathmandu, Nepal: Tailored NGO Waterand Sanitation Program

Lumanti, an ngo managed by a board ofseven entrepreneurs, five of whom are women,started a toilet program and sewerage project inLonhla in 1986. By 2001 the ngo had repli-cated its success in about 70 communities ofKathmandu Valley (population 1.4 million,1999). Although Lumanti has mainly focusedupon credit programs for the poor, it has alsodone the following:

• helped poor communities get meteredcommunity taps by negotiating with themunicipal wards to provide guarantee

and ownership of the taps serving thesquatter settlements, resulting in 13 com-munity connections by Nepal Water Sup-ply Corporation, directly benefiting 168households in five communities;

• facilitated provision of alternativesources such as rowing pumps, shallowwells with hand-pumps, and springsource improvements;

• raised community awareness on effectivewater use and right of access to water,and assisted with management skills andtechnical support;

• promoted use of public, communal, andprivate toilet facilities through subsidy; and

• partnered with local communities andthe municipalities to lay communal sewerlines, drainage facilities, and connectionsof private latrines to main sewers.

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The squatter community of Jagriti Tole, withabout 125 households, faced severe water

shortages. The stalemate with Nepal Water SupplyCorporation (NWSC), which refused to provideconnections if households did not have house-ownership certificates, was first broken in 1987by an NGO, Women and Environment, when it con-vinced the ward committee to remain as a guar-antor for the public taps. Two unmetered tapswere installed in 1987/88 under the ownership ofthe municipal ward committee.

Although the taps provided some relief, it wasminimal for the growing community. In 1996 aJapanese NGO, Reiyukai, funded a pipeline ex-tension, and the community contributed by bury-ing and connecting the pipes. Lumanti formedwater users groups and contributed $270 to con-nect an additional nine community taps. The con-nection charge balance of about $330 were raisedby the community. The ward committee remainedas a guarantor.

The extension not only benefited the squattercommunity but also helped NWSC expand its con-nections, through which it distributed 12 more con-nections to nonsquatter households.

Box 2 New Connections in Jagriti Tole

Tej Kumari Shrestha, a housewife from the squat-ter community Srijana Basti, was chosen by

Lumanti to undertake a 12-day training program inhygiene awareness and low-cost toilet building in1996. Before the sanitation program was launched,only about five families had toilets. She says that thecommunity did not know that toilets could be built soinexpensively. Adults defecated on riverbanks andchildren defecated anywhere, including pathways.After the launching of the program, around 59 toiletswere constructed within a month in the community.

Box 3 Building Toilets in Srijana Basti

Dhaka, Bangladesh: NGO-Assisted Water Points

A similar approach is illustrated in Dhaka(population 11.6 million, 2001), one of theworld’s fastest growing megacities. Around55% of the urban population in Dhaka lives be-low the poverty line, half in slums and squattersettlements. Access to water supply, sanitation,solid waste management, and other services areextremely limited.

Dhaka Water and Sewerage Authority(dwasa) is not permitted to provide water tohouseholds that do not own land, which in-clude most of the urban poor living in slums.The ngo Dusthya Shasthya Kendra (dsk),which has been working in the slums of Dhakasince 1988, primarily on health care, found that

one reason for ill health was the lack of safedrinking water. Since 1991 dsk has served as anintermediary between the slum communities anddwasa, taking responsibility for the water connec-tions and mediating with Dhaka City Corpora-tion (dcc), mainly to obtain permission for roadcutting and siting of water points on dcc land.dsk also mobilized, organized, and preparedslum communities to operate and manage wa-ter points, bear the capital cost, and regularlypay dwasa water bills. By February 2001, withthe support of external funding agencies, 93water points had been installed, providing wa-ter to an estimated 8,000 squatter households.

Before a water point is built, an agreementis signed between the community water man-agement committee (eight members, all women)and dsk. An advisory committee with five malemembers is formed to help the water commit-tee and to deal with social intimidation. Bothcommittees have 1-year terms.

The water points, built under the supervi-sion of dsk and with local labor, comprise a 3cubic meter (m3) underground tank with twosuction hand pumps on top, along with aseparate bathing and washing platform,fenced off with bamboo matting. The averageconstruction cost is $600 to serve the targeted100 households.

The water point caretaker, ideally a womanmember of the committee, with an average salary

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Hanufa, a middle-aged woman residing inBegun Bari slum, explains: “Before the instal-

lation of the water point, I had to wait till oneo’clock at night to collect water from the nearbydormitory or wait hours in queue to collect waterfrom public standpipes with no certainty of gettingwater. There was a time when I could not get waterfor my family even after paying advance money tothe water lords. With the installation of the waterpoint in my slum, I can get safe water cheaply, I donot have to wait for hours, and, above all, it is eas-ily accessible, thanks to DSK and DWASA.”

Box 4 Water Points: Improving Access to Water

Garbage is dumped into drains in Karachi.

of $11 per month, collects the water chargesfrom users with ngo support and deposits themoney in the bank account held jointly by thecommittee and ngo. The rates are set by thecommunity with guidelines agreed upon bydsk, to cover dwasa bills, installments on capi-tal costs, and the caretaker’s salary. The averagemonthly rate is $0.93 for a four-member household(plus $0.18 per month for each additionalmember) or $0.46 per m3, while the officialdwasa rate is $0.08 per m3 and conventionalvendors charge $1.40 per m3.

dsk has handed over two water points tocommunities after they paid the capital costs,with bank accounts transferred to the watercommittee’s name. dsk expects to continue tomonitor and support the committees for 3–4years after transfer.

Like the ngo in Kathmandu, dsk has beendevising innovative means of serving the poor,and incorporating new techniques (storagetanks to guarantee supply, with hand pumpsto limit use), social strategies (initiatingwomen’s water management committees withmale advisory committees), and institutionalchange (municipal acceptance of land use andutility acceptance of a community connec-tion). This has allowed the poor to get legaland safe water at a low cost and generated rev-enue for dwasa.

Karachi, Pakistan: Sanitation Failure

The case of Karachi shows how disparateand uncoordinated efforts by the government,ngos, and communities can worsen the situa-tion in poor settlements. In Karachi over 60%of the population lives in unplanned settle-ments where public service provision consis-tently lags behind their growth.

A major problem for the residents is the ac-cumulation of sewage that makes life intoler-able. The residents dig earthen channels androute the sewage to the nearest natural depres-sion—a nullah—that acts as a storm waterdrain. Open drains become silted over theyears. Garbage is dumped into the drains, rais-ing their bed level. During the rainy seasonKarachi floods, and the water level recedes af-ter 1–2 days as silt and garbage are flushed intothe sea.

Over the years numerous ngos have en-couraged communities to lay sewerage systemsto connect their house toilets to street lateralsthat convey the sewage through secondarysewer pipes to the nullah and natural stormwater drains and, ultimately, to the sea. A sur-vey done by the Orangi Pilot Project in 136 in-formal settlements shows that 82% of the laneshave built sewer lines at their own cost, and

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Maksuda, a 32-year-old woman, has beenworking in the community-based composting

plant in Mirpur, Dhaka, for the last 6 years. Previ-ously, she worked in a garment factory. She left thefactory because she put in long working hours withno holidays, the supervisor mistreated the workers,and her salary was very low. She also had to endure3 months without salary, which was an acute hard-ship for her family. Now, working in the compostingplant, she gets a weekly day off, has fixed duty hourswith rest time, and can use the toilet and bathing fa-cilities. She can now devote more time to her family.

Box 5 From Factory to Composting in Mirpurover 90% of the homes have linked themselvesillegally to government water supply systems.

One such project started in 1983 was theBank of Credit and Commerce International–United Nations Development Programme(bcci-undp) project for Chishti Nagar neigh-borhood in Orangi, west of Karachi. Under thisproject 500 households were connected tosewers leading not to the natural watercoursebut to a large communal septic tank. However,a few years ago the communal septic tankceased to function efficiently due to lack ofregular desludging. The sewage overflowed intothe storm water drains. Some neighborhoodlanes have disconnected their lines from thecommunal septic tank and are back to dis-charging sewage directly into the natural stormwater drains.

To overcome the sewage problems the Gov-ernment is implementing the Greater KarachiSewage Plan, which will superimpose a newsewage system on the existing one. The plan isbeing heavily criticized because it does not takeinto account attempts to connect the numerouscommunity-built sewage systems that havebeen installed by ngos in the past.

Karachi’s experience demonstrates that itssanitation problems cannot be solved as longas community efforts in providing low-costsanitation are not integrated into an overallsanitation plan for the city.

Dhaka, Bangladesh: NGO-Led SolidWaste Composting

The more than 6 million inhabitants ofDhaka generate over 3,000 tons of municipalsolid waste daily, yet the Dhaka City Corpora-tion manages to collect only 42% of it(Enayetullah 1995). The rest remains on road-sides, in open drains, and in low-lying areas,worsening the city’s physical environment.The rapidly growing city would need an addi-tional 110 hectares of landfill per year for allthe solid waste.

Recycling of solid waste has long been anincome-earning enterprise for many urbanpoor. In Dhaka 15% of the recyclables, mainlyinorganic materials, are collected by some87,000 people from the informal sector, includ-ing waste pickers or tokai (Sinha 1993). Al-though they extract most of the readily avail-able material from the waste stream, consider-able value remains in the organic portion of thesolid waste, which constitutes about 80% of to-tal waste. Organic waste can be recycledthrough composting, which not only reducesdisposal costs and prolongs the life span of dis-posal sites, but also reduces landfills’ adverse en-vironmental impacts. The organics are mainlyresponsible for leachate contamination andmethane problems. Recycling and returning oforganic waste to the soil significantly enhancesthe sustainability of urban areas. Involving thepopulation in composting promotes awarenessof waste resource recovery and creates jobs andgenerates income.

Waste Concern, an ngo, started a community-based decentralized composting project inDhaka in 1995 to explore the technical andcommercial feasibility of labor-intensive,aerobic, decentralized composting, and topromote the “4Rs” (reduce, reuse, recycle, andrecover waste) in urban areas. Activities includehouse-to-house waste collection, decentralized

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composting of the collected waste, and market-ing of compost and recyclables.

Waste Concern mediates with dcc andother government agencies to provide landand logistical support to implement the pro-gram, as well as with the private sector to mar-ket the recyclables and compost. The PublicWorks Department (pwd) and Waste Concernhave a formal partnership agreement to imple-ment the project. pwd has given Waste Con-cern permission to use pwd land and providedother logistical support such as water and elec-tricity connections to establish community-based composting plants. Waste Concern pro-vides capacity building and technical assis-tance by forming waste management commit-tees called “green force”; establishing small-scale composting units (1–5-ton/day capacity);and training communities to manage, operate,and maintain the services. For a 3-ton/daycompost plant, earnings (total income minusoperational cost) per year are approximately$4,600 with a payback period of 23 months. Ex-cluding the land cost, therefore, the project isfinancially viable.

After Waste Concern mobilizes the commu-nity and forms community groups, the ngo or-ganizes training programs. Selected commu-nity members—preferably women—undergohands-on training in waste separation, collec-tion, composting, and marketing of recyclablematerial and compost.

In Mirpur, Baily Road, and Green Road areas,a community of 2,100 lower- and middle-incomehouseholds, modified rickshaw vans designedand introduced by Waste Concern collect wastehouse to house. Each van has a part-time driverand one or two waste collectors and serves 300–400 households. This service is self-sustaining ashouseholds pay on average $0.18–$0.36 permonth, which covers the salary of the van driversand waste collectors and O&M costs, withmonthly net savings.

The collected waste is separated and sortedat the composting plant in the community and

processed into compost using aerobic tech-niques. About 500–600 kilograms (kg) of com-post are produced everyday by processing 2–3tons of solid waste from three community-basedcomposting plants.

Women are greatly involved in composting.Of the 20 workers at the Mirpur compostingsite, for example, 11 are female. Composting allthe organic waste in Dhaka could create jobsfor about 16,000 urban poor, especially women.The women working in the project said thatthey were satisfied with the working environ-ment. Most said that they used to work as do-mestic helpers or in garment factories for longhours, low pay, and no holidays. Working inthe composting project, they receive a monthlysalary of $18.50; by selling recyclables they canearn an extra $5.55–$7.40 per month.

A good market for compost exists inBangladesh. Waste Concern helps the com-munities sell their compost to a number ofoutlets such as fertilizer-marketing companiesand nurseries. Waste Concern has been sellingits compost for $0.05–$0.09 per kg and re-cently signed a partnership agreement withthe private company Map Agro Ltd. to sellcompost to it at $0.05 per kg. Map Agro hasinvested $46,300 to enrich the compost withnutrients as required by farmers, enablingsales up to 200–300 kilometers (km) from theplant at $0.11–$0.15 per kg. Recently, MapAgro requested Waste Concern to install morecommunity-based compost plants to meet thegrowing demand for enriched compost.

The community-based decentralized com-posting program, integrated with door-to-doorcollection of solid waste, can yield appreciablesavings for municipal authorities. Waste Concern’smodel shows that only 15% of total waste hasto be transported to the landfill site.

Waste Concern’s model relies on communitymobilization and capacity building to managewaste and ensure sustainability of the project.Community mobilization is a long-term, time-consuming process, requiring people to dispose

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6 The barangay is the smallest political unit in the Philippines.

of their garbage properly. After a year of commu-nity mobilization and training, Waste Concernhands over the project to the community butcontinues to monitor it for 3 years.

Households, especially women, report thathouse-to-house waste collection service is con-venient. Some said that they could not rent outtheir houses due to the large, overflowing mu-nicipal community bins in front of them, whichsmelled bad and harbored mosquitoes. Thehouse-to-house waste collection and resourcerecovery program solved these problems. Aftera few months, adjoining communities demol-ished all the bins and people were able to rentout their houses.

The program has significantly cleaned upcommunities, created jobs for the urban poor,reduced dcc’s waste management costs, andcreated business opportunities for entrepre-neurs. The project has become a model, whichseveral city governments and ngos are tryingto replicate. Cities abroad have also shown aninterest in it.

Quezon City, Philippines: Solid WasteManagement through NGOs

The experience in Quezon City (population2.16 million, 2000), the largest city of Metro-politan Manila, shows that low-cost solidwaste collection using community participa-tion can be effective. In 1996 the ngo SagipPasig Movement organized the San AntonioEnvironmental Council (saec) to improvewaste management in Barangay6 San Antonio(population 23,500 in 2000). Before saec,waste management was greatly inadequate.Around 60% of the households are outside theregular house-to-house route of the citygovernment’s solid waste collection services.Garbage trucks were parked on main accessroads two to three blocks away as communityalleys were impassable and littered with

mounds of uncollected garbage. The area wasprone to flooding due to garbage-laden drainsand creeks and had a high incidence of dengue,primary complex among children, and cholera.

In the 1,250-household area, primary wastecollection is now undertaken by a fleet of sevenpushcarts, four of which were given by the ngoand three bought by saec from operational pro-ceeds. These pushcarts are manned by “sani-tary inspectors” (waste collectors) who gohouse to house in pairs (one male and one fe-male) to collect the waste and recyclable-filledbags starting at 4 a.m. daily. Waste is segregatedby the households, easing retrieval ofrecyclables. Once filled, the pushcarts arebrought to privately owned trucks contractedby the city government to haul collected wasteto the dumpsite managed by the city.

Bags containing recyclables are then sorted,grouped, and bundled or packed, before beingstored at the 32 m2 buy-back center, which wasbuilt with external support for $12,000. Twojunkshop owners pick up the stored recyclablesonce a month or when the buy-back center isfull. saec earns at least $160 a month from sell-ing recyclables and collecting service fees andcharging $0.20 per household per week. Thesanitary inspectors collect service fees frommember households every Sunday. The collec-tion rate is reported to be very satisfactory, withrare cases of irregular payment.

The total revenue of about $1,160 per monthfunds the salaries of the sanitary inspectors andthe maintenance of the buy-back center. Sani-tary inspectors earn $60 per month for working6 days a week. Most male sanitary inspectorswere once street vendors, earning $1 per nightfor working more hours. Female sanitary inspec-tors are housewives, whose earnings augmenttheir family’s income. Their tasks end at about9:00 or 10:00 a.m., allowing them to do house-work for the rest of the day.

Member households enjoy house-to-housecollection service thrice weekly, which is far betterthan that provided by the city government. The

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community now has garbage-free drains, rivers,streets, and alleys, and has become less vulnerableto flooding, lung diseases, dengue, and cholera.

The saec experience demonstrates that public-private-community partnerships in solid wastemanagement can be sustainable, appropriate, ef-ficient, replicable, and enhance the environ-ment. Sustainability of the initiative requires fullsupport from the local government, communityleaders who are committed and resourceful, acommunity willing to participate and to pay forimproved services, and continued technical andfinancial assistance. In the long run, new andenvironment-friendly disposal facilities must bedeveloped, along with a more effective networkof junkshops and recyclers and a system of di-rect buying of recyclables from households. Amarket for compost products must also be ex-panded and organic farming supported.

Hyderabad and Vijayawada, India:Scaling Up Sanitation

Few ngo initiatives in Asia have managedto scale up their activities beyond individualneighborhoods or cities. Sulabh Internationaloperates nationwide sanitation services andhas grown into a formal private operator whileretaining its ngo character. Any surplus real-ized is invested in community initiatives. Keyfactors in Sulabh International’s success in-clude the commitment of the top leadership;development of appropriate technology, de-sign, and management; and a social-marketingapproach to service delivery.

Founded in 1970, Sulabh International of-fers three types of services: construction oftwin-pit pour-flush toilets for individual house-holds, construction and maintenance of paycommunity toilets, and construction and main-tenance of community toilets in slums andsquatter settlements with support from localgovernment block grants. Sulabh Internationalhas built 1 million twin-pit pour-flush toiletsand over 4,000 multiple-seat pay toilets.

State governments have encouraged munici-palities to provide land, utilities, and capital fi-nance, and to collaborate with the private sectorto provide community toilets. The MunicipalCorporation of Hyderabad (population 5.2 mil-lion, 2001) entered into a 30-year lease arrange-ment with Sulabh International in 1986 for paytoilets, and Vijayawada’s Municipal Corporation(population 1 million, 2001) into a 1-year mainte-nance agreement for subsidized toilets in slums.In Hyderabad, the municipal government pro-vides the land, power, and water, and also paysfor construction of the toilets. Sulabh Interna-tional charges 20% over and above the construc-tion cost for establishment. Maintenance costsare borne by charging $0.02 per use of the toiletand bath facilities except urinals, which may beused free of charge. Poor people, the physicallyhandicapped, the elderly, and street children areallowed to use the services for free.

Sulabh International appoints caretakersfor round-the-clock maintenance of the com-munity toilets, which have a storage roomand caretaker’s living quarters. The caretakeris responsible for the overall management ofoperations, including collection of user charges,operation of water pumps, maintenance and up-keep of the building, procurement of chemicalsand equipment, and cleanliness.

Sulabh International staff visit the complexesregularly to ensure proper cleanliness and super-vise the collection of user charges. Cleanlinessand 24-hour service are highly valued by custom-ers and are at the top of the company’s agenda.Customer satisfaction is further enhancedthrough a personal and caring approach. SulabhInternational’s activities are monitored by offi-cials of the municipal corporation.

Since 1986 Sulabh International has con-structed and/or maintained 58 community toi-let complexes in Hyderabad, and 50 free-of-charge complexes in 29 slums, the latter withsupport from a municipal grant for construc-tion and $325 per month for maintenance (ex-cluding power and water costs, which are paid

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Pay toilets are built and maintained by Sulabh International in Hyderabad.

by the municipality). Forty of the communitycomplexes generate an average of $12.75 perday (indicating over 600 users per day). The 10complexes that do not yield any revenues arecross-subsidized by the high-revenue units.

Sulabh International has adopted innovativeconstruction management practices and materi-als to reduce long-term maintenance costs andincrease building quality. Adequate ventilationand air circulation through open-sky areas forlobbies and verandahs and the extensive use oftiling motivate users to keep the toilets clean. Asa result, use of the complexes is estimated at70%, compared to 30–40% of those not main-tained by Sulabh International.

A recent survey (Chary, Narender, and Rao2001) found that nearly half the users are illiter-ate, and half earn less than the minimum wageof $1.20 per day as petty hawkers, daily wagemanual workers, domestic helpers, rickshaw

pullers, rag pickers, and beggars. Users ex-pressed general satisfaction with access andcleanliness (75%) and access to water and soappowder, with a lower satisfaction rate for thegrant-supported toilets, where Sulabh Interna-tional appears to be less attentive. Users par-ticularly appreciated complexes with bathingand locker facilities, and most (75%) could paythe $0.02 charge.

The community toilet complexes built andmaintained by Sulabh International have sig-nificantly improved the surrounding environ-ment. Before Sulabh International’s contract,the toilets used to be dirty and ill-maintained,smelly and rarely used. They also used to bebreeding places for mosquitoes and flies. Thesituation has considerably improved thanks tothe company’s commitment, particularly inpublic places such as markets, bus stations, andrailway stations.

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Summary of Nonnetworked and DecentralizedService Provision

The first group of case studies shows thatthe poor will pay for a reasonable, fairly pricedservice, and that committed, socially oriented,innovative service providers such as ngos canfind ways to meet the needs of the poor.

The case studies also show how nonnet-worked and decentralized services can createjobs and require community involvement, andhow an ngo can grow into a small or medium-sized—albeit nonprofit—enterprise to scale up itsactivities. Small-scale public-private-communitypartnerships can deliver services and benefits tothe poor.

The challenge of the community-oriented, ngoapproach is to achieve long-term sustainabilityand expansion. Communities can work to-gether effectively to improve their immediateenvironment but, not surprisingly, the impera-tives of survival make it hard to maintain effi-cient service provision over the long term.

Decentralized services have their limita-tions. Water supply and some elements of sani-tation require a level of networked service tomake them efficient in urban areas, usuallywith a formal organization for water produc-tion and an organized collection system (akinto a network) for wastewater and solid waste,having maximized on-plot and/or on-site recycling.Network service providers should be reformedto “break through their performance ceiling” oflimited coverage and low quality, so they canlearn from and act as partners to ngos to ex-tend services to all the urban poor.

Breaking Through the Performance Ceiling:Reform Public-Private Partnerships

The second group of case studies describeslarger-scale public-private partnerships de-signed to reform services and achieve betterquality at lower prices. These are the “classic”public-private partnerships that do not necessarily

pay specific attention to the poor but neverthe-less benefit them. ngos or communities werenot among the stakeholders, except when theyacted as private sector substitutes, when thesepartnerships were designed.

The range of case studies in the secondgroup is substantial, from simple service con-tracts to major concessions. Most private op-erators in this group reached service coverageboundaries at some point, beyond which theycould not extend services without cooperationof either the public sector or civil society.

Port Vila, Vanuatu: Private Solid Waste Service

Port Vila (population 32,000 in 2001) oper-ates a sanitary landfill as well as skip andcurbside refuse collection services. The land-fill—sited, designed, and built under the super-vision of foreign consultants supported by for-eign aid—has removed the poorly managed rub-bish dumps from the urban area. Since solidwaste services are the municipality’s second-largest generator of revenue, the landfill site wasnot leased to a private operator. About $22,000a year is earned from the gate fees of $5.80 pertrip, which is expected to increase in the comingyears. The municipality recently bought two-wayradios for the collection vehicles so that driverson their rounds could check with the main of-fice for new collection sites.

The municipal council does not serve all resi-dential areas. While some individuals throwtheir household waste directly into the Bouffalandfill, several recognized private operators inthe greater Port Vila area offer disposal services.For example, Ifira General Services expanded itsservice area recently and is willing to serve anyeconomically viable area. The private operators’experience shows that well-structured and orga-nized communities such as villages that provideaccess to the area and agree to the terms of ser-vices are the easiest to serve. One peri-urbanvillage, Mele, signed an agreement with Ifira toprovide garbage collection twice a week at $58

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Garbage is regularly collected at a market in Silang.

for a 6-month trial period. The vil-lage health management commit-tee is responsible for obtaining do-nations from village households topay the monthly bill, establish col-lection sites, and inform Ifira ofthese sites.

If the Mele arrangement is suc-cessful, the private company willdiscuss with the government how toreplicate it in other informal settle-ments. If affordability is an issue,cost-sharing arrangements couldbe an option, where the provincialgovernment pays half of the costand arranges with the communityto pay for the other half until the communitycan assume total financial responsibility for theservice. This is a creative private sector ap-proach that has potential to serve the poor, andshows that public-private partnerships for thepoor do not preclude the use of targeted subsi-dies to efficient operators.

Silang, Philippines: Solid Waste NGO Goes Private

In Silang (population 160,000 in 2000), 44km south of Metro Manila, the Institute for theDevelopment of Educational and EcologicalAlternatives (ideas) acts like a private sectorcontractor for the municipal government tocollect waste and manage the dumpsite forabout 30,000 people. The ngo collects waste forcomposting and recycling twice a week, and re-siduals once a week, enforcing the “waste segre-gation at source” approach of the local govern-ment through a “no segregation, no collection”policy. ideas also undertakes information, edu-cation, and communication campaigns, andmobilizes communities to use their own re-sources. Volunteer waste management teams inlow-income communities make servicing thepoor possible.

The contract commenced in 1997 for 5 yearsat $3,600 per month for collection service (two

open dump trucks with crews of four andthree people) and $1,000 per month fordumpsite management. ideas also receives$50 per trip of a truckload of waste collectedoutside the contracted coverage upon writtenrequest from the government. In practice,however, payment for dumpsite managementis irregular as it depends on the internal rev-enue transfer to the local government, whichcan be several months delayed.

Households do not pay service fees al-though they were supposed to be imposed in1999. Charges of $0.60 per month per house-hold are planned to be imposed, but the modeof collection remains an issue. One possibilitywould be to include the charge in the water bill.

Since ideas took charge, waste brought tothe dumpsite was reduced by 30%, prolongingthe life of the site considerably. Annual in-come from the sale of recyclables is at least$200 from carton, hard plastic, aluminum, pa-per, and plastic bottles. The market for otherrecyclables is quite limited, and ideas is en-countering storage problems. Around 50–80bags of compost per month—well below thetarget production of 150 bags per month—aresold at $2.80 per 50 kg bag.

The commitment of the ngo in voluntarily go-ing beyond the contract by conducting campaigns,

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organizing barangay and waste managementteams in poor communities, and establishingmaterials-recovery facilities and the compostingplant are critical to the success of the program.ideas’s “ngo-ness” has greatly benefited the mu-nicipality, which still has no specialist staff re-sponsible for solid waste management.

Karachi, Pakistan: Solid Waste ManagementContract Canceled

Of the estimated 7,000–8,000 tons of wastegenerated each day in Karachi (population 14million), only 33% reaches the three municipality-run landfill sites; the rest is dumped into thecity’s natural drains or picked and sorted by theinformal sector. Private landlords have leasedout barren land around the landfills to garbagepickers, who pay a fee for every truck thatdumps its garbage near their sorting area. Sev-eral ngos have attempted to collect and recyclewaste but with limited results. The city remainedlittered with garbage.

Karachi has made several unsuccessful at-tempts since the mid-1990s to engage the privatesector in its formal waste collection, landfill sitemanagement, and incinerator management.

In one recent attempt the municipal govern-ment entered into a 5-year management con-tract with a private operator, which ensures ac-countability by requiring payment only for gar-bage lifted. The contract was let for 5 years for$11 million for an assumed collection ofaround 300,000 tons of garbage, 74,000 tons ofdebris, and 16,000 tons of desilted materialfrom open drains, the amounts being adjust-able to match actual needs.

The municipal corporation leased its assets tothe private operator, and the contract coveredalso limited investment. Government employeeswere temporarily transferred to the enterprise,which paid their salaries, overtime, and bonuses.About 200 more staff members were employed,and employees generally received more overtimepay than under the previous public management.

The obligation of paying the daily rental tothe municipal corporation and payment of staffsalaries forced the private operator to look atdustbins as “safe deposit lockers where cur-rency notes are stored.” As a result, the enter-prise entered slums and unplanned areas inpursuit of garbage, which was not the practicewhen the government was the operator.

To ensure community participation, edu-cated citizens with a track record of public ser-vice were asked to join a citizens supervisorycommittee along with a nominated councilorrepresenting each of the 56 wards. Local ngos

were to be invited to join the cleanliness effortand commence a dialogue with poor commu-nities, especially the women and young people,to raise awareness of their right to a healthy life.

Health inspectors routinely surveyed dust-bin sites and joined in auditing the weigh-bridge. Monitoring tasks were assigned todifferent staff cadres to ensure universal partici-pation of all municipal employees, supervisedby the citizens committee. The municipal cor-poration started identifying potential waste by-products, mobilized waste pickers at the land-fill site, and set up a medium-term plan to auc-tion off the right of waste picking and sorting toa private sector operator with further rights forrecycling. The municipal Health Department’ssurvey on income generation for the poor andscavengers concluded that the estimated in-come per person per day was $1 through thesale of recyclables.

With the introduction of the managementcontract the following major improvementswere observed:

• Budgetary expenditure was reduced by 20%.• The frequency of lifting quadrupled.• The quantity of waste lifted and trans-

ported to the landfill was doubled.• Illegal dumping stopped, including lifting

of garbage from rich areas and dumpingin poor areas.

• Workers’ income doubled due to over-time and bonuses.

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Dialogues are conducted to raise community awareness.

7 A regency is one level of government below the provincial level.

• Waste pickers’ income increased due tothe large quantities of waste available at asingle point.

• Community interest in having a cleanand healthy environment was renewed.

However, labor union leaders and workersbenefiting from stealing and selling diesel re-sisted the public-private partnership, as didhigh-level local government officials who re-ceived a share from these illegal sales. As a re-sult, the new public-private partnership con-tract was canceled after just 3 weeks.

The presence of powerful “restraining” forcesin favor of the status quo in service provisionshould be factored into the planning of any public-private-community partnership to serve the poor.

The case also shows that without recogniz-ing the crucial role of waste pickers and the re-cycling industry, solid waste cannot be dealtwith comprehensively. By rationalizing and

regulating the waste pickers’ activities and inte-grating them into the initiative, resistance couldhave been lessened, the middlemen’s illegal in-come eliminated, and more waste properly dis-posed of and/or recycled.

Depok City, Indonesia: Solid WasteConcession in a New City

Depok (population 921,464 in 1999), for-merly part of Bogor Regency7 south of Jakarta,was officially founded in March 1999. As a ma-jor residential, educational, and trading andservices area, Depok is one of Jakarta’s “sup-porting” cities.

Except in Jakarta, large-scale private sectorparticipation in urban services is a very recentphenomenon in Indonesia. The first competi-tively awarded water concession was signed in

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early 2001, and the 2001 solid waste concessionin Depok is also a first for the country.

In 1999 solid waste management in Depokcovered about 27% of the total solid waste gen-erated. A number of private operators were alsoengaged in solid waste and sanitation services,particularly in the new residential compounds.However, these operators would throw thewaste in any open space, creating public healthproblems. Wastewater management covered amere 6% in 1998/99. The low service level wasmainly due to the absence of a wastewater treat-ment plant and inefficiency of truck operations.Future demand for solid waste and wastewatermanagement is projected to reach 80% and 40%by 2010.

Effective in September 2001, the winningbidder of the 10-year solid waste concession inDepok, Pt. Prima Mulia Mandiri Lestari(pmml), agreed to undertake most of the opera-tional functions of waste management previ-ously performed by the local government. Thecompany was asked to clean and collect solidwaste from public roads, residential and com-mercial areas, public parks, and other public fa-cilities to the temporary or final disposal site;transport all solid waste collected from the tem-porary to the final disposal site; and recycle andcompost to the extent possible to prolong thelifespan of the final disposal site.

pmml has proposed the “3R” program—reuse,reduce, recycle—that will involve the urban poor inrecycling and composting. pmml wants to engage anumber of key players in a more formalized mannerthan under the public management:

• Pemulung (scavengers). As the front-linersof the program, they play a key role in re-ducing the solid waste to be disposed.Numbering about 170, scavengers aremostly poor people from villages close tothe final and temporary disposal sites.

• Lapak (purchasers). They buy the col-lected waste from the scavengers and sell itto the middlemen. The purchasers are usu-ally also the coordinators of the scavengers.

In the long term, when lapak havescaled up their business, they can dealdirectly with industries without the helpof middlemen.

• Makelar (middlemen). They act as bridg-ing partners for the scavengers in market-ing the collected waste. They play an im-portant role when industries need a sig-nificant amount of recycled waste thatcannot be accommodated by the lapak.

• Industries. As the users of recycled waste,industries bear a crucial function in thecycle. Being able to tap them assures asustainable solid waste recycling program.

• Poor people. pmml also intends to em-ploy poor people from the surroundingvillages for composting once the mostappropriate composting technique hasbeen established.

pmml intends to sign partnership agree-ments that preserve its overall mandate andauthority while giving small-scale contractorsthe right to continue operating in areas previ-ously secured by them. The same type of part-nership agreements will be applied to ngos andcbos that are interested in joining.

Phan Rang-Thap Cham, Viet Nam:First Local Water Concession

Until recently, only 40–50% of the urbanpopulation of Ninh Thuan Province, centralViet Nam, had access to piped water. Almostnone of the smaller wards of Phan Rang-ThapCham town have piped water, relying insteadon untreated water collected from shallow dugwells and distributed directly to consumers byprivate water trucks at high cost.

The first successful local private water supplyproject is the Dong My Hai Water Supply Enter-prise. Established in 1993 with 100% private in-vestment, the enterprise serves 30,000 inhabit-ants in Dong Hai and My Hai wards, with a pro-duction capacity of 1 million liters per day (mld).

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The company invested $230,000 from its ownsources and from a high-interest loan from stateand private sources. To decrease the owner’shigh-interest borrowing needs, the enterprisecollected advance payment from householdsthat would use the water supply system, signifi-cantly reducing the cost of water supply. After 3months of operation, the advance paymentswere returned to the households. However, in1994–1995, the owner had to take out another6-month loan of $15,400 at an interest of 2.50–2.55% per month.

After operating for 3 years, Dong My HaiEnterprise has become profitable. It contrib-utes to the government budget, pays regulatedsalaries, implements a reward system, and pro-vides social security and health insurance for itsstaff and employees. Except for company in-come tax, the enterprise pays all taxes just asany other private enterprise, including real es-tate, patent, and value-added tax (5%). Capitalis reinvested to improve the water treatmentplant and expand the water supply network todecrease the service cost.

Dong My Hai Enterprise has significantlyimproved service efficiency and responsive-ness. Unaccounted-for water is now only 20%compared with 40% for the public water sup-ply company, and it takes only 5 days to installa new water connection, compared to 15 daysfor the public company.

Building the water supply system was easierthan setting up its O&M. Customers had to buywater meters themselves while the companyhelped install them. However, because manymeters were of low quality, they were often outof order, causing the enterprise technicians tospend much time on repair. As a result, thecompany changed its policy and is now respon-sible for installing pipelines and purchasingand installing water meters.

At first the People’s Committee was respon-sible for water delivery to individual familiesand collection of the monthly dues. However,because water consumption remained low and

water losses high, the water distribution systemwas returned to the private enterprise to supplywater directly to the customers, who paid di-rectly to the private enterprise.

By April 2001 Dong My Hai was supplyingwater to around 6,000 families through a net-work of 12 km and 500 water meters. Up to 12families use one water meter to avoid water loss.Customer groups say that during the last 7 yearsthe company has fully satisfied the demand forpotable water, and diseases have declined sig-nificantly. However, the cost of water at $0.46per m3 was considered high compared to house-hold incomes of $35–$50 per month.

Dong My Hai demonstrates that conven-tional private enterprises can serve the poor evenin small towns and without external support.However, a number of factors—high-interestrates, no legal framework, lack of governmentsupport—make these operations quite risky andwill, therefore, only be undertaken by a few com-mitted entrepreneurs.

Phnom Penh and Small Towns, Cambodia:Unregulated Water Concessions

Cambodia is remarkable because of thenumber of private initiatives that have sprungup in urban and rural areas, encouraged by theweakness of public utilities and the absence ofstringent regulations. Outside Phnom Penhand Sihanoukville, almost all new water supplynetwork investments have been made by localprivate investors, ranging from $900,000 forBanteay Meanchey (population 100,000 in2000) to a few thousand dollars for villages of afew hundred families.

In 1997 and 1998 four private companieswere granted concession rights for water supplyin Banteay Meanchey, Kampong Speu, Kandal,and Takeo. Except in Kandal, where the privatesector operates in peri-urban areas and thepublic utility supplies the town core area, theprivate sector is the sole manager of the watersupply networks.

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In Battambang, Proeuk Phone, who is disabled, rented a pumping facility and tanks from the government 6 yearsago. He pumps water from the river, adds a bit of alum to the water, and supplies six small tankers that belong to

small-scale independent businessmen. The rental cost is from $40 during the rainy season to $80 during the dryseason. Proeuk Phone sells water at $0.31 per m3 to tankers that sell home-delivered water for about $0.50 perm3. For poor people who cannot afford home delivery by tanker, he rents out 200-liter pushcarts for $0.13 per trip,which corresponds to $0.66 per m3. Around 30 families get their water this way.

In another district, a teacher, Ung Ratana, manages a family business started 18 years ago. He pumps waterfrom the river and adds a bit of alum to the water in the tower built as a family investment. He provides water toend-users on request. He has an old 3,000-liter tanker. He sells one tanker of water for $0.43 per m3. During therainy season, he sells 2–5 tankers per day; during the dry season, up to 30 tankers per day. He is confident thateven if the network were expanded to cover the whole town, he would still be able to stay in business as the con-nection fee is unaffordable for poor households.

In Takeo, Heng Sina has a small grocery shop close to the main road. Before getting connected to the water net-work, she fetched her water from the pond in the school area close to her shop. When the water main was installed infront of her shop, she paid the connection fee to get water at home. A few neighbors asked her to retail water to thembecause they could not afford the connection fee. She bought a 200-liter pushcart that they could use to get water andcharged them $0.20 for a full pushcart. Before the network was in place, the same amount of raw water from the lakecost $0.13, and water drawn from a well and brought home was $0.39. Heng Sina now has 20 customers, 5 of whomcould be connected to the network, while the others live too far away. One former customer is now connected to thenetwork. The average consumption is around 20 liters per capita per day. The daily turnover is from $0.52 during therainy season to $1.85 during the dry season. She gets a monthly profit of $9–$30, although she maintains that hersis a social welfare approach.

Box 6 Low-Cost Solutions for the Poor

Concession rights were usually grantedwithout an appropriate bidding procedure, re-sulting in different privatization processes indifferent towns. The license renewal procedureis not clearly defined but is directly linked toprivate companies abiding by the main clausesin their contract on water quality and tariffs.The Government sees no need to add specificprovisions to encourage service access for allbecause it assumes that the private sector auto-matically wants to sell water to the greatestnumber of people. So far, private investors haveunderstandably established their networks inthe most densely populated urban and com-mercial neighborhoods, where the investmentrequired is lowest and consumption highest.

Various studies indicate that the main obstacleto connection is the high fee. In Battambang,where private investors have been granted a 10-year concession for low-consumption peri-urban

areas, the company allows payment of the con-nection fee by installments over a period of upto 24 months. However, the basic cost of con-nection remains high at $40–$50—compared to$55 charged by the downtown public networkutilities—when the technical quality is morelike that of rural small-scale piped systems thatcharge $10–$15 for connections.

In provincial town networks, where thecoverage remains low and connection feeshigh, some consumers, usually shopkeepers,sell water to neighborhood families who can-not afford the connection fees or live too faraway from the networks. At the same time, theinformal private sector in peri-urban areas,small towns, and rural villages has developedtechnical approaches (low-cost connection, jarfilling) and commercial ones (easy terms forconnection cost, pushcart renting) suited tothese communities.

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As Cambodia rebuilds itself, the local privatesector focuses on projects with quick cost recov-ery by serving the high-income households first.The Government should ensure that servicecoverage is equitable by regulating nationalcontractors in small cities and foreign operatorsin metropolitan cities.

Kota Kinabalu, Malaysia: Water Concession

Kota Kinabalu (population 354,000 in 2000),which has little urban poverty (3.4% in 1999),privatized its water supply in 1993 to make pub-lic services efficient and productive and to gen-erate revenue from state assets. The concession-aire, Jetama Sdn. Berhad (Ondeo Services),took over the State Water Department’s func-tions of operating water production and trans-mission facilities for Kota Kinabalu and threeadjoining municipalities, and employed 120 wa-ter department staff members.

The 20-year concession agreement requiresthe Government to pay for construction througha monthly fixed fee. The other component, thevariable fee, is charged according to the volumeof treated water supplied.

Jetama and its partner, Corporate Dynamics,have refurbished five treatment plants and builta dam. Refurbishment works included basichealth and safety procedures and working prac-tices. Raising water quality to who standards,the concessionaires also take water samples forperiodic quality testing by the privatized compa-nies as well as the Department of Environment.

Increased water production has increasedwater pressure, allowing water to be piped di-rectly to houses in squatter areas and makingcollection from water points unnecessary. Al-though most of the squatter in-house connec-tions are illegal, the State Water Department has“turned a blind eye” and is slow to cut them asthe Government’s policy is to ensure a risingstandard of living for the whole population. Theresult is that private sector involvement has im-proved service for everyone, including the poor.

Malacca, Malaysia: SewerageConcession Difficulties

The Indah Water Konsortium (iwk) wasawarded the private concession to overhaulMalaysia’s aging sewerage system and to oper-ate it for 28 years at a cost of $2.4 billion. Theconcession covered the planning, design, con-struction, and O&M of the sewerage system in43 cities and major towns, taking over the sew-erage functions from 144 local authorities tomodernize, extend, or build facilities. A largepart of investment funding was to come fromrevenue. The two original contractors wereNorth West Water International (United King-dom [UK]) and the locally based Berjaya Cor-poration Berhad.

In 1996 local services were transferred com-pletely to iwk, which took over 5,500 seweragetreatment plants connected by more than 7,500km of pipelines throughout Malaysia. The com-pany has also spent $71 million to build newsewerage infrastructure nationwide. The over-all plan is to develop an improved, multipointsystem nationwide rather than an integratedsystem. A local newspaper reported that iwk isfaced with the task of refurbishing another2,700 plants by 2002 at the cost of $395 million.Another $4.5 billion is being spent to build newtreatment plants in Penang, Langkawi, Labuan,and Kuala Lumpur, and to add new sewer lines,improve existing systems, and increase staffstrength. iwk serves 11 million users.

The sewerage system is buckling under thepressure of rapid development, which has sur-passed the National Sewerage Master Plan’s 1979projections. To keep the sewerage system run-ning, iwk needs money and human resources.However, over the last 4 years, iwk has found it-self the subject of countless public complaintsagainst its charges and unsatisfactory service aswell as of lawsuits for polluting waterways.

iwk’s plan to upgrade sewerage treatmentplants inherited from local authorities hasstalled. The Government is now demanding

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that iwk review its charges a second time to fur-ther reduce them. iwk’s new management teamfaces the insurmountable task of balancing es-calating costs of upgrading while earning lessrevenue. The Government has extended a $118million long-term loan to iwk.

iwk is likely to reduce its commercial chargesby 30–40% while its 28-year concession period toupgrade the sewerage system nationwide may beextended for at least another 10 years.

The National Economic Action Council(neac) has recommended that local authoritiesgive rebates on sewerage costs from assessmentrates once iwk takes over. neac also said thatiwk should offer reasonable rates to encouragecustomers to use its services.

Some problems that iwk faces are the following:• lack of communication with the local

councils when taking over, with customersunsure of where to address their problems;

• failure to desludge individual septic tanksannually as promised (of the 37,000 tanksin one state, only 23,000 had been emp-tied since 1994);

• failure to submit to the Government a de-tailed schedule of rates for households toclear up public confusion;

• continuous dumping of sludge intoponds, having failed to build permanenttreatment facilities;

• failure to submit applications to the Gov-ernment to apply for land on which tobuild infrastructure such as central treat-ment plants; and

• being charged in Sessions Court for dis-charging effluents above the prescribedlevel and without a license.

These and other problems have lost iwk itsconcession. iwk’s main problem was monetary.The company had invested in refurbishment andnew works, along with new technology and anextensive management team, to be paid for byrevenue. However, customers felt that they werealready paying for this service through household

assessments by the local council and did notfeel that they should pay more to a concession-aire that should be receiving its revenue from aportion of the assessment. These users werearound 1.2 million householders who claimthat they had no contract with iwk and, there-fore, were not obliged to comply.

In February 2001 the Government finalizedplans to take full control of the ailing iwk totackle its $184 million debt. Under state control,the chances of iwk receiving external loans areboosted. The finance minister said that iwkwould be placed under the Ministry of Finance.The Government reportedly paid $53 million totake over iwk, which marked the first about-facein the Government’s privatization program.

Reform through private sector involvementdoes not guarantee success, even in middle-incomecountries. Reform has to be continuously sup-ported after privatization as private operatorshave to be able to make some level of profit.The Government cannot expect improvedquality of universal service if the required mas-sive investments cannot be financed by a trans-parent revenue stream, especially for expensivesewerage and wastewater treatment, the deluxeversion of sanitation.

Port Vila, Vanuatu: Water Concessionwith Pro-Poor Elements

In Port Vila the most vulnerable of the ur-ban poor reside in overcrowded, informal, im-permanent housing on the city periphery,where conflicts over landownership beyond themunicipal boundary constrain the introductionof services. Water supply in many areas com-prises hand-dug wells and shallow bores. Sani-tation worsens as the population grows.

In 1994 Union Electrique du Vanuatu(unelco, a subsidiary of Ondeo Services)signed a 40-year concession contract to supplywater and electricity to Port Vila. An invest-ment of $11.6 million was anticipated over thelife of the contract, with $580,000 per year for

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Winnie Maki moved to Blacksands in 1993 with her husband and three children. The family owns a little shopattached to the side of their temporary home and sells tinned items to other residents in the settlement. The

family moved to Blacksands from a neighboring informal settlement as they heard that the customary landownerwas renting plots of land. Winnie said: “There was no water at Manples and when it rained there was too much softmud. We moved to Blacksands as the landlord offered better rental terms and we had easier access to water.”Winnie’s husband, Moses, first cleared a plot of land and dug a well to ensure that the family had a sufficient watersupply for cooking, drinking, bathing, and laundry purposes.

As Seventh Day Adventists, the family is very conscious of personal cleanliness. Over the years, the family hassaved enough money to cement the floor of their ablution area and even purchased a porcelain toilet bowl andconstructed a cement septic tank in anticipation of receiving piped water. At the moment they have built a separateouthouse for the toilet and use a bucket of water that is filled from an old oil drum (that collects rainwater) to “flush”the toilet.

The family would like to invest further in their home but are reluctant to do so in the absence of security oftenure. They are concerned about the deteriorating condition of the water and believe that it is the cause of itchyskin and sore stomachs after a heavy rainfall. They believe that having access to tap water would make their lifeeasier and save time on general household tasks such as cooking, bathing, and laundry. In the meantime, the fam-ily looks to their church to assist them in accessing basic services and expressed despondence at their neighbors’lack of willingness to work together for a common good.

“We have many needs but the first is to have a better water supply. The water is okay at the moment but I amworried that the toilets are too close to the wells and there are too many people here.”

Box 7 Water Quality Concerns in Blacksands

the first 5 years. The concession is to provide aself-regulatory system in which the Governmentmonitors the concessionaire’s activities and facili-tates access to new areas. A structured fixed-tariffsystem was established to enable affordable ratesfor all types of consumers. For low-income areas,the $0.20 per m3 paid by existing consumers istransferred into a special fund to finance free-of-charge connections. Residents, however, will stillhave to pay the quarterly consumption bill.

The company provides annual financial re-ports and investment plans for 5-year periodsto the Government for approval. unelco hasimproved the water supply network and ex-tended uninterrupted, affordable water servicesto many residential areas and nearby villages.

Before the contract, water supply was ofteninterrupted. Now water is available 24 hours aday, with unaccounted-for water reduced from50% to 23%. The water tariff for the first 50 m3

per month was reduced to $0.58 per m3 from$0.75 per m3. Annual losses of up to $440,000

in 1991 have been turned into a reported sur-plus of $12,000 in 2000. The project is success-ful because of the concessionaire’s pro-poorapproach, which involves network expan-sion, multiple service levels, cross-subsidizedconnection fees, government commitment,strong community leadership, and the recipientcommunities’ active participation and aware-ness through consultation.

However, replicating the success stories inother vulnerable communities will requiremore efforts by the parties and, perhaps, cus-tomary landowning groups and ngos servingas intermediaries between the Governmentand operator.

The concessionaire would like the Govern-ment to make the service environment moretransparent and accountable. New develop-ments can be accelerated by third parties suchas development agencies while promoting anintegrated approach to serving the poor. Com-munities must be more proactive and socially

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A typical well in Blacksands, Port Villa.

organized to access essential services as an ab-sence of community cohesiveness deters in-vestment in the area.

Private sector involvement is working wellin this small urban center: water (groundwaternot requiring treatment) is inexpensive, tariffsare higher than in other Asian cities, and theexisting wide service coverage makes free con-nections for the poor affordable.

Olongapo, Philippines: Small-TownWater Concession

Olongapo (population 195,000 in 2000) is agood, if rare, example of a new public-privatepartnership in a small town. Private involve-ment in secondary towns is not common yet,but Olongapo is financially viable because of its

link with the adjoining Subic Bay Freeport, aformer United States (US) naval base.

Subic Water and Sewerage Company Inc.(Subicwater) was granted the first major contractin the area in 1997. The 25-year build-rehabilitate-lease-operate-and-transfer franchise agreementis essentially a concession and covers waterand sanitation services for the Freeport andOlongapo. Subicwater is a joint venture ofBiwater International (UK, with equity partici-pation of 30%), the local construction firm DMConsunji (40%), Subic Bay Metropolitan Area(sbma) (20%), and Olongapo City Water Dis-trict (ocwd) (10%). The international and localprivate partners contributed cash while thepublic partners contributed assets as their eq-uity. sbma initially served as the regulator toconduct annual tariff reviews and to monitorSubicwater’s performance, even though it has adirect stake in Subicwater. Because sbma fo-cused on the Freeport, serving the poor inOlongapo was not high on its agenda.

As of February 2001 connections in the cityhad increased by over 10%, water production byover 44%, and 96% of those connected received24-hour supply against 40% before privatization.The quality of drinking water, which was a ma-jor concern of households before the takeover,has improved from below to above standard.Water pressure, which had been virtually zero inmany parts of the city, is now 5–40 m, makingbooster pumps obsolete. Household tariffs in-creased from $0.12 per m3 in 1997 to $0.20 perm3, after a delayed price rise, in July 2000. In theFreeport, tariffs have increased by much more—after some opposition—to $0.58 per m3 follow-ing a more accurate assessment of costs.

As with a number of concession contractsin Southeast Asia, the full benefits of privatesector participation have not yet been realizedbecause of inadequate regulation. Subicwater’sprotracted battles over tariff increases curtailedinvestment and finally prompted the creationof the Subic Bay Water Regulatory Board inOctober 2000. The board is drafting its own

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rules of operation, with priority given to ensur-ing independence. Subicwater is hopeful thatthe new regulatory office will minimize politi-cal interference as sbma did.

Although never a performance target, serviceto the poor improved. In small cities likeOlongapo, the poor live among the better-offhouseholds, often buying water at inflated costfrom neighbors. However, most disadvantagedhouseholds are located along riverbanks and onhillsides surrounding the city. These householdssource their water from springs or shallow wellsand have practically no sanitation facilities.

Subicwater operates in 6 of the 12 identifieddisadvantaged areas, which have about 1,400households, either providing water directlythrough individual household connections orindirectly through households selling pipedwater to their neighbors. Before privatizationsome free delivery points at the gate of theFreeport partly served the water needs ofhouseholds in Olongapo. After privatization,this service was replaced by household connec-tions except for one public faucet.

In Kalaklan Point, a unicef project had ear-lier provided hand-pumped springs to serveabout 100 households, although they had re-quested connections and indicated a high will-ingness to pay even before Subicwater startedoperating. Some families are already enjoyinghousehold connections while others continueto use the unicef hand-pumped springs. InGordon Heights, another site with poor fami-lies, water pressure was said to be low andavailable only at night due to the topography.However, water was always available from lo-cal springs and so few households were will-ing to connect before privatization. A recentsurvey by the city indicates that residents ofsome areas in Gordon Heights are still depen-dent on deep wells and springs. However, in-terest in connections appears to be rising asevidenced by the February 1999 petition ofresidents to Subicwater to extend the pipedservice to their area. Subicwater has proposed

an expansion program to lay secondary waterpipelines in elevated areas.

Unlike Metro Manila providers, Subicwaterhas not extended concessions to poor families,such as relaxed or waived application require-ments or flexible payment terms for connectionfees. The local government claims that disad-vantaged families can negotiate the connectionfee with Subicwater. However, the city recog-nizes the need to raise this issue to the regula-tory body through the city representative.

Disadvantaged groups such as the KalaklanRiver squatters now have reliable and good-quality water thanks to the installation of pipedconnections in lower Kalaklan. Barangay offi-cials facilitated the connection upon the re-quest of their constituents. However, a numberof relatively poor households such as thosealong a riverbank in Upper Kalaklan are still in-terested in connection but have not heard any-thing about the application they submitted sev-eral months ago. They seem to have given uphope of getting a connection, and some havestarted to spend the money they had reservedfor the connection fee.

The case of Subicwater shows that interna-tional water companies can be interested in serv-ing small cities, in particular those adjacent toeconomic or industrial and/or commercial zones.Subicwater is able to deliver water to some house-holds (generally those that can afford the connec-tion fee) in poor communities through its regularconnection program, either directly through ahousehold connection or indirectly through re-selling from the connected households.

Subicwater appears to be trying to provideconnections to those living on higher land orhillsides. However, a number of those who hadindicated an interest in connection backed outafter pipes were laid, making the investmentmore difficult to recover or less profitable for theprivate operator. One community leader, whorepresents about 25 households, said they ap-plied for a connection but that they were askedto pay $150 for the extra pipes. The assistance of

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Trucks line up at a water station in Jakarta.

barangay officials is necessary to connect thesehouseholds, either by contributing part of theconnection expense or by sourcing funds for theadditional connection cost. Development fundsof the district congressman or even the mayor canbe tapped to make the connection affordable.

Progress is being made in serving the poor,almost by default, in a city with relatively highcoverage. For other secondary cities, especiallywhere coverage is still low, contracts shouldpay attention to serving the poor and establish-ing a regulator to ensure coverage.

Jakarta, Indonesia: Water Concessions

Jakarta had a population of over 11 millionin 2000. In 1996 water service coverage inJakarta was only 41%, nonrevenue water stoodat 57%, and groundwater was used excessively.pam Jaya, the public agency responsible for wa-ter supply provision, was heavily subsidized by

the Government. In 1997 pam Jaya entered intoconcession agreements with two service provid-ers: PT Palyja (Ondeo Services) for the westernpart, and PT Thames pam Jaya (Thames rwe) forthe eastern part of the metropolis. The serviceproviders have the exclusive right to providewater and are obligated to provide, improve, andexpand water supply. The contracts specify ser-vice coverage targets at 75% in year 10, and uni-versal service coverage of 98% in year 20.

Due to the Asian financial crisis, the Gov-ernment restricted tariff increases to protectconsumers. However, the concessionaires arepaid an unrelated charge that can be increasedbased on inflation indexes, leading to an everincreasing deficit for pam Jaya, which was $3.5million by the end of 2000.

The contracts specify service coverage tar-gets at 75% in year 10 and universal servicecoverage of 98% in year 20. The concessionagreements do not include specific provisions

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A group of poor people without water connections in Kebon Baru subdistrict in South Jakarta said that all housesuse shallow wells as the main water source and that the quality of water varies from clean to turbid, foamy, and

smelly. Not all houses have septic tanks and some use drainage to dispose of domestic waste. The water may be con-taminated with sewage from septic tanks because the wells are only 4–5 meters (m) from the septic tanks. Some of thewells do not produce water during the dry season, and the dwellers have to rely on their neighbors to get water.

Demand for connections to the water supply network exists. However, at $2 per month, they are not affordablefor group members, who earn about $40–$50 per month. One member reported that he asked for a connectionabout 8 years ago. PAM Jaya asked him to participate in contributing a 6 m pipe to get connected to his housebecause the company allocated only a standard length of pipe to make a connection. Since he could not afford toprovide such a pipe, he did not get a connection.

Another member said that he requested an in-house connection a long time ago but the water supply companydid not respond. He was not aware that international service providers have taken over the management ofJakarta’s water supply. Others said that they wanted to get connected but complained that the connection fee washigh. All participants relied on shallow wells but only 40% of the water is of good quality.

A visit to public standpipes in Penjaringan Subdistrict, North Jakarta, revealed similar conditions: the housesand the pathways are narrow, and because the subdistrict is near the sea with no sewerage, the groundwater issaline and smells bad.

Box 8 No Water Connections in Kebon Baru

to serve the urban poor as universal coverageand service standards are applicable to all con-sumers. However, cross-subsidies that benefitthe poor were introduced at various stages ofthe concession period. For example, tariffs forlow-income customers in group 1 (religious fa-cilities, charities, and public hydrants) are a flatrate of $0.04 per m3. Tariffs for group 2 (hospi-tals, very modest houses, water trucks, waterterminals, and very modest apartments) aresubsidized and set at $0.04 per m3 for the firsttwo blocks of consumption, and $0.08 per m3

for consumption over 20 m3.Low tariffs and connection charges should

be affordable for the urban poor. However, inthe absence of a distribution network, even atthese rates the poor cannot connect, especiallysince they must shoulder the costs for extend-ing pipes. The poor thus get water from shallowwells, public standpipes, or water tankers. Be-cause Jakarta is densely populated, wells are of-ten close to septic tanks, which makes the wa-ter unsafe for domestic consumption. Indus-trial wastes containing heavy metals alsoworsen the groundwater quality.

Attempts have been made to install publicstandpipes in advance of distribution pipes.One standpipe usually serves around 250people. Public stand posts are charged $0.04per m3 but most poor consumers pay at least$0.25 per m3 for water bought directly fromstand posts and $2.50 per m3 for water deliv-ered to homes. Water terminals are also used inareas without a network. Water is sold at $0.04per m3 to the tanker drivers, who on-sell at$1.50 per m3 directly to consumers. Vendorscarry 20-liter containers of water by handcart toconsumers and charge $5 per m3. The poor,therefore, pay 6–125 times more per m3 thanregular and connected consumers.

The two concessionaires have started effortsto serve the poor. Connecting them is expen-sive because of the relatively high technicalstandards specified in the concession agree-ments to ensure that the quality of water deliv-ered to any consumer reaches potability by theend of year 10.

In West Jakarta, Palyja extended the distribu-tion network to low-income areas, charging aconnection fee that can be paid in 12 installments

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of $0.71. With a consumption of 20 m3 permonth, the average bill, including connectionfee installment and other fixed charges, isaround $1.50 a month. The number of poorpeople served in West Jakarta has increased by143%, from 72,816 in February 1998 to 177,164in December 2000. In East Jakarta, Thamespam Jaya received a $100,000 grant fromThames Water in 1998 to supply water toMarunda, a poor community. In cooperationwith the Government, which provided techni-cal assistance, the program laid over 5 km ofpipe. Thames pam Jaya reported that, after thepipe extension, 490 new consumers were con-nected free of charge; they only needed to de-posit $2.50 as a guarantee. Consumption in-creased 12–15 times while the monthly bill hasbeen reduced to about one third of what con-sumers paid previously to water vendors.

One woman said that she opened a smallkiosk in her home, selling ice cubes. An-other opened a boarding house. The incomethese residents earned was greater than thecost of water.

However, generally network expansion oc-curs only in a few isolated cases, with little ef-fort to expand these pilots beyond a few neigh-borhoods. Progress in serving the poor waslimited by the less-than-transparent awardingof these private contracts; the ongoing anxietiesof some staff and trade unions; and the lack ofa regulatory framework and any link betweentariffs, revenue collected, and charges levied bythe private contractors.

Summary of Reform throughPublic-Private Partnerships

The second set of case studies shows thatwhile reform can lead to better services for theurban poor, improvement is not guaranteed anddepends greatly on the private operator’s willing-ness to take universal service coverage seriously.However, some concessionaires, such as in PortVila, Olongapo, and, to a certain extent, Jakarta,

have demonstrated a progressive pro-poorapproach developed by learning on the job,which should be supported by governments.Governments need to recognize that service cov-erage extension requires specific attention earlyon in contractual arrangements, and that theprivate sector is not willing or able to solve theproblems of unserved areas on its own.

Efficiency and Participatory Development:Public-Private-Community Partnerships

The final set of case studies shows how the ap-proaches of the previous two sets can be com-bined into genuine public-private-communitypartnerships, with active interaction and coop-eration of all partners. Combining “mechanistic”and “organic” elements, these partnerships arestill quite rare, with only one notable example sofar: Metro Manila, Philippines. Other regions,particularly Latin America, have a few more ex-amples, with one—Buenos Aires—described inAppendix 1. These pilot cases may show othercities how to move beyond the service bound-aries and incorporate poor neighborhoods intomainstream urban services.

Metro Manila, Philippines: Water Concessions

A recent survey (nscb 2000) reports that ofthe estimated 9.9 million people in Metro Ma-nila, around 275,000 families are poor; oftensquat on vacant private or public lots that areisolated, dangerous, or unhealthy; and lack ac-cess to basic infrastructure and formal serviceprovision. Criminal gangs and profiteers selllow-quality water bought from water vendorswho source it legally or illegally from the watermains or from private wells. The water is sev-eral times more expensive than the publiclyprovided water and can cost poor householdsup to 12% of their total income (David andInocencio 1996).

The Metropolitan Waterworks and Sewer-age System (mwss) was privatized in August

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In the past, Barangay Parola was served by one pub-lic faucet managed by the barangay chair. Thirty-

two subconnections to the public faucet were made,each operated by a water tender selected by thebarangay chair. The water tenders were responsiblefor manning the subconnections and collectingmoney from residents who bought water from them.From their collection, the water tenders were sup-posed to remit a quota of $67 per week to the chair.To meet the quota, they had to sell water at a pricehigher than the authorized rate of $0.005 per 20-litercontainer. The chair collected close to $10,000 permonth but did not pay Maynilad Water Services forthe water consumption from the public faucet. Unpaidwater bills eventually reached about $47,000 andprompted Maynilad to disconnect the public faucet inlate 2000. The Legal Department of Maynilad subse-quently filed a case against the chair. As an interimsolution, Maynilad entered into a contract with threeCBOs to temporarily manage these faucets.

Box 9 Water Theft in Barangay Parola1997 to solve the following problems: a slowprocurement system adversely affecting opera-tions and performance; downsizing difficultiescaused by political appointees, leading to inef-ficient operations; uncompetitive salaries, mak-ing it difficult to attract good people; and fi-nancing difficulties, severely limiting improve-ment of services (Lazaro 1997).

To promote competition, two 25-year con-cession agreements were signed with two con-cessionaires to handle the east and west zonesof Metro Manila. The bidding process resultedin Ayala and International Water (Manila Wa-ter Company) winning the concession for theeast zone with a bid of $0.046 per m3, andBenpres and Ondeo (Maynilad Water Services)with a bid of $0.10 per m3 winning the conces-sion for the west zone. These bid prices werelow compared to the earlier price of $0.13 perm3, which was raised to $0.17 per m3 a fewmonths before the bidding.

A residual mwss and its board remain tocarry out limited management and facilitationroles, and a separate regulatory office—albeitsupervised by the same board—was establishedto monitor and enforce compliance by the con-cessionaires and implement rate adjustments.

The concessionaires are required to expandwater service coverage to 77% in the east zoneand 87% in the west zone by 2001, and to 95%and 98% by 2021. They are also required toprovide 24-hour water supply to all connec-tions by mid-2000 and to guarantee pressure forall connections by 2007.

The concessions have significantly im-proved water supply. Maynilad has installed105,000 new connections, for a total of 571,364connections by December 2000 (Maynilad2001). Manila Water has made 37,391 newservice connections or an equivalent of51,436 household connections, bringing totalconnections to 339,491 or 408,894 householdconnections. The concessionaires have notreached their target of 24-hour supply forall connections by mid-2000, citing delays

in the mwss water supply projects as themajor constraint.

The ratio of staff per 1,000 connections de-clined from 9.8 in 1995 to 4.3 for Maynilad and4.5 for Manila Water as of the last quarter of2000. Nonrevenue water in 1996 was at 61%,due mainly to leaks, illegal connections, meter-ing inaccuracies, and nonpaying connections.Manila Water’s nonrevenue water was down to45% in the last quarter of 2000. However,Maynilad’s increased to 65% in 1997 and washovering at about 64–67% as of 2000.

The trends in financial performance of bothconcessionaires appear consistent with thegeneral perception that Manila Water was ini-tially financially in trouble because its bid wastoo low. Manila Water has since recoveredwhile Maynilad, responsible for 90% of the out-standing mwss debt amortization, has run intosignificant financial problems due to the de-valuation of the currency. Maynilad declared asuspension of payment of its concession fees in

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Women members of a block leaders’ group ofLiwanag Area, Quezon City, which is con-

nected to Manila Water, expressed their apprecia-tion for the water supply project. Aside from the sub-stantially reduced water expenses, the group men-tioned other benefits such as more time for otherhousehold chores and even leisure such as going tothe malls; no more stress from queuing (where rowsoften occurred when others did not follow thequeues) and waiting for water to become available;no more waking up at 3:00 a.m. to queue; moremoney for other household needs; and the addi-tional luxury of taking a shower because of in-creased water pressure.

Most households were willing to connect andpay the connection fees and spend more to installindividual submeters even if it meant borrowingfrom the informal credit market at an interest rateof 20% per month. To minimize project cost, thecommunity coordinated and organized their effortsand contributed their labor—men, women, andchildren—in digging and filling, laying the pipes,and cementing the surface to avoid illegal tappingand protect the pipes. The project, which providedwater to initially about 250 families, was com-pleted in just 2 days.

Box 10 Group Taps in Liwanag Areaearly March 2001 and successfully negotiatedan amendment to the concession agreement,allowing the concession to increase basic waterrates by $0.08 per m3 to cover foreign exchangelosses amounting to $53 million. Manila Waterhas filed a corresponding petition and was al-lowed to increase its basic rate by $0.02 per m3

(Business World 2001).This is the context in which water provision

to poor communities was initiated. Many poorareas have high levels of nonrevenue water,mainly due to illegal connections. To introduceservices to these areas, design and engineeringstandards had to be relaxed.

The concession agreement provides for theestablishment of one public standpipe for ev-ery 475 people in depressed areas, with no in-stallation charge for households that cannotafford individual connection fees or where thecost of connection relative to expected rev-enue is too high. The public standpipes aremanaged and operated by an individual,barangay officials, or community associations.However, Maynilad is now veering away fromthis type of service as the assigned associa-tions or barangay officials often fail to pay forit, charge users exorbitant fees, and operatethe service irregularly.

Aside from public faucets for poor commu-nities, Manila Water has introduced group tapsfor 2–5 households where users form groups,register connections, and share the cost of us-ing the taps. Generally, Manila Water staff hadto assist or guide group formation and decisionmaking. The group is given one mother meterand encouraged to install submeters to avoidcost-sharing problems. However, some house-hold groups composed of relatives or closefriends opt not to install submeters to avoidpaying installation costs. Each group chooses aleader to collect charges and pay Manila Water.

Manila Water also introduced community-managed water connections with a meteredmaster connection. A community associationdistributes the water through a local distribution

network of individual or shared connections.However, some community organizations suchas the one in Durian, which has about 228 mem-ber households, are registered as one regularresidential connection and thus cannot take ad-vantage of the cheaper bulk water rates for non-residential connections. Members of the Duriancommunity association are still paying morethan twice what an individually connectedhousehold pays, plus the association charges forthe cost of billing and collection, and mainte-nance and repairs. Nevertheless, the benefits toresidents are reduced water expenses—onehousehold used to spend $15–$18 per monthand now pays only $1–$3 per month—and ac-cess to more reliable and safe water.

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Design and engineering standards had to be relaxed toprovide water to poor communities in Manila.

8 Lingap means “to care,” while this acronym stands for“support holistic family development.”

Private companies are also allowed to dis-tribute water, with the bulk water coming fromManila Water, particularly in illegal squatter ar-eas, which the concessionaires do not want toenter. In Barangay Addition Hills, a privatecontractor set up a distribution system similarto the public faucets operated in depressed ar-eas, including a 100,000-gallon water tank, wa-ter pipes, meters, faucets, and hoses. Repairsand maintenance of the distribution system arealso shouldered by the contractor. While house-holds are still paying at least 12 times the Ma-nila Water price to the private subcontractor,before the arrangement they were getting water

from sources of doubtful quality, such as deepwells, at a price 25% higher.

In 1999 Maynilad began its Bayan Tubig(Water for the Community) program to provideindividual connections in depressed areas. Thisprogram waives the land-title requirement andallows payment of connection fees by install-ment over 6–12 months, sometimes 24 months.These installments are lumped into the regularmonthly water bills so that payment begins onlyupon receipt of the first bill and not up front.

Individual connections have brought waterbills down significantly. Households that usedto pay $1.00–$1.20 per week now pay less than$0.80 per month for 10 m3 and enjoy the con-venience of having their own taps.

Technically, an underground line is built upto where it is possible. Where roads are too nar-row to bury pipes, the network extends above-ground or on the ground, or partially coveredand attached to a wall. The line goes up to a bat-tery of meters from where each homeownermakes his own plastic connection, above-ground. This scheme can be modified depend-ing on the characteristics of the area.

An important aspect of this project is therole of ngos in providing water and sanitationservice. In Malabon, the Swiss chapter ofMédecins San Frontières mediated between thecommunity and Maynilad with help from a lo-cal ngo, Lingkuran sa Ikauunlad na Ganap ngPamilya (lingap)8 Foundation, and the localgovernment. In this partnership, communityinvolvement aimed to promote ownership ofthe project and to ensure its acceptability andsustainability. The municipality gives permits todig and fill and, in some cases, grants generalpermits requiring the concessionaire to informthe municipality of the project. ngos primarilylaunched information, education, and commu-nication campaigns; mobilized the community;and provided microfinance to individuals.

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The Bayan Tubig projects in the central businessarea of Metro Manila have helped improve the

living conditions of beneficiary communities. Mostlydilapidated houses have been slowly replaced bypermanent structures. With more time on theirhands and water to use, the women can now cleantheir surroundings. Where storage containers ordrums were a common sight just outside the shan-ties, now many households have disposed of themsince they no longer need to store water, which theycan get from the tap anytime. Bayan Tubig has re-duced important health concerns such as dengue,which is carried by mosquitoes that breed in storedwater. Sanitation has improved as households nowhave toilets and bathrooms.

With more time now, some households augmenttheir incomes through microenterprises such assmall eateries, cold-drink stalls, small varietystores, candy producers, and other businesses. TheBayan Tubig manager noted that water consumptionper household has increased.

Box 11 Bayan Tubig in Makati

When roads are too narrow, water pipes are laid aboveor on the ground in Manila.

After the installation of individual water con-nections, the area changed greatly. Most housesare now made of hollow blocks and cement.Many households now use the flattened metaldrums, once used to store water, to cover opencanals while others use the drums as garbagebins. Mothers have more time to care for theirchildren. Some residents use the time for leisurewhile others engage in income-earning activities.

Bayan Tubig’s success is due to effective co-ordination with government officials andngos; information dissemination to and con-sultation with the beneficiaries; residents’ co-operation; and provision of water as promised(Maynilad 2001).

Although hiring local workers to lay pipecreated only temporary jobs, billing and collec-tion contracts with community-based associa-tions are more sustainable and benefit not onlya few but the whole community, which canlaunch projects with the income earned.

Self-esteem rose and encouraged many to fur-ther raise their standard of living by improvingtheir houses and cleaning up their surroundings.

Maynilad has enhanced its image as a ser-vice provider and a partner for local govern-ments in the delivery of water services, par-ticularly to the poor. In Bayan Tubig areas,Maynilad has also reduced nonrevenue waterby legalizing illegal connections; ending theproliferation of “spaghetti” connections; andbanning water sellers, who often sold pilferedwater. Public faucets were decommissioned,in particular those with bills in arrears, andthe billed volume increased. Payment collec-tion rose considerably as people do not wishto be disconnected.

The creative partnership between govern-ment, private sector, ngos, and communitybenefits the poor. The next question is whetherthis approach can be used to extend conven-tional sewerage, which is much more expensivethan water provision due to wastewater treat-ment costs, to the poor.

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Maynilad promotes livelihood projects by tyingup with different NGOs and holding talks with

the Foundation for Social Investments, Center forCommunity Transformation, and Bayan Finance. Thewater company plans to involve the Parola People’sCouncil, an organization which is temporarily man-aging a public faucet. This organization has savedmoney from the proceeds of the public faucet andplans to set up a daycare and health care center forthe community. Since the public faucet will be de-commissioned when Bayan Tubig is in place,Maynilad plans to introduce other livelihood pro-grams for the community to help implement andsustain its projects.

Box 12 From Improved Water Supply to Livelihood

Metro Manila, Philippines:Sewerage Concessions

The concessionaires are also responsible forsanitation. Before privatization, mwss coveredless than 7% of the households in its servicearea, with sewerage facilities confined only tosome areas in Manila and parts of Makati. Whilemost households use individual or commonseptic tanks—64% have water-sealed toilets—those in slums are without public sewers anddrains and rely primarily on rudimentary la-trines with no proper drainage system.

Privatization included the setting of cover-age targets for sewerage and sanitation services:the first sewer connection target was to beachieved in 2001 (3% in the east zone, 16% inthe west), gradually increasing by 2021 (55%and 66%). The desludging of septic tanks every5–7 years is scheduled to decrease from about38% in 2001 to 19% by 2021.

In the west zone, Maynilad found that 35%of the population in its service area lives incrowded shantytowns. Maynilad thus believesthat “it is necessary to readjust service offeringsthrough the development of low-cost, simpli-fied technologies that are both technically andeconomically viable.” Two pilot projects are

planned. The first one will focus only on sani-tation, take a commercial approach, and pri-marily market the service. The second one willcoordinate the installation of storm waterdrainage, collection of household refuse, andsupply of electrical power. This project will alsoeducate the community in hygiene, train tech-nical personnel, teach small water vendors howto recycle waste, and make microfinancingavailable to consumers.

The results of these pilots—sewerage onlyversus integrated services—will help the con-cessionaire assess the value of (and need for)“soft” factors of a sanitation project, and deter-mine the forms and levels of sanitation servicesto be offered in poor areas. The detailed plan ofMaynilad requires working closely with thecommunity even at the planning stage andworking with the local government through thebarangay. However, implementation dependson availability of funds, which have not yetbeen secured, mostly because of Maynilad’scurrent financial difficulties. Sanitation in poorareas is clearly lagging behind providing waterin Manila, another case showing that sanita-tion is much more difficult to tackle mostly be-cause of its costs.

Kathmandu, Nepal: Water Enhanced Lease

The final case study describes the challenge ofa proposed public-private-community partnershipthat seeks to ensure that service to the poor isconsidered from the beginning. Water supply andsanitation services in 15 squatter and slum com-munities in Kathmandu are so inadequate thatmore than 86% of the population resorts to sec-ondary sources of water such as springs, hitis(traditional spouts located at public places), riv-ers, water vendors, tube wells and rowing pumps,and dug wells. Water sold by vendors is verycostly: private tanker supply costs about $1.33 perm3, about 10 times more than the Nepal WaterSupply Corporation (nwsc) supply. The poormust resort to other cheaper alternatives.

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Drainage with a removable cover keeps a poor neigh-borhood in Manila clean.

The poor resort to secondary sources of water inKathmandu.

The Government wants to improve themanagement and distribution of water andsanitation services. The $464 millionMelamchi water supply project is expected todeliver about 510 mld of water through aninterbasin transfer comprising a 26 km tun-nel, a water treatment plant, and a 57 kmbulk distribution system, and to rehabilitateand augment the distribution system inKathmandu Valley.

However, investment in water productionand distribution is only part of the solution.The Private Sector Participation High-LevelCommittee (pspc) was constituted in 1997 toattract the private sector to manage nwsc ser-vices in Kathmandu Valley. The contract isbeing developed by pspc with World Bank

support as a management lease contract foran initial period of 10 years.

The main objectives of the managementlease contract are to reduce unaccounted-forwater, improve billing and collection, reduceoperating costs, and improve service deliveryand quality. The contract will give the opera-tor incentives to reach target performance ra-tios. As an implementing agency, the opera-tor is also to take part in investment worksfor rehabilitation. Laws are being drafted,such as the Regulatory Body Act to set up aregulator, and the Drinking Water Supply Actto provide an enabling environment for theprivate operator.

To ensure that the poor will not be margin-alized as a result of the institutional changes, a

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As the system pressure is too low, many inhabit-ants of Kathmandu install a 0.5–1.0 horsepower

pump to get water from the distribution pipeline.Pumping is an illegal but well-accepted practice.NWSC frequently publishes notices in local newspa-pers warning clients that their water supply will bedisconnected if they are caught using pumps. How-ever, NWSC’s initial zeal to penalize using pumpshas largely died down.

A pump usually costs about $16 on the localmarket, not including the cost of pipes and pipe fit-tings. Households also pay for expensive electricityto operate the pumps.

Poorer households cannot afford to buy and in-stall these pumps or pay for electricity. Somecheaper alternatives are available in the market. Ahand-operated suction pump costing about $4.70 isalmost six times cheaper to install and, if operatedearly in the morning, can draw drinking water. Suchpumps are connected to the tap but cannot competeagainst the powerful motorized electric pumps.

The practice results in extremely unfair com-petition for limited resources between the rich andthe poor.

Box 13 Are the Rich Stealing Water from the Poor?

study was undertaken in 14 communities, ofwhich 6 were squatter settlements, 4 were tra-ditional slums, and 4 were middle-class water-stressed communities. The study found that thewater and sanitation problems of low-incomecommunities are, in physical terms, solvable:the poor are valid customers who are able andwilling to pay for the services. Consumption ofnwsc water in low-income communities is re-stricted more by supply than demand. Accessto services is a major problem due to high con-nection charges, and networks are far frompoor settlements. Only 10% of the population,in particular those renting their homes, mayfind it difficult to pay regular tariffs.

The draft request for proposal, inviting ap-plications from short-listed private operators,does not contain specific provisions for serving

the poor. Requirements such as performanceindicators that should be achieved by the op-erator to ensure equitable supply, and an in-creased number of connections or incentivesand penalties to bind the operator to achievethe desired services, have not been considered.However, two urban poor studies, one targetedat enumeration of the poor and the other at de-fining the special provisions required to bemade as well as the institutional interface toserve the poor, are being undertaken before fi-nalizing the request for proposal.

The absence of these provisions has beenrecognized and several pro-poor provisions arebeing considered for inclusion in the forthcom-ing contract:

• Coverage indicators defining the exten-sion of tap connections will containprovisions for extension specifically tothe poor.

• Poor areas will be identified with the pri-vate operator to define strategies toserve them.

• Community metered taps will be contin-ued, with a higher water use allowed inthe lifeline block or a different tariff struc-ture applied to shared taps.

• The regulatory body will address theconcerns of the poor, although the ex-tent to which it can exercise its au-tonomy is uncertain.

• The distribution network will be ex-panded and private taps promoted bymaking connection charges easier to pay.

• A direct subsidy will be provided for theincome poor. A cross-subsidy from richerto poorer households will be considered.

• ngos may intermediate between the util-ity and the poor.

• A systematic program for effectivemaintenance and improvement of thequality of water from local springs andhitis will be launched in collaborationwith ngos.

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A rowing pump is a good supplement to community taps in Jagriti Tole, Kathmandu.

The withdrawal of an expected bidder hasfurther delayed the letting of the proposed con-tract. As investment in new water production(510 mld in Melamchi) is dependent upon thesigning of the management contract, the pri-vate operator will have insufficient water to sell

for most of the 10-year contract, thus limitingthe private operator’s financial viability. Thecase study illustrates the complexity of public-private partnerships, which are trying to sur-mount governance challenges as well as deliverwater to all.

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Requirements andTechniques forServing the Poor

Networked Services

The case studies show that only a few genuine public-private-communitypartnerships serve the poor in Asia through networked services. Simi-lar examples outside Asia can be found in Buenos Aires, Argentina (Ap-pendix 1), and La Paz and El Alto, Bolivia (Box 14). Experiences fromEngland and Wales (Appendix 2) illustrate the role of the regulator inpartnership with the government and private operators in serving thepoor in high-income countries.

Ultimately water supply services will need to be networked to achieveconsistent quality and to reduce costs through economies of scale.Nonnetworked private services can deliver solid waste managementand sanitation, but the challenge is to scale up the provision to achieveuniversal service coverage of reasonable quality.

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Most of the cases of networked services dis-cussed earlier did not have a pro-poor focusfrom the beginning but developed it along theway. A number of concepts and ideas are emerg-ing that could have been considered at the startof these projects and will be useful for all futurepublic-private-community partnerships.

This chapter describes each stakeholder’sbasic requirements, which are over and abovethe group’s usual tasks.

Government

The public sector is represented at the cen-tral and municipal government levels and alsoin service regulatory bodies. The public sectormay also avail itself of a transaction adviser topromote pro-poor techniques in the contracts.

Central and Municipal GovernmentPublic-private-community partnerships will

not be successful if the government does not pro-vide them with an adequate framework. Throughits ministries and legislature, the governmentshould define a pro-poor policy specifying howthe public and private sectors and the communitycan deliver environmental health service. Any re-form program should aim to achieve universalservice—which includes serving the poor—within 5–10 years. If the government supports al-ternative suppliers as an interim or even long-term solution, all customers should see improve-ments within 5 years.

At the start of the reform process, viable tar-iffs that reflect operating and capital costs mustbe established. An independent regulator mustconsider and ultimately determine proposalsfor tariffs. A regulatory office should be estab-lished and staffed before any contracts aresigned. The regulator must have adequate re-sources to ensure universal, pro-poor service,and will need adequate access to politicalpower to counterbalance a large, perhaps inter-national, operator as well as the “restrainingforces” that see no benefit in serving the poor.

To ensure early universal coverage, centralgovernments need to do the following:

• Consider linking profits to improvingservice to the poor. The governmentshould accept that its partners need tomake a reasonable profit, however that isdefined. Wherever possible, profit shouldbe linked to performance, through cut-ting costs but also through extending ser-vices to unserved, mostly poor, customers.

• Consider ways of sharing the risk ofserving the poor with the private opera-tors. The risk of serving the poor shouldbe shared with and not simply off-loadedto the private operators.

• Mandate and/or allow service to peoplewithout land titles. The governmentshould have a coherent policy on how totreat unplanned, informal areas. The op-erator may be allowed a moratorium ortemporary license for delivery of servicesto the poor. Allowing bulk water supplyto the community or on-sellers may beeasier for the operator but may not be aspro-poor when the distribution to the endborrower is not adequately supervised.

• Investigate the need to subsidize ser-vices to the poor. Cross-subsidizationmay be limited by water resources andtopography as well as the large propor-tion of poor customers. Support can begiven through direct social welfare pay-ments as in Chile (Box 15) and throughsubsidies to connection fees, networkexpansion, “lifeline” water, and sanita-tion. As a general rule, subsidies are onlyacceptable where they directly benefitthe poor.

• Allow service provision diversity. Thegovernment should recognize and man-date service provision by a range of stake-holders, emphasizing the value of inde-pendent community initiatives and thosewith private partners. The range of ac-cepted private partners should include

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In 1997 Aguas del Illimani, a French-, Argentinian-, and Bolivian-owned company, with Ondeo Water Services asoperator, was awarded a 30-year concession to provide water and sanitation to La Paz (population 800,000) and

the adjoining—much poorer—municipality of El Alto (population 600,000). In a departure from many other conces-sions awarded in the region, the contract was tendered on the basis of service coverage—not tariffs—with thewinning bid committing to 100% water coverage within 5 years, and 82% and 41% sewerage coverage in La Pazand El Alto, respectively. Sewerage coverage is to increase to 95% and 90% by 2021.To expand service in low-income areas, the private company, with international aid, developed a partnership called Peri-Urban Initiative forWater and Sanitation (IPAS). The objective was to test innovative approaches for sustained provision of water andsanitation services in low-income areas of La Paz and El Alto. The project promoted the use of appropriate tech-nologies, social intervention, and access to microfinance to build bathrooms and toilets.

Aguas del Illimani financed the infrastructure component and the implementation of the social interventionmethodology by a local NGO. The Water and Sanitation Program and the Swedish International Development Agencyfunded the technical assistance component that included project preparation, initial socioeconomic studies, andcontracting of specialized international consultants. The Government was involved through the General Directoratefor Water and Sanitation and the Ministry of Housing and Basic Services.

Using a demand-responsive approach, Aguas del Illimani approached different communities in their expansionareas and presented IPAS, explaining its working characteristics and technology. After internal consultation, com-munities committed to the project by presenting signatures of at least 70% of their members. The project wasimplemented on a first-come-first-served basis.

Households were connected at 60% of the original connection fee, using low-cost technology and communitylabor as well as easy payment terms (60 monthly installments at no interest), with microloans available to buildbathrooms and toilets.

The project included an effective educational program to change hygiene behavior and reportedly resulted in asignificant increase in the value of housing. “Even when families did not fully understand the implications of havingimproved access to [water and sanitation] services, they were willing to work in the project and invest their per-sonal savings for the payment of the fees. They were quite aware of the increased property value of their plots dueto the connection to the network” (Vargas 2002).

Sources: Komives and Brook (1998); Vargas (2002).

Box 14 Water and Sanitation Services for Poor Households in La Paz and El Alto, Bolivia

small and medium-sized enterprises aswell as large international operators.The government should demonstrate itswillingness to out-contract service pro-vision as a “starter” of public-privatepartnership and promote competitionwherever possible, without sacrificingcross-subsidies. This would require al-lowing the entry of large- and small-scale competition, notably at the retaillevel, and removal of the exclusivityclauses in legislation to allow for alternateservice providers.

As a general rule, the government must re-main committed to and involved in the processof reform and universal service, recognizingthat the awarding of any contract is not the endof government involvement. Pro-poor enablinglegislation is required to be flexible and outputoriented, focused on achieving an effective, eq-uitable, sustainable, efficient, and transparentuniversal service.

Municipal governments have the followingresponsibilities:

• Welcome and support the private sec-tor. Uncommitted local governments

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In the late 1980s Chile began to overhaul its water and sanitation sector, including by imposing steady and steeptariff increases in the early 1990s, making water unaffordable for the poor. Since connection is almost universal

in Chile’s urban areas, a consumption subsidy was designed to target individual poor customers. The subsidy cov-ers 25–85% of a household’s water and sewerage bill for up to 15 m3 per month. Eligibility is determined by ascoring system based on a questionnaire covering living conditions, crowding conditions, health conditions, com-fort, occupation and income, and ownership of durable goods. The score is valid for 2 years and can be used toapply for a variety of services besides water.

Chilean water companies deliver the services to all households at the standard tariffs and then request reimburse-ment from local governments for the subsidies on the basis of the actual amount of water consumed by each beneficiary.Households must pay a part of their bill for the first 15 m3, and the full tariff for consumption beyond this limit.

The introduction of the targeted subsidy has helped Chile raise water tariffs to reflect costs without compro-mising social and distributional goals. The costs of the subsidy system are much lower than those of the previousuniversal subsidy scheme. However, certain parameters such as a high rate of connection and a relatively highlevel of institutional capacity to administer such a scheme may be difficult to apply in other countries. Alterna-tively, a connection subsidy could be targeted at poor customers to help them overcome the main access hurdlein cities with low connection rates.

Source: Gómez-Lobo (2001).

Box 15 Water Consumption Subsidies through the Welfare System in Chile

9 For example, Final Report of adb’s reta 5922. adb. 2001c.Regulatory Systems and Networking of Water Utilities andRegulatory Bodies. Manila.

can derail private initiatives. Commit-ment is reflected in the municipalgovernment’s willingness to discuss andaccept service provision for temporaryand/or illegal housing areas. Licensingsmall and independent providers can bepart of the municipalities’ responsibili-ties and will need to be handled swiftlyto make sure that depressed areas areadequately serviced.

• Promote community participation andinvolvement. Local governments, in parti-cular at the neighborhood level, can helpintermediate between the customers intheir areas and the private companies.

• Facilitate customer involvement. Repre-sentation through customer committeesof the regulator and private operator isanother area where local governmentscan play a critical role.

RegulatorsPrivate sector profit-motivated delivery of a

monopoly service requires regulation to ensure

fair benefits to all partners. The critical task ofregulation is discussed in detail in a number ofrecent publications.9 To be effective the regula-tory system needs to overcome informationasymmetry and to have access to appropriateknowledge about how the utility system works.It should also be able to access political powerwhile preserving its independence.

Regulators should be as capable as the pri-vate operator’s personnel. Regulators shouldbe world-class, not only with respect to eco-nomic, financial, environmental, and techni-cal issues, but also pro-poor, development,and social issues as well as techniques of alter-native provision.

The latter qualities are by no means a given.In many cases, regulators do not have a clearincentive to deal with poor customers for lackof a specific mandate to do so. Consequently,regulators perceive poor customers—and their

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Services need to be adapted to different types of dwellings.

small-scale providers—as difficult, cumbersome,and almost impossible to regulate, as regulationof the standard services is already difficultenough (Trémolet and Browning 2002).

In addition to its normal tasks, the economicregulator should achieve pro-poor universal ser-vice by undertaking the following:

• Regulate quality standards to improveaccess to services. The focus should beon diversification—not on universal andoften high standards that limit access—toreduce quality and, thus, prices to an ac-ceptable level for those who cannot af-ford more.

• Set affordable tariffs that water usersare willing to pay. Affordability is neces-sary to put a brake on any temptation tooverinvest in technology.

• Allow the private operator to set differ-entiated tariffs for differentiated ser-vices. This may relate to connection costs

and fees or to operating tariffs, and couldinclude allowing for a higher return oncapital for higher-risk services to the poor,since efficient private operators should beable to finance their operations and ex-pansion with a fair return on capital.

• Ensure that increasing block tariffs willnot become regressive in areas with groupconnections. As the Manila case studyshowed, connecting to water services as agroup can be costly if the operator does notdifferentiate between “retail” and “whole-sale” residential connections.

• Set connection fees to ensure commit-ment from customers. If connection feesare calculated to recover a share of networkfixed assets or cost of network extensions,inevitably those living farthest from the net-work main or on difficult terrain will paydisproportionately more than those wholive in more convenient locations. As with

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Water quality remains an issue: samples from poor households in Jakartataken within 24 hours

other fixed assets, networkexpansion should be borne byall customers.

• Approve pro-poor disconnection-reconnection policies of theoperator. Poor people aremore vulnerable to eventssuch as diseases or naturaldisasters, which can have animmediate impact on theirbudget and, hence, on theirability to pay the water bills.

• Ensure that subsidies are re-ceived exclusively by the poor.This can be through reducedconnection charges, lifeline blocks, or spe-cific pro-poor fixed assets.

• Prohibit cross-subsidy of sewerage ser-vices from water tariffs. Except where al-lowance is similarly made for treatmentof septic tank and latrine sludge disposaland treatment, sewerage cross-subsidyshould be avoided.

• Legitimize and regularize alternativeservice providers to meet interim uni-versal service targets. Doing so wouldinclude approving bulk rates for wateron-selling to small-scale retailers, in-cluding interim domestic vendors andhandcart and tanker filling stations. Theregulator could also have the responsi-bility to monitor kiosk, vendor, andother retail prices, and to approve tariffsfor water being on-sold by communities,making allowance for communities tocross-subsidize internally (contributionsaccording to ability to pay).

• Ensure that poor users can easily com-plain against practices of the privateoperator. A reasonable and easily acces-sible appeals procedure is needed.

• Ensure adequate customer representa-tion. The regulator should ensure regular,formal customer representation in regula-tion processes and representation of the

poor on customer committees, directly orthrough cbos or ngos.

• Publish levels of service and financialinformation at regular intervals. Easyaccess to data through the internet shouldalso be ensured. Particular attentionshould be given to monitoring and pub-lishing performance of pro-poor servicesand service coverage against timed tar-gets. Payment and disconnection rates inlow-income areas could serve as perfor-mance indicators.

Finally, the economic regulator shouldexpect, allow, encourage, demand, and re-ward operators for being creative and inno-vative in serving the poor and in meeting theuniversal service targets while delivering thehighest possible quality. Regulation can beviewed as a continuum, where the regulatorassists in the transition between service lev-els, through gradual tightening of minimumservice standards, for example (Baker andTrémolet 2000b).

Cross-border benchmarking, using perfor-mance data from similar concessions in otherdeveloping countries, would help monitor theprogress and reasonable use of expensive expa-triate staff to make sure that the cost is not au-tomatically passed on to the poor.

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In addition to economic regulation, theagency responsible for water quality shouldmonitor it through all points of sale, householdconnections, street tanks, and alternative ser-vice providers, using appropriate sampling fre-quencies to limit costs.

The environment regulator should be biasedin favor of immediate public health for all, al-lowing on-plot and on-site sanitation alterna-tives over longer-term targets for groundwaterand river quality, which is an important tempo-rary waiver for household sanitation.

Transaction AdviserIn appointing a transaction adviser on re-

form and private sector involvement, the gov-ernment not only has to ensure that the adviserhas expertise in serving the poor but also hasterms of reference that include the need toserve the poor through a time-bound universalservice obligation. Advisers have to be giventime and funding to undertake this work.

Transaction advisers have the following duties:• Get to know poor customers. Talk to cus-

tomers, particularly the poor, andinvestigate how they obtain servicesthrough self-provision or from neighbors,the community, or small-scale independentproviders. The transaction advisersshould also host discussions with com-munity groups, ngos working with thepoor, unions, vendor associations, andother interested stakeholders. Based onthese discussions, the transaction advis-ers should prepare initial baseline dataon the needs and interests of present andpotential customers, particularly thepoor, through social mapping, and un-dertake outline pricing and service differ-entiation studies for the poor.

• Define universal service obligation anddetermine contractual service targetsthat emphasize early universal service.The definition should include what con-stitutes the service area (municipal

boundaries and location of peri-urbanpoor), the percentage of universal cover-age signifying contract compliance, andthe definition of coverage. For example,coverage may not only mean full-pressurehousehold connections, but might also in-clude individual meters within a specifieddistance and/or low-pressure yard tapsand ground tanks. The number of peopledependent on a standpipe or street tankshould be known to measure interim cov-erage. Network extension targets must bephased to serve low-income along withmiddle-income areas as the latter might beneeded to enhance cash flow.

• Consider options to move beyondawarding monopolistic, exclusivityrights to large-scale contracted privateoperators. Existing independent provid-ers should have the possibility to be in-cluded, perhaps to on-sell bulk water toformal and informal areas, as an interimsolution before the network is extended,or as long-term, licensed retailers or re-tailing agents.

• Determine the most effective public-private-community partnership to serve thepoor, and design the contract accord-ingly. The most successful partnershipsare city-wide concessions, sometimeswith two private partners as in Manila,or enhanced leases where the privateoperator has the responsibility and au-thority to optimize the balance betweencapital and operating expenditurewithin day-to-day operations.

• Investigate subsidies. This entails es-tablishing the need for and role of subsi-dies to promote service to the poor, anddetermine actual arrangements for sub-sidies (direct or through a public or pri-vate entity).

• Investigate involvement of the community.The transaction adviser should get a compre-hensive overview on cbos and ngos in the

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Households in poor areas in Manila are responsible forconnection beyond the meter.

sector and assess the possibility of contract-ing them as social advisers.

• Prepare and present an information,education, and communication pro-gram for the main stakeholders.

• Advise the government with regard to apro-poor legislative framework. Thisincludes, for example, a mandate for theprivate concessionaire to serve unregis-tered, illegal households. In advisinggovernment on prequalification of privateoperators, transaction advisers should re-quire technical submissions to show requi-site social development skills. There can beno technical solution to service provisionto the poor without social involvement.

A pro-poor procedure for awarding con-tracts may entail the following:

• requiring single bids based on value of pay-ment to government—or value of paymentrequired from government (and perhaps itssupport agencies)—to achieve time-bounduniversal service;

• allowing the operator to be flexible in de-termining how to achieve that service,but expecting a range of technology op-tions with differentiated prices;

• requiring tariffs, including pro-poorconnection fees (not necessarily con-ventional connections), to be set in con-sultation with the regulator and transac-tion adviser to ensure that competitionto obtain the contract benefits potentialpoor customers, not only existing cus-tomers, through price cuts; and throughtariffs, ensuring that customers under-stand the true value of water as an eco-nomic good to be conserved; and

• as an alternative, asking private opera-tors to bid on their required connectionfees to achieve universal service, makingclear the purpose of the partnership.

Advisers and financial institutions mightconsider a change in terminology from multi-million-dollar “success fees” for successful con-tract completion to rewards for successful univer-sal coverage at the end of a specified time period.

Civil Society and the Community

Civil society can essentially be involved eitherthrough advocacy groups (ngos, lobby groups,consumer committees) or directly at the commu-nity level (cbos, ward associations, etc.). With re-gard to advocacy, civil society should know theneeds of public health provision for all, lobby forpro-poor sustainable environmental health legis-lation and reform, and monitor performance ofreformed public health provision. Advocacygroups can also get directly involved in service

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A representative from the regulatory body monitorswater provision in a poor community in West Jakarta.

provision for the poor and take up offered rep-resentation on any customer committee on be-half of all customers. When networking withthe media, consumer pressure groups can playa powerful role in mobilizing public opinion onservice provision.

At the operational level, it is increasingly ac-cepted that beyond the physical infrastructure,“social infrastructure” is needed to sustain ser-vice systems (bpd 2000). As the case studies re-veal, where the poor are organized enough to ar-ticulate their demands and needs, either ngos

can help transmit the voice of the poor to thepublic or private service providers in charge, orthe poor do it themselves through direct contactwith the municipality or the operator.

The community needs to be engaged to laypipe and build latrines or dumpsites. The

community will need to agree on service qual-ity and prices, technologies used, O&M, andgeneral public health awareness that can af-fect the sustainability of service provision.Ownership is important if the operator wantsto rely on the community to limit costs, suchas bill collection or detection of leaks and ille-gal connections.

The Private Operator

The private operator has to be committed tothe concept of universal service, using all pos-sible techniques and approaches to serve thepoor. The private operator should be allowed tooffer a range of differentiated services at corre-spondingly differentiated prices for differentincome groups and, if successful, be rewardedwith a fair return on labor and capital. The privateoperator should be able to earn a higher returnthrough out-performance, by achieving universalcoverage ahead of schedule, for example.

Business plans, service delivery, and assetmanagement plans required as part of the bid-ding process and subsequent price reviewsshould focus on how the operator intends toserve low-income areas. Where appropriate,subcontracting to small-scale independent pro-viders should be expected and encouraged,along with community on-selling, kiosk fran-chisees, and water sale through vendors.

The suggestions below are not contractual re-quirements but rather outlines of what might rea-sonably be expected from world-class operators.Again, it is important to stress that the list of re-quirements focuses on pro-poor and develop-ment issues only, which should be in additionto the operators’ core competencies.

Creative TechnologiesSome of the techniques being used to sup-

ply water to low-income communities includethe following:

• shallow “condominial” pipes runningunder sidewalks, lowering costs through

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Utility company representatives consult with women in a Hyderabadcommunity.

shorter pipe runs and reduced depth oftrenches where it is not necessary to pro-tect against vehicle damage;

• guided and supervised community exca-vation of pipe trenches and installationof pipe networks, reducing the cost ofconnections and encouraging the com-munity to “take ownership” of the service;

• aboveground pipes, eliminating excavationcosts and minimizing illegal connections;

• group meters, reducing the cost of meter-ing and billing by giving part of the taskto the customers, also to encourage col-lective responsibility for bill payments;and community or site meters, reducingthe cost even further but possibly encour-aging nonpayment by some households;

• mains supply to individual householdmeters at site entrance, giving householdsthe choice to carry the water or install theirown flexible connections to their dwellingand thus manage and pay directly for theirown water consumption;

• mains supply to individual valves and/ordistributors at site entrance with house-hold flexible connection to low-pressureground tanks for a fixed daily allowance,minimizing costs of metering;

• prepayment meters, ensuringrevenue collection without theneed for billing;

• extension of the amortization periodof connection costs up to 5 years;

• water tanker filling points, reduc-ing costs and enhancing the qual-ity of water sold by vendors, withprices prominently displayedto minimize overcharging;

• distribution point reservoirs,minimizing costs in peak sizing ofdistribution network and queu-ing time by women, and increas-ing the quantity of water used;

• street tanks, filled daily by theoperator, ensuring interim potable

water coverage for all; and• edge-of-site reservoirs for community

and/or vendor use where legislation lim-its direct site connections.

Some of the techniques currently being usedfor networked sanitation include the following:

• condominial sewerage passing throughbackyards and under sidewalks to mini-mize size and depth of sewers;

• temporary discharge of sewage intodrainage channels where there is no di-rect threat to public health, to achievepublic health benefits at least cost; and

• sludge disposal points where private in-dependent desludging tanker operatorscan discharge wastes, displaying pricesprominently to minimize overcharging.

Where networked sanitation is not possible,the operator should facilitate on-plot or on-sitesanitation and provide access to microfinancefor households to finance bathroom facilities.

Flexible Customer ServicesThe private operator will want to complement

these innovative technologies with a customer-oriented approach that recognizes the poor as

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important customers. The approach includesthe following:

• Enable poor customers to read meterswhere used and check and pay bills eas-ily and cheaply.

• Ensure that the poor have easy access toa complaints procedure. Their com-plaints should receive the same priorityas those of higher-income customers.

• Conduct customer awareness and hy-giene education programs. Ideally, thiswould be done in cooperation with expe-rienced ngos or cbos as the operator’s“learning curve” in providing the pro-grams could be long and lead to a confu-sion of business and social obligations.

Working with IntermediariesTo achieve universal coverage at least cost,

it is expected that the private operator will op-erate at least temporarily through appropriateintermediaries, entailing the following:

• Work through existing CBOS and NGOS,which are close to the low-incomecommunities. The challenge is to main-tain the partnership with these organiza-tions and not merely use them to collectpayment, which would lead to a loss of“ngo-ness.” Most cbos and ngos appre-ciate receiving payment for particular ser-vices. However, if the relationship be-comes contractually dependent and thecommunity starts looking at them as partof the private operation, these organiza-tions may lose the community’s trust,which took so long to build, especially ifthey are asked to sort out disputes.

• Contract specialist social consultants orinternational NGOS. This is particularly im-portant when in-house social developmentexpertise is insufficient and there is no“matching” ngo. Fundamentally changinga local organization may not be advisable,except where that local group has the desireto transform itself into a private consultant.

• Involve small-scale independent provid-ers. These providers can retail water in ad-vance of network extensions, and desludgelatrines and septic tanks. Concerns aboutmaintaining the quality of vendor-suppliedwater need to be countered with programsto monitor quality and the on-selling price.

• Train vendors as future service agents.This is important when the network is ex-tended to poor areas, to help maintainemployment and reduce resistance to pro-viding networked service.

Price FlexibilityThe private operator, encouraged by the

regulator, will need to be creative and flexiblewith respect to prices by opting for the following:

• Extend payment periods. Amortizationperiods for connection fees should be ex-tended over several years, and the opera-tor should also allow small, irregular pay-ments of water bills.

• Promote innovative bill collection. Anexample would be to set up mobile offices(“barefoot collectors”) or to have com-munity associations or local shopkeeperscollect payment for a small fee.

• Consider allowing prepayment metersand card-operated stand posts.

• Have a flexible pro-poor disconnection-reconnection policy. As a rule, it shouldbe made easy—and cheap, i.e., no highfees and advances for reconnection—forpoor customers to recover from misfor-tune without encouraging nonpayment.

TransparencyThe private operator should be as trans-

parent as possible in all its activities, but par-ticularly in its services to the poor, by doingthe following:

• Provide regular progress reports. Thesereports should focus on achieving uni-versal service coverage and should becommunicated to government and civil

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Community taps are locked in Kathmandu.

society, perhaps through municipal orcustomer committees;

• Use “open-book accounting” when re-ceiving additional funds to support ser-vices to the poor. Funds received for sub-sidies to network extension and connec-tion costs or for support to social devel-opment activities need to be accountedfor in the most transparent manner toavoid giving the impression that thesemay have been used only to the benefit ofthe operator.

• Adhere to international standards of re-porting, accounting, and auditing, espe-cially when receiving concessionary funds.

Capacity BuildingIf the private operators are committed to

service everybody in the partnership, capacitybuilding—in-house as well as for the partners—will be an ongoing responsibility. The operatorwill need to do the following:

• “Localize” operations. By increasinglyusing local staff as much as possible,costs can be minimized while promotingdevelopment. Reducing the use of expen-sive expatriates is to the ultimate advan-tage of customers, although some level ofinternational presence may be necessaryto ensure “organic” research and devel-opment, and “mechanistic” disciplinedquality assurance of standardized opera-tion, and to demonstrate internationalconnections at the highest level whenpolitically necessary.

• Undertake “expatriate matching” formanagement staff. For each expatriatein the company a local staff member istaken as an expatriate manager else-where in the operator’s operations. Thisapproach has been successfully prac-ticed in the international oil industry formany years.

• Maximize the use of local contractorsand suppliers. If they can achieve the

necessary quality, the operator shouldmake use of them rather than relying uponan international contractor, even if the lat-ter is from the same group of companies.

• Encourage sale of the private company’sshares within the country and give em-ployees share options as incentives.

External Support Agencies

Following the failure of many public ser-vice providers, external support agencies aregenerally committed to the new paradigm ofprivate operators delivering urban servicesin developing countries. Having investedsignificantly in public operators and agen-cies to provide environmental health ser-vices, often with little obvious effect, there isa danger that such agencies will limit theirinvolvement to promoting public-private-community partnerships and then assumingthat their task is completed.

This assumption is unrealistic. The privatecontractors need substantial support toachieve universal service coverage, with a fo-cus on the poor. Particularly in urban areaswith a high percentage of low-income house-holds, it can be difficult to achieve universalservice through cross-subsidy without increas-ing tariffs too much. Private operators and so-ciety as a whole will benefit from additional

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funding for network extensions and connectioncosts, and benefit from funding support to socialintermediary activities. This is not a diminution ofthe private operator’s responsibilities: it is a rea-sonable extension of the principles of partnershipand will not lead to increased profits for the con-cessionaire because allowance will be made for itwithin the regulatory framework. For the externalsupport agencies there should be benefits in hav-ing a more direct link between concessionaryfunds—grants or loans—and improvements inenvironmental health for the poor.

External support agencies should thus con-sider doing the following:

• Provide targeted funding. This could beused to do the following:• Extend service coverage and indi-

vidual connections to financially non-viable areas of the poor.

• Support sanitation, the more difficulthalf of the equation, for which peopleare less willing to pay than for water.The argument can be made that sani-tation generates more in the way ofpublic health externalities, which indi-viduals may not see the need to fund.

• Fund ngos so they can assist in socialintermediation without being seen asco-opted by the private operator.

• Support small finance initiativeswhereby ngos and small and medium-sized enterprises can access funds toextend their operations, perhaps tobuy a new desludging tanker or facili-ties for recycling solid waste.

• Pay an additional return on the cost ofcapital for private funds successfullyused in serving the poor, or pay a bonusto an operator that has achieved earlyuniversal coverage, or pay for the riskelement attached to serving the poor toavoid penalizing them for being poor.

• Provide training manuals and out-line contractual agreements to alter-native providers. This would help

them operate successfully with the pri-vate operator.

• Support the ongoing process of regulationand of enabling the “intelligent client.”Major tasks are supporting training and ca-pacity building for the government andregulator as well as supporting the processof regulation when national political de-mands threaten to become unsustainable.

The international support community canalso provide value-added by compiling and pre-senting comparative performance information.The Asian Development Bank (adb) has pub-lished a comprehensive assessment of utility per-formance in Second Water Utilities Data Bookand developed urban indicators for managingcities in the Cities Data Book (adb 1997, 2001).These publications, along with others such asthe World Bank’s Benchmarking Water andSanitation Utilities Project (Kingdom andJagannathan 2001), facilitate the sharing of in-formation on good and bad providers and haveproven to be a powerful way to pressure govern-ments and utilities to improve their perfor-mance. Efforts to include an increasing numberof poverty-related indicators are underway, asthe Cities Data Book demonstrates.

In the short term, external support agen-cies might want to limit their concessionalfunding of bot contracts for water and waste-water treatment. Until an effective distributoris in place to serve the poor and systematicallyreduce unaccounted-for water, additionalbulk water supply may not achieve extendedservice coverage. Concessions and enhancedleases should take priority as they includeoverhauling the distribution part of the servicesystem. Concessional funds should not givepriority to wastewater treatment for industriesor high-income households. This is not to sug-gest that these works should not proceed, butthat they may not warrant urgent attention byinternational agencies if poverty reduction is theoverarching goal of development projects.

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Nonnetworked Services

Many examples of public-private-communitypartnerships from around the world describe howthe poor are served through discrete, i.e.,nonnetworked services. Examples given in thisstudy for solid waste demonstrate how ngos, work-ing under the oversight of public authorities, enablecommunities to take responsibility for solid wastecollection, sorting, and composting. Private ser-vice contractors can efficiently remove residualsolid waste to transfer points in large metropoli-tan areas or directly to sanitary landfills. Privatecompanies can also be important in sellingrecyclables or compost, as in Dhaka.

Households can provide their own excretadisposal facilities by building on-plot latrines,normally when an ngo executes public healthand hygiene programs while ensuring that la-trine components such as slabs, water seals,and pit lining are available.

To achieve this level of service, the governmenthas the responsibility to ensure the following:

• Nonnetworked developments are al-lowed and even encouraged by law.

• Services to unplanned, illegal areas arenot unnecessarily restricted.

• On-site composting or on-plot sanitationis not prohibited.

• Small-scale enterprises are allowed to beactive in environmental health and canaccess formal service providers, whetherin bulk water supply, sludge disposal, orsolid waste residuals disposal.

• Environmental regulators do not unnec-essarily restrict suitable local activities.

• A market for the sale of recycled productsand compost exists, and where necessary,educational and marketing campaignsfor farmers and consumers on the ben-efits of using compost are provided.

• Capacity-building programs are providedto ensure that future sanitary engineershave a better overview of the costs andbenefits of the techniques available.

• Land is provided for on-site recyclingand sludge disposal from latrines andseptic tanks.

External support agencies should helpthe following:

• ngos, to transfer knowledge on suitabletechniques;

• small supplier associations, to shareknowledge; and

• small finance initiatives, to meet theneeds of NGOS as they transform them-selves into private businesses, and ofsmall-scale providers.

The level of finance required is abovemicrofinance, which serves the individual poorso effectively. Established microfinance institu-tions may be best positioned for ngos’ small fi-nance initiatives. The funds could be for a yardto build pit latrines or to buy land for acomposting area or a desludging machine.

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Serving the Poor:Conclusions

The environmental health sector is in need of reform. The publichealth needs of urban areas are being served by a mixture of publicagencies, resourced to provide only the bare minimum of water sup-ply, sanitation, and solid waste services; and small-scale private enter-prises. High-income households rely upon a mixture of self-provisionthrough “coping strategies” and public supply. Low-income householdscope by queuing for a long time for inadequate water, overpaying smallprivate enterprises, and disposing of wastes unhygienically. Efficientngos working with communities make a difference, but usually only for alimited time in a restricted area.

Public health provision is a government responsibility because of thescale of the task and because of the benefits to the whole of society. How-ever, in many countries the public sector has largely failed to deliver, andit has not proved possible to reform government agencies sufficiently todirectly provide public health services.

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Population and High-Income Upper-Middle- Lower-Middle- Low-IncomeWealth Countries Income Countries Income Countries Countries

Population (million) 891 573 2,094 2,417GNP per person ($) 25,730 4,900 1,200 410Affordable water and 10,030 1,860 455 155

sanitation ($)

GNP = gross national product.Source: World Development Report 2000–2001 and author’s calculation of affordability, representing possible investment per person per generation (20 years) at 5%income, including operation and maintenance.

Table 4 Affordable Water and Sanitation

10 It is unclear how much wastewater treatment is included.

The introduction of international privatesector management is making a differencewhere the private companies are given a broadenough mandate to take control of the entiresystem, from the capital and operating expen-diture of the supply and disposal to the billingand collection of revenue at reasonable tariffs.This degree of change has been sufficient toovercome the restraining forces of the failedsystem. This degree of responsibility has beensufficient to find innovative ways to serve thepoor, even in untenured housing areas, particu-larly in partnership with ngos.

who and unicef estimate that 93% of waterand sanitation remain, officially at least, in pub-lic hands. The massive task ahead is to involvethe private sector in challenging the establishedpatterns of small-scale provision. Anotherenormous task is capacity building to ensurethat private companies can be innovative andcreative in serving the poor in partnership withsmall-scale providers and ngos.

Funding service expansion to the poor, particu-larly water and sanitation, remains another bigchallenge. who and unicef (2001) estimate thatthe urban water supply sector in Asia receivesaround $2 billion of national investment per year,supported by around $1 billion of external invest-ment. For sanitation and sewerage the figures aremuch lower: $901 million of national investmentand just $120 million of external investment. Thesefigures represent $3 per person per year for waterand $1 per person for sanitation.

To put these figures into perspective, regulatorsfrom high-income countries such as the UnitedKingdom (England and Wales) report “modernequivalent asset values” of $1,890 per person forwater and $3,530 per person for sewerage andcomplete wastewater treatment. The privatized in-dustry is continuing to invest an average of about$100 per person per year (Ofwat 2001).

This is not to suggest that anything likethese costs have to be found for developingcountries when considerations of purchasingpower parity and lower construction costs aretaken into account. However, it is a reminderthat water and sewerage make up an extremelycapital-intensive business. The figures given inTable 4 suggest the magnitude of the challengeof limiting costs and the extent to which itmight be possible to finance water and sanita-tion from user charges.

To expand the system at the average costsreported by who and unicef of $92 per personfor household water and $154 for sewerage10

will require considerable vigilance to keep costsas low as possible and limit the technical de-sires of the designers and other experts. It willrequire an emphasis on on-plot and on-sitesanitation at $26–$50 per person rather thanexpensive sewerage.

Private sector involvement is critical, not somuch to provide private money to make up thefunding gap but rather to unfreeze and change

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Public-Private Partnerships Capital Expenditure Population Served(Large Scale) ($ billion) (Water and Water & Sanitation)

(million)

Total reported/planned 175.8 519.6Total operational 126.5 395.7Developing countries reported/planned 80.1 310.8Developing countries operational 37.2 212.7Asian DMCs operational 12.6 55.1Asian DMCs planned 2.0 4.5

DMC = developing member country of the Asian Development Bank.Source: R. Franceys, Public-Private Partnership Database, January 2002, unpublished.

Table 5 Reported Capital Expenditure and Population Served, Operational and Planned, 1990–2001

the existing service provider, thus leveraging in-vestment from those who otherwise have givenup on the ability of the sector to repay loans.Repaying loans requires viable tariffs, which re-quire operators and regulators that can chal-lenge the established patterns. External supportagencies have a role in this area if long-termprogress is to move beyond “foreignization.”

For the external support agencies the over-riding premise continues to be that in this re-form process, the poor should benefit morethan the rich from the agencies’ funds, andloans and grants should, therefore, providefixed assets and services for the poor.

It is interesting to compare the extent of theneed in Table 4 with public-private partnershipcoverage and expectations in Table 5. Public-private partnerships that deliver “mechanistic”quality with “organic” approaches should beintroduced more quickly.

Governments should ensure that contractsto private service providers are transparent, rec-ognizing that it is impossible to specify every-thing years in advance, particularly in areas de-manding innovation, such as serving the poor.There has to be an element of trust and part-nering, which has to be reciprocated by the

contractor in its profitability levels. To monitorand inform this process, government has toestablish a good regulatory system, which ulti-mately enables national private operators totake full responsibility for the complex task ofpublic health service for all.

Public-private-community partnerships arenot a “one-off” reform but the start of an ongo-ing process for change and service delivery.Partnerships with all the stakeholders are acritical part of the reform process, particularlyas it focuses upon serving the poor. Over timethese relationships should be bureaucratized toachieve the necessary coverage and longevityof service provision. Social development skillsand customer relationship skills are long-termrequirements to manage these partnerships andhave to be integrated into the operations of thedirect service provider, private or public. ngos

face the challenge of becoming that social re-source, either in-house or as subcontractors, or,of equal importance, remaining advocates forchange on behalf of the poor.

For the poor, the overarching need remains:the effective, equitable, sustainable, and effi-cient provision of water, sanitation, and solidwaste services.

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IN THE LATE 1980s the performance ofBuenos Aires’s public water utility was deterio-rating.1 Inefficient operations and bill collection(around 80%) worsened the company’s finan-cial position. Cash flow was so low that ad-equate maintenance was difficult. The companyrepeatedly asked for loans from the federal au-thorities for operations and wages, and had dif-ficulty paying them back. Despite the existenceof abundant and easily tapped water, service in-terruptions were the norm, water quality was notup to standards, and tariffs were inadequate.Service expansion to the fast-growing poorersections of the city was not even attempted.

In May 1993 a 30-year concession contractwas awarded to Aguas Argentinas as contractor(Ondeo Services as operator). The objectives-oriented contract focused on outputs such ascoverage rather than inputs such as investment,and called for 100% coverage of water supply inyear 30 and 95% sewerage coverage, requiringinvestments of about $4.0 billion, with $1.2 bil-lion in the first 5 years.

The service targets for water appeared to begood news for the poor who had not been re-ceiving water from the main public operator.However, the poor in informal housing areas,perhaps the hardest to serve, might have to waitnearly 30 years for service if the private com-pany chooses to maximize profits.

Although the anticipated investment startedslowly, in the first 5 years of the concession thecompany transformed the existing assets, staff,

and facilities into a modern water and sanitationprovider. Water quality now meets internationalstandards and is delivered at an appropriatepressure, customers can contact the companywhen they wish, and problems are solved whenreported. Service coverage has increased toaround 85% for water and 63% for sanitation—very much on target. The expectation of $1.2 bil-lion investment has been realized.

The utility and its services are supervisedand regulated by the Tripartite Entity of Sanita-tion Works and Services (etoss), which is man-aged and administered by a board of six direc-tors representing the federal executive, theProvince of Buenos Aires, and the governmentof Buenos Aires City. The private concession-aire, under government oversight, is deliveringthe desired results.

However, 1.5 million people remain withoutformal water service, and over 3.5 million, with-out networked sewerage. The average monthlygross domestic product per household is ap-proximately $2,500, but 3.1 million inhabitantsreportedly have an average monthly householdincome of under $500, and 800,000, under $240.The lower-income groups are in the informalhousing areas, public housing projects, and out-lying developments, where it is most difficult tosupply utility services and where people are leastable to pay. Difficulties of supply include dis-tance from water and sewerage mains—thusraising investments costs—informal housingwithout structured street patterns; illegal occu-pation of land and, thus, no security of tenure;and a level of insecurity that makes thecompany’s staff unwilling to work in some areas.

Because the poor and unconnected paidhigh prices to water vendors, the concession

Buenos Aires, Argentina: Concession

1 Unless otherwise referenced, the information given is de-rived from the Business Partners for Development (bpd)Study Visit undertaken by R. Franceys in March 1999. Thisreview, initially prepared as an internal document for bpd,represents the author’s interpretation of this experience.

Appendixes

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planners assumed that everybody would want toconnect to their lower-priced service. However,the connection fee was about $500 for water—varying according to property surface, type ofsoil, and percentage of road and pavementwork—and $1,000 for sewerage, representingseveral months’ household income for the poor,and clearly unaffordable. The high connectionfees were also a factor in determining the rate ofconnections in the municipalities of the outerring of Greater Buenos Aires, where investmentsin upgrading mains could not be recouped un-less lower-middle-income customers connected.

Pilot Projects in Poor Barrios

Aguas Argentinas, therefore, began negotia-tions with etoss to make the connection fee af-fordable. The company also started pilotprojects in different parts of the city to deliverservices to the poor, with the help of nongov-ernment organizations (ngos).

The first pilot project was launched in thenorthern part of the city where small slums haddeveloped in the midst of higher-income housingand where one ngo, the International Institutefor Environment and Development—LatinAmerica (iied-al), had been trying for some timeto improve the residents’ quality of life. Theproject also required public sector support, usingthe resources of the local municipal government,along with the approval of regulator etoss. Apartnership was built between the private opera-tor, government, and civil society, represented bythe community and its supporting ngo.

In the low-income neighborhoods the exist-ing piped services were illegal, making it diffi-cult to ensure water quality and for the opera-tor to receive payment. There were three typesof residents: those who owned the land onwhich they lived, “non-owners,” and—by farthe most numerous—the “non-urban.” Mostresidents were served by water trucks, but de-livery was often delayed and residents had nomeans to store the water.

To serve them required a new type of think-ing. The government and company were awareof the health problems of underserved neighbor-hoods and recognized the wider implications forgroups omitted from formal development pro-grams. The challenge was to change the people’sperception, show that they were not abandoned,and draw them fully into society.

Aguas Argentinas generally designed theprojects and supervised implementation, themunicipality funded materials, and the resi-dents built the system. This pattern may havevaried. To promote payment, a single invoicewas given to the community for a year to see ifthe residents were willing to get together andpay. Water meters were installed to limit wast-age. Typically, one person, often designatedduring community committee meetings, signedon behalf of the neighborhood. AguasArgentinas found that some leaders in poorneighborhoods could help resolve people’sproblems. After the trial year, individual billingwas introduced, based on an assumption ofminimum water usage.

The site of one project, Barrio2 San Jorge,San Fernando County, had 2,300 inhabitants,with 71% of households under the poverty line.Service statistics showed that water supply andsanitation were not serious problems. Almostall inhabitants were presumed to be providedby public taps and individual connections andhad sanitation “solutions” such as cesspits andlatrines. In reality the water system worked fora couple of hours per day with very low pres-sure and provided poor-quality water. Thecesspits and latrines did not work properly be-cause the water table was very high.

During the 35-year life of the barrio, eight ini-tiatives to improve water provision had been un-dertaken by different groups, working alone or insome form of partnership: residents, communityorganizations, the church, ngos, local and na-tional governments, the army, the former public

2 Barrio stands for neighborhood.

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utility, and the factory close to the barrio. How-ever, the end result was “a deficient service inrelation to socially acceptable standards, low orno community participation in their planningand implementation and lack of awareness forthe operation and maintenance of the improve-ments” (Schusterman 1999).

Under the 1993 Aguas Argentinas Conces-sion Agreement, the barrio was projected to re-ceive services in 20 years. However, in 1995,under pressure from the upcoming elections,Aguas Argentinas decided to provide an im-proved water service. Using a “cheaper ver-sion” of the conventional system, the companyprovided water for 1,800 people.

iied-al obtained funds for a pilot projectfrom two donors to improve sanitation. A sys-tem of shallow sewers was designed for $450/household, i.e., one quarter of usual contrac-tors’ costs, with 60% funding from interna-tional donors and 40% from the communitythrough labor, with a small contractor layingthe mains to ensure quality. Lyonnaise desEaux (1999) noted: “The effluent collected is atpresent evacuated directly into a nearby river:as a result Aguas Argentinas does not chargefor the service. When the company network isextended into this area, the collector will sim-ply need to be connected to the mains: the ser-vice will then be charged for.”

The ngo involved suggested that San Jorgewas a “watermark” for Aguas Argentinas’s con-cession as it was the first time that the companyagreed to provide water, with special charges,to a low-income settlement, and took over op-eration and maintenance of the water supply. Itwas also a watermark for iied-al, representingthe start of its work with Aguas Argentinas.

An Aguas Argentinas engineer said: “Thereis no mathematical formula for this. It’s some-thing you learn by experience. There must be ahuman flow, a family relationship, but she (thecommunity representative) is not easy to dobusiness with (said with a smile in her pres-ence). But now it is a strong relationship.”

One of the keys to the success of the pilotproject was the use of an effective ngo as a so-cial consultant as well as a civil-society partner.iied-al then helped prepare social mapping andsocioeconomic surveys, which led to a plan formonitoring and assessment. iied-al and AguasArgentinas worked together under an iied-alproject manager until the end of 1998, whenAguas Argentinas created the Department forLow-Income Areas and the iied-al project man-ager returned to the ngo. The company has alsoengaged three other ngos to strengthen its in-house capacity through training, developing

“We wanted services. We did not want to belooked down upon.”

“It was a tough project—the women worked onhouse fronts, paid for connections to be made well.People thought it would be salty water. Then otherfamilies joined.”

“We were concerned about police actionagainst us after appealing to the senator. We have areputation as dangerous and lazy but it is the Gov-ernment that does not provide jobs, which leads toour teenagers hanging around. People are willing towork. Come and talk to us.”

“We started by developing a petition for streetlights. ‘You are a ghost neighborhood, you don’t exist,’we were told. I was angry. Three meetings, then 10petitions prepared before we could be recognized. Ittook 5 months. The last thing we did was to open thevalve on the highway. They said that was not right. Isaid what they did to us was even worse, treating uslike diseased animals. The tanker drivers made uspay again for water, and if no $10, then no water. Theymade us hate each other if one had water and an-other family didn’t. Everybody is now paying for wa-ter. Some even have TV cable connections! We nowpay regularly for water every 6 months.”

Barrio Residents’ Views

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manuals for services to the poor, and monitor-ing coverage and satisfaction among the newlyconnected customers.

Training programs were developed by iied-alto strengthen the capacities of the company,with two participants per district for sensitiza-tion. Starting with conceptualization, strategiesfor different regions were prepared, with a 3-month trial run, followed by two more work-shops to reflect and review the experience, end-ing with role-playing workshops.

The Department for Low-Income Areas de-veloped more pilot projects with a variety ofapproaches. The Participative Water Serviceprojects are based on direct links between theresidents of the area—via an association orleader—and the company (Lyonnaise des Eaux1999). This “barter” operating method, with thecommunity providing the construction labor, isonly conceivable in small communities wherethe idea of community work is accepted. Areaswith more than 3,500 residents may be dividedinto zones for this type of project.

For larger-scale projects, particularly in areasof high unemployment, Aguas Argentinas usesthe Employment Generating Unit. Financed bythe province and under the supervision of AguasArgentinas, a contractor employs local staff, whoreceive $200 each per month working 6 hours aday to extend the network. The provincial bankpays for materials (as approved by AguasArgentinas) and labor through a soft loan.

The residents reimburse the connectioncharges to the province over 5 years for a total ofabout $200. Aguas Argentinas also has a specialreduced tariff to make loan repayment affordable.This mechanism was necessary as the com-pany could not change the overall tariff. Fiveprojects are now underway to supply water to127,000 residents.

Another approach is the tax credit agreement,

which is based on a direct agreement betweenAguas Argentinas and the municipality. Usu-ally, Aguas Argentinas has to pay a fee to the

municipality each time it digs a hole in a pub-lic road. This agreement provides AguasArgentinas with a tax credit equivalent to thatamount, which may be used to carry out workin disadvantaged areas. This system actuallymeans that the connection costs are subsi-dized by the Municipal Corporation. AguasArgentinas has to advance the cash, but de-ducts the cost of the work from its tax credit(Lyonnaise des Eaux 1999).

Aguas Argentinas believes the pilot projectshave worked well and can be extended:

We can improve efficiency now we knowhow to do it; we can accelerate progressthrough the new concept of differentiated tar-iff and materials supplied by third parties andthrough education in paying bills. This is veryimportant as low-income households weregiven land free, electricity free, all free.

However, while it recognizes that efficiencyis low and that “the rate of return on the invest-ment is zero or very long term,” the companybenefits from the cross-subsidy of new invest-ments; fewer illegal connections and, therefore,reduced unaccounted-for water; and the long-term benefits of converting consumers of waterand sanitation services into customers. Thecompany reports that its government partnersand the regulator like the idea of a special re-duced tariff, job-creation programs, and serviceexpansion: “We are advancing coverage goalsby 10 years.”

The company has ranked its partnership pro-grams according to participative sustainability,efficiency, effectiveness, and replicability (Table1). It appears that cross-subsidies work best foreffectiveness and replicability. However, thehead of the Low-Income Areas Department saysthat all options have to be included as “partici-pation has a great impact on collection effi-ciency in bad neighborhoods…even though itcosts.” A certain level of participation is always

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needed but can be graded according to the typeof neighborhood.

The company is proposing to formalize twomethods on a contractual basis: the cross-subsidyand the ngo projects, with differential tariffs.The company says that it must adapt to ngopatterns and that ngos should adapt to theneeds of business. The company has learned thata rapid, quick-fix approach is not always best inlow-income areas and that a partnership withngos is the best way to serve low-income clients.

Aguas Argentinas serves an additional260,000 low-income inhabitants (Dehan 2001)through 50 completed projects run by differentkinds of partnerships, and developed the Low-Income Areas Department using the company’sconsiderable experience in meeting the needsof the poor through a variety of approaches.

The company is beginning to meet theneeds of the poor and was rewarded with thesuccessful renegotiation of the connection feein 1997. The fee was reduced to $120, payableat a fixed bimonthly rate of $4 per service andper functional unit served, including vacantlots. The reduction in the connection fee wasachieved by a cross-subsidy through a chargeof $2 bimonthly per lot per service on all cus-tomers. etoss has to verify annually the com-pliance with the expansion plans and, if nec-essary, adjust the value of the charge (AguasArgentinas 1998).

Partners

A regulator must ensure that the private supplierof a basic need does not abuse its monopoly po-sition. etoss is funded by a 2.67% levy on thetariffs, which gives the body independence fromusers and concessionaires. Most of theregulator’s staff come from the former public en-terprise. During the first few years of the con-cession, etoss had to focus on building its tech-nical and regulatory capacity, and to level theplaying field in its relations with the conces-sionaire. During this period, relations betweenetoss and the concessionaire were complexand strained. Since then relations have im-proved considerably, and a more substantiveissue is the degree of freedom allowed AguasArgentinas to meet the goals of the contract.However, accurate, reliable information is notalways available to regulatory agencies. etosssays that Aguas Argentinas information duringthe first 2 years of the concession was “poor, in-complete, and biased” (Mazzucchelli 1999).

Notwithstanding these teething troubles,the partners agree that, in the regulator’swords, “the concession is expansion. If wedon’t achieve that, no success; quality is not soimportant. The only measure of success is theuniversalization of service, the first objective isurban access to services” (Criscuolo 1999).Aguas Argentinas also describes the main goal

Projects Inhabitants Participation Efficiency Effectiveness ReplicabilitySustainability

Participative water service 15 30,000 ++ + ++ +NGO projects 3 6,000a +++ - ++ -Tax credit agreement 10 40,000 + - + ++Employment generating unit 2 20,000 - ++ ++ +Cross-subsidy 20 50,000b - ++ +++ +++Total 50 146,000

– = not applicable, NGO = nongovernmental organization.aSmall but very important as pilot.bMost effective and replicable, considering indirect costs.Source: Dupoux (1999).

Table 1 Conclusions of the 1997/98 Action Plan

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of the concession as expansion and maintain-ing the environment.

By year 5, with 1.7 million more people witha water connection and 1 million with sewerage,Aguas Argentinas was clearly making progressand “meeting all quality goals.” The companyexplains that “we have 30 years to make aprofit—but if we don’t achieve certain financialindicators we will not be able to borrow frombanks.” The company is making a profit andproviding service. In 1997 Aguas Argentinaspaid its first dividend to shareholders, who hadcontributed $120 million in equity funding. The$14 million dividend payment has been main-tained and increased in subsequent years.

ngos, above all, desire social development inits widest sense. iied-al, reflecting on its experi-ence after 5 years of involvement in the watersector, believes that at the beginning of its coop-eration with Aguas Argentinas, low-incomeconsumers had no self-confidence, or faith inthe promises made to them. Trust first had to berebuilt to improve water service. iied-al nowsees how strategic intersectoral alliances can bevery powerful. However, they remain concernedas to how partnerships can be made more effec-tive in the long term and how successful casescan be replicated on a regular basis, not just dur-ing election time.

Conclusions

Buenos Aires is fortunate to have cheap water(because of an abundant nearby source), an in-ternational company wanting to demonstrateits skills in the first major international public-private partnership, world-class ngos, a rela-tively small low-income population in a rela-tively rich city, and a government determined tomake progress. This is not to detract from any ofthe partners’ significant achievements, but torecognize the special characteristics of this casestudy. The key task is to identify and support ap-propriate ngos—without diminishing their“ngo-ness”—and to coordinate the relationship

with ngos within the partnership between thecompany, government, and civil society.

Overall, Buenos Aires represents a public-private-community partnership that has be-come effective and efficient over time and is be-ginning to meet the needs of the poor whileachieving financial sustainability.

Circumstances change, however, and thecollapse of the Argentinean economy with theconsequent dramatic devaluation of the pesohas led to the postponement of the repayment ofproject finance debt by Aguas Argentinas. Thecompany now has to concentrate upon ensuringcontinuity of services to the majority of thepopulation, and the company’s ability to investin serving the poor is likely to be severely cur-tailed. Events today are a timely reminder of therisks involved and a clear signal that to serve thepoor, partnerships must be able to adapt tochanging circumstances so that all partners ulti-mately receive their fair share of the benefits.

References

Aguas Argentinas. 1998. Annual Report 1997, AguasArgentinas. Buenos Aires.

Artana, D., F. Navajas, and S. Urbiztondo. 1999. Gov-ernance and Regulation: A Tale of Two Con-cessions in Argentina. In Spilled Water, editedby W. Savedoff and in P. Spiller. WashingtonDC: Inter-American Development Bank.

Criscuolo, D. 1999. La concesión de los servicios deagua potable y saneamiento, etoss. Unpub-lished presentation to Business Partners in De-velopment Study Visit, Buenos Aires.

Dehan, S. 2001. Extension et Régularisation des Ser-vices dans les Quartiers Défavorisés de BuenosAires. Unpublished. Ondeo Services.

Dupoux, P. 1999. Los barrios carenciados en laconcesión de agua y saneamiento de BuenosAires, Aguas Argentinas. Unpublished presen-tation to Business Partners in DevelopmentStudy Visit, Buenos Aires.

Mazzuchelli, S., and M. Rodriques Pardinas (in col-laboration with M. Gonzalez Tossi). 1999. Pri-vate Sector Participation in Water Supply andSanitation. In Buenos Aires: Realising Social

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and Environmental Goals, edited by N.Johnstone, L. Wood, and R. Hearne. Environ-mental Economics Programme, iied DiscussionPaper, London: iied.

Schusterman, R. 1999. Private sector participationin the provision of water and sanitation to low-income settlements, iied-al. Unpublished pre-sentation to Business Partners in DevelopmentStudy Visit, Buenos Aires.

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THE SECOND MAJOR case study from outsideAsia considers divestiture: the total sale of assetsof water and sanitation utilities, in England andWales, United Kingdom (UK).1 Although theUK is a high-income country, many aspects of itsexperience in forming partnerships betweengovernment, customers, civil society, and theprivate sector are instructive. Perhaps the firstpoint to note is that Scotland and Northern Ire-land, also part of the UK, have very different in-stitutional models for water supply, with a muchmore restricted role for the private sector.

The Government-owned infrastructure inEngland and Wales was rundown and starvedof investment. Water users knew that the waterquality was inadequate, although the statisticsdid not always support this belief, and, withmore reason, knew that the environment wassuffering. Civil society was—and still is—deeplyskeptical of private sector involvement in theprovision of such a vital basic need. The per-ceptions of the partners can be an importantfactor in the process of any partnership.

Serving the poor was not a key driver in theprivatization of water and sanitation in En-gland and Wales. The reform was designed tomeet various political goals as well as to deliverbetter water supply and wastewater disposal, asrequired by the new European Directives, with-out affecting the public sector borrowing re-quirement. However, the case of England andWales demonstrates how important the needsof the poor and the vulnerable became as the

process developed. The case also demonstrateshow it is possible to adjust partnerships signifi-cantly, through regulation and license amend-ments, long after contracts have been signed.

The privatization of water and sanitation inEngland and Wales has continued to evolve.The balance of power and benefits between thevarious stakeholders continues to change as thesociopolitical culture evolves under pressure fromconsumer demands, environmental legislation,and political change. The privatization is stillhighly susceptible to new stakeholder pressures asevidenced by several successful nongovernmentorganization (ngo) campaigns against it and by anincoming government wanting to make good onits criticisms developed when in opposition.

Regulating the Big Sale

The regional water authorities were establishedin 1972 with integrated river basin mandatesto undertake all aspects of water resources:water supply, drainage, wastewater treatment,flood control, and sea defenses. The establish-ment of these authorities rationalized the exist-ing network of over 1,000 municipal serviceproviders, which had evolved over the previouscentury. However, the water authorities were“poacher” as well as “gamekeeper” in that theycould prosecute themselves for breaches of, forexample, discharge consents from wastewatertreatment works to surface water. Not surpris-ingly, prosecutions were rare.

Privatization brought this issue to the foreand the National Rivers Authority (nra) wascreated. (It has been subsumed within the newEnvironment Agency.) nra, as the environ-mental regulator, was responsible for regulating

England and Wales: Divestiture

1 The figures are taken from R. Francey’s presentations as amember of the Central Customer Service Committee to thewater regulator in preparation for the 1999 Price Review,based primarily on data from Ofwat Reports.

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water resources, river management, flood con-trol, and sea defenses, leaving drinking watersupply and wastewater management to theprivatized companies.

With the monopoly companies to be sold offcompletely—although operating under a 25-year license—economic regulation becamenecessary. The Office of Water Services (Ofwat)was established. It is relatively independentfrom the central Government and funded by acharge on the private water companies. Ofwat’sprimary responsibility is to ensure that the pri-vate companies could finance their water sup-ply and sanitation responsibilities while achiev-ing operating and capital efficiencies below aprice cap, under the “sawtooth” principle ofincentive-based regulation. Any increase in“excess” profits—the just reward of companiesthat outperform regulatory expectations of effi-ciency gains—is shared with customers at theend of each incentive period, when profitabil-ity is reset to the presumed cost of capital. Prof-itability is, therefore, expected to rise and falllike the teeth of a saw (Figure 1).

The Government had to set the initial pricecap before privatization and the establishment of

the economic regulator. Companies were obligedto produce asset management plans, detailingcondition and serviceability of their existing fixedassets along with costed requirements for new as-sets to achieve revised outputs. To convince thefinancial markets—and the future chairs of theprivatized utilities—that the companies were vi-able and, therefore, saleable, the Governmentagreed to write off a substantial portion of thecompanies’ debts worth $9 billion. The Govern-ment also set a generous price cap under the “in-flation index + K” formula, where the “K factor,”an average of 5.3% at privatization, allowed in-creases for quality improvements as well as de-creases for efficiency savings.

As explained by the water regulator, “We satin the Treasury and thought, ‘How much savingcan we get out of telecoms or electricity?’ Weknew they were overstaffed and thought thatmaybe we could get 10–20 percent staff cuts. Wenever believed we could get 50 percent” (Byatt1998). Nobody could predict how efficient theprivatized companies could be once they hadbeen set free to manage the utilities.

The private water companies started with alarge capital spending program ($58 billion overthe first 10 years with another $20 billion tocome in the third 5-year period) (Ofwat), whichthey set about with determination and efficiency.Of relevance to other countries is that this capi-tal works program was funded not from sellingadditional shares on the stock market or fromborrowing large amounts, but from cash flow.The initial fixing by Government of generousnew price limits and the surprisingly large effi-ciency gains gave the companies all the funds forinvestment they initially needed. The companiesbenefited from an unanticipated recession in theconstruction industry, which led to a 20% fall inthe construction price index relative to the retailprice index (Helm and Rajah 1994).

Besides building fixed assets, the companiesbegan to remodel themselves as customer ser-vice organizations. Many of their staff membersstill had a “local council mentality.” Investing in

Figure 1 Return on Capital Employed Relative toNotional ‘Sawtooth’ Profit Profile

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training and information technology was neces-sary at the same time as rationalizing operations(closing local depots, running works un-manned) and cutting staff. Some companiesalso began to diversify into other activities to es-cape regulatory control, although without anyearly profitability (Ogden and Glaisster 1996).

Overall these changes have improved waterquality and customer service tremendously andmade wastewater treatment increasingly efficient.Oake (1999) of Thames Water commented:

…vigor, enthusiasm and a drive for efficiencyhave replaced the lackluster performancethat was all too common when water was inthe public sector. Successive governments’reluctance to fund essential capital worksand environmental improvements had put adeadening hand on the water industry, caus-ing a rundown in the infrastructure of whathad once been high quality publicutilities…Privatization has transformedinvestment…It was a major issue and therehas been a big transformation.

Prices had to rise and, although still un-popular with consumers, privatization ap-peared to be delivering benefits. The regulatorhad to institute many systems to monitor thatprogress, including the details of transfer pric-ing between companies within the samegroup, to know how fair such transfers were toexternal competitors. Initial annual reports ofthe regulator were minimal compared with thehundreds of pages that became normal 10years later. Ofwat has always proclaimed itsbelief in light-handed regulation, explainingthat regulation only costs the customer $0.40per person per year (Ofwat). The 25 watercompanies that have to supply the informa-tion to Ofwat believe it is more, costing onecompany (Wessex) more than $5.50 per per-son per year by their estimation. However,Ofwat used this information to promote theconcept of “comparative competition,” using

the data to show up one company against oth-ers as a way of forcing improvements.

The Government established 10 regionalcustomer service committees (cscs), underOfwat control, to give customers a voice. Withparttime independent chairs and a dozen volun-teer members, each committee began to workout its own role. Supported by Ofwat, which al-ways promoted customer involvement, the cscs

actively questioned the performance of privatecompanies in serving all their customers, actedas a place of appeal for customer complaints,and audited private companies’ customer com-plaint procedures. cscs pressured the compa-nies to behave like public service organizations,albeit with a profit incentive.

Crisis and Response

Within a couple of years of privatization, troublestarted with a drought in 1992 (which would not

The economic regulator has a statutory duty tolisten to the customers through the customer ser-vice committees. The CSCs also have a major rolein auditing complaints procedures and acting as apoint of appeal against private company complaintsprocedures. The Central CSC is obtaining compen-sation costs for customers as a result of appealsagainst company errors in excess of thecommittee’s staffing and running costs. In the Cen-tral CSC’s view (January 2000) privatization “hasbeen a move forward” and “the standard of serviceis unbelievably better.” But the agency also said thatit is “not totally convinced by privatization”; “thecompanies were sold off too cheap; the originalprice setting was wrong, the first price review got itwrong, now we hope it is right”; and “try and sort outregulation first, otherwise you are always learningas you go along.”

In 2002, the CSCs were renamed WaterVoice tomake them more independent of Ofwat and poten-tially more accessible to water customers.

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have been recognized as a “drought” in manyparts of the world) that coincided with a sig-nificant rise in disconnections for nonpay-ment. Clearly, the poor were responding tohigher prices in an economic recession. Waterbecame dramatically politicized. Customersthought the water was of poor quality, tastedbad, and was too expensive (although the ex-pensive bottled water they bought, by somemeasures of a poorer quality, lost to tap waterin blind tasting). At the same time, there was adebate over generous salary increases for di-rectors of privatized utilities.

The regulator held the first price reviewbut, rather than clawing back all the impres-sive efficiency gains as promised under“sawtooth” price capping, he allowed the costof capital to shrink from its average 12% peakto its target rate of about 6% over a 10-year“glide path” (Figure 1). This gentle reductionin profitability quickly came to be seen asoverly generous. In fact, it probably repre-sented $5 billion more profit to the water com-panies over the following 5 years. Regulationis very difficult to get “right.”

Meanwhile the media were portraying itsown version of events. The box, “Water andPoverty in the UK,” transcribes a conversationwith a poor household, which was included ina television documentary in 1993. Althoughthere was a time lag of 4 years before changeswere introduced by a new government, thepressure that civil society exerted on the pro-cess through such programs was significant.

The private water companies responded tothe political climate and dramatically reduceddisconnections, if only to look better in the an-nual comparative figures Ofwat was publishing.But it was the combination of a second embar-rassing drought—which led to one companyhaving to hire every suitable tanker in the coun-try to transport water to a rapidly emptying res-ervoir—and the threat of having standpipes inthe streets coupled with ever-rising prices whichled to regulatory tightening.

The incoming government charged a “wind-fall tax” on all privatized utilities, which fellhardest on water, and demanded free metering(eventually enforced by legislation, includingthe right to reversal to unmetered supply if me-tering proved more expensive); free leak repairson customers’ premises; and the banning of do-mestic disconnections.

Nick Blandford is a refuse worker with Roches-ter City Council in Kent. Even in the era of plasticbags it remains a dirty job. One consolation after aday handling other people’s garbage is the thoughtof a long, hot bath. But one Tuesday earlier this yearhe was in for a shock when he got home. His wife,Rose, a part-time cleaner, had been off work after ahysterectomy, and their income had droppedsharply. They had failed to pay a £253 water bill andSouthern Water had decided “enough was enough.”

“They just turned up and said the water was offbecause of nonpayment of the bill. And there wasn’ta lot I could do as I have just been off work for threemonths—no money coming in, only my husband’s,which is a dead-set wage, doesn’t vary at all. I wentround to John next door—I was in tears and told himwhat had happened and he sat me down and offeredto supply water. When we needed it John filled up afive gallon drum with water and also three big buck-ets which he passed over the fence and I carried intothe house.” That went on for three days until South-ern Water were persuaded to turn them back on.

Rose Blandford, who was forced to carry heavybuckets after a major abdominal operation, remainsbitter about Southern Water: “I think they are reallylow to have done such a thing to anybody, not onlymyself, but that could have been someone with chil-dren or a pensioner. It is not very nice.” In a state-ment Southern Water said it cuts people off only af-ter an extensive procedure; that it keeps a “SpecialNeeds Register”; and reconnects most homeswithin 24 hours.

Source: Panorama Lifts the Lid on “Water, Profits and Poverty,” BBC Televi-sion, 1993.

Water and Poverty in the UK

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What was meant to have been a price reviewlasting for 10 years was shortened to 5 years. Theasset management plans and the companies’ busi-ness plans for the second price review became evermore detailed such that one company com-plained that the regulator had to hire a consult-ant to summarize it into a workable document.

It is clear that as privatization continues, thecompanies suffer (albeit having made hand-some profits) from being in a telegenic industry,which is a gift to the media. All it needed wasfor the largest ngo in the country, the Royal So-ciety for the Protection of Birds, with its 1 mil-lion members, to weigh in on the side of the en-vironment, complete with opinion polls “prov-ing that customers did not want price cuts butrather to give the efficiency savings to the envi-ronment,” and there was no option. The Ofwatnational customer committee could only affordto respond with a limited survey of less than 50poor households, who said they would preferlarger price cuts. Ministers, as is their right un-der the legislation, “advised” the economicregulator to accept all the recommendations ofthe environmental regulator.

Following 10 years of privatization, Ofwatwas able to announce an average price cut of12.3%—“sawtooth” profitability at last—to befollowed by relatively stable prices along with asignificant increase in environmental spending.Most of the partners were relatively happy, ex-cept perhaps the companies that had toachieve greater operating and capital efficien-cies. Their shareholders had received 11–16%per annum real returns since privatization andcould not complain too much, even thoughthey had just seen their share price halve. Allthis was possible for an average domestic tarifffor water and sanitation of $360 per householdper year (fallen from $410 after the 1999 pricereview), representing 1.2% of average in-come—a clear “win-win” situation.

What more could any government want?The utility offers world-class service at less-than-average European prices with the opportunity to

turn the screw tighter whenever it wants; high-quality services; environmental reparation forthe “past 200 years of underinvestment”; and anew system of charging to protect vulnerablecustomers paid for by a cross-subsidy withinthe industry, avoiding what could reasonably beseen as a charge to the Government’s social secu-rity budget. If anything does go wrong the Gov-ernment can continue to blame “privatization,”the policy of the previous political party in power.

Benefits to the Poor

The first regulator, Ian Byatt, was always awareof the wider issues of water privatization, stat-ing that “while regulation has clearly deliveredin economic terms, there are a number of socialissues which have met with varying degrees ofsuccess” (Byatt 1997).

Through guidelines issued to the companiesin 1992, the director general of Water Servicesbrought the number of disconnections down topreprivatization levels. The regulator observed:

It was necessary to push the companiesinto much better procedures and better pay-ment methods for customers who have diffi-culty in budgeting. The fact remains thatthere are some customers who cannot affordto pay their bills—and they need a sympa-thetic approach by the water companies(Byatt 1997).

Some private companies experimented withprepayment water meters, which allow use ofwater over a fixed time period (not based onvolume). Poor customers seemed to prefer tobudget for their water this way, although somereportedly had to store water in baths andbuckets to tide them over until they could af-ford to pay for the connection again. However,after appeals by local councils to the courts,prepayment meters were declared illegal as theycaused disconnection without due consider-ation by the companies and welfare authorities.

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Now that the private water companies have noright to disconnect, several of them have set upcharitable trusts, funded by donations from thecompanies but managed independently. Poorcustomers who run into debt are referred tothese trusts for financial support, which is aworthy development.

To help the poor, companies have adoptedmuch more flexible payment systems that allowcustomers to pay small amounts weekly ormonthly rather than twice yearly. The compa-nies have also established “PayPoint” terminalsin small shops, where the poor can pay smallamounts without expensive bank charges.

In response to the demands of the newlyelected Government, the poor sick benefit froma reduction in metered water bills if they have aprescribed illness that demands higher wateruse. The poor also benefit from the ban on do-mestic disconnections, although it is uncertainwho “won’t” and “can’t” pay. This leads to per-verse incentives such that some Department ofSocial Security offices give priority to welfarepayments to pay for electricity and gas bills, andsome Citizen’s Advice Bureaux are reportedlyrecommending that users pay their cable andsatellite television bills before their water bills.

Of continuing concern is that the poor pay-ing the most common fixed tariff (based onproperty values, Figure 2) also pay higher-than-average price rises due to the effects of rebalanc-ing on the “tariff basket.” Although known asregulation by price cap, it is, in effect, a revenuecap: companies can claim within their “cap” tomake up for the higher-income customers whopay cheaper rates through metering of actualvolume used. It is impossible to achieve a “per-fect system”: there will always be winners andlosers, and those who win with some adjust-ments appear to lose with others. In the mean-time, the poorest in one region, whose real in-comes were static, have suffered real price in-creases of over 60% since privatization.

The new water regulator continues to considerthe extent to which “the generality of customers”

should have to pay for some environmental ben-efits. About alleviating low flow in rivers, PhilipFletcher asks: “What about the effects on thosewith below average income, who will often co-incide with those who have least access to theareas of water concerned?” (Fletcher 2001)

Conclusions

Public-private partnerships can be a lever toimprove services, and contracts can be ad-justed after they have been signed, particularlywhere lobbying is a powerful tool. The price tobe paid however, is reduced regulatory free-dom, and a sense of diminishing returns as thecompanies lose their high profits and, thus,their freedom to maneuver.

Divestiture in England and Wales has deliv-ered high-quality services. The private waterproviders have become extremely efficient af-ter cutting jobs significantly and focusing uponoutputs in the capital investment programrather than budgeted inputs. The regulatorysystem has made divestiture highly transparent,with reams of information available and publicmeetings held regularly to question the compa-nies on behalf of the customers.

Figure 2 Increase in Real Unmeasured WaterPrices Relative to Incomes of Households Belowthe Average

Severn Trent (SVT) and South Staffs (SST) water prices in real terms,relative to incomes of households below the average (1990 = 100)

Source: Office of Water Services and Office of National Statistics.

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However, to what extent improvement inservices and the environment is possible to rep-licate in an economy where average annualhousehold incomes are $1,000 rather than$34,000, is a different issue. Most important, isprivatization equitable? The ban on disconnec-tions and the limits on tariffs for vulnerable cus-tomers are equitable, but not the overall pricethe poor pay, partly to fund environmental ben-efits beyond their consideration, partly to rebal-ance the tariff basket as the rich benefit fromsavings through metering. However, the systemhas always been willing to evolve. If the nextgeneration of television programs starts show-ing bailiffs entering poor homes and removinghousehold goods because of unpaid bills forwater and the environment, then we can expectto see the regulatory process adapt again.

References

Byatt, I. 1997. Taking a View on Price Review. APerspective on Economic Regulation in theWater Industry. National Institute EconomicReview 159 (January).

Fletcher, P. 2001. Regulating for Sustainability.Speech given at Wessex Water Forum for theFuture, 7 November. Available online:www.ofwat.gov.uk.

Helm, D. and Rajah, N. 1994. Water Regulation: ThePeriodic Review. Fiscal Studies 15 (2).

Oake, R. 1999. In Aqua vitae, Privatised Water: thefirst decade, New Civil Engineer supplement,London, November.

Ofwat. Various years. Available online:www.ofwat.gov.uk.

Ogden, S. and Glaister, K.W. 1996. The Cautious Mo-nopolists—Strategies of Britain’s Privatised Wa-ter Companies. Long Range Planning 29 (5).

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