Decentralization of Infrastructure

1. Decentralization of Infrastructure 1. Overview of Decentralization Issues - Christine Kessides (INFUD) 2. Rural Infrastructure - Christina Malmberg Calvo (EASTR) 3. Urban Development and Decentralization in Africa - Catherine Farvacque-Vitkovic (AFTU2) December 18, 2000

2. Issues pertaining to Decentralization of Infrastructure • 1: What are criteria determining the need for government role in infrastructure? • 2: If public policy intervention is justified, for what functions? • 3: By what level of government?

3. Characteristics of infrastructure that determine the role of markets and role of public policy in provision • Public vs. Private nature of good/service • Impact area/benefit area and externalities • Conditions for natural monopoly - economies of scale, sunk costs of investments • Equity issues - ensuring a “socially desired level of consumption” • Technical coordination requirements - especially for physically networked services • Information requirements for users and producers

4. Infrastructure is very heterogeneous by type of service….Economic Characteristics of Infrastructure Goods & Services (i) Subtractibility ( Congestibility) High Low High PRIVATE GOODS TOLL GOODS * Tertiary water & sanitation systems(vendor- * Piped water supply (primary & sec’y dist.) supplied water, latrines) * Piped sewerage & septic disposal systems * Land title * Sanitary landfill (solid waste disposal) * Housing & construction materials * Rail, port and airport facilities* Telecommunications Excludability * Solid waste collection * Electricity transmission /distribution * Bus transport COMMON POOL GOODS PUBLIC GOODS * Rural roads * Urban roads * Storm drainage * Groundwater & surface water * Street lighting * Sidewalks, footpaths Low * Community centers and Parks

5. . . . Network Features and Externalities are more important for policy than Scale EconomiesEconomic Characteristics of Infrastructure Goods & Services (ii)(“High” rating indicates a larger role for public policy)

6. In LAC, Decentralization Status and Trend Varies by Subsector(Subnational over total government expenditures, in percent) 100 Waste Collection 80 Urban Street More Decentralization 60 Urban Transport 1996 Water 40 Secondary Ed Health Less decentralization Housing Primary Ed Irrigation University Highway 20 Power Hospital Police Port Nutrition Gas Pipeline Airports Telecom Rail 0 20 40 60 80 100 1985

7. These characteristics determine if government role is needed in: • Planning/design, • Production (investment or O&M), • Finance, • Regulation/policy setting by each type of infrastructure... • and if so, what level of government?

8. Implications for “Who Does What”: • Decisions on What is to be provided (demand) and How (choices of supply options or service levels): • For services with mainly private impacts - individuals/households choose and pay prices/user charges • For services with mainly neighborhood-level impacts - local community group (or its agents) should plan and finance (e.g. through local benefit taxes/levies or user charges) • for services with inter-community / citywide impacts - local gov’t or regional agencies must plan investments, ensure technical/system coordination, and organize financing • Fiscal transfers (from national govt to local, local to community, or to households) may be justified (to ensure minimum essential service levels, counteract externalities, correct for high start-up costs, etc.)

9. Summary of issues/lessons regarding impacts of decentralization of infrastructure: • Responsiveness to user demand (and to serving the poor, in particular) ? • Depends on accountability of decision-making agency- Does it just speak for local elites? - If local gov’t, is it responsive to all constituents? - Is the assignment of responsibilities among agencies/levels of gov’t. clearly defined? • Financing mechanisms should create incentives to meet user demands as much as possible (importance of pricing or local cost-sharing)

10. Efficiency of production? • Easier for a decentralized provider to manage investment function (new construction) • Service delivery (O&M) is most challenging to weak managerial/organizational capacity -- and requires predictable financing sources • Contracting-out to private enterprise can help, but also requires oversight/contracting capacity (and adequate controls on corruption)

11. Even if responsibilities are devolved, higher level of gov’t may need to provide training, technical support, procedural guidelines, performance benchmarks, etc. to strengthen institutional capacity of local provider • Local providers can also organize among themselves to share capacities and resources (e.g. “delegating upwards” to pool some regulatory functions) • Importance of retaining system coordination and monitoring functions: to ensure network connectivity, permit economies of scale, and for tasks affecting multiple jurisdictions.

12. Key Implications for CDD in Infrastructure: • WHO should provide each TYPE of infrastructure services and AT WHAT LEVEL : depends on the scale, impact area, network/coordination requirements, externalities - - Often requires sharing of financing + regulatory responsibilities across levels (C / MG / DG / CG). • Community can act as “lowest Local Gov’t” for its members - but good results still require addressing needs for accountability, appropriate financing mechanisms, network coordination/connectivity, and organization. • If community acts “like a gov’t” for local public goods, it must be legally, formally constituted to collect resources, own assets, and constrain actions of members.

13. If Community providing public-type goods or services with spillover effects or financial implications for other levels of gov’t - must be fit within public budgets and sectoral regulatory frameworks. • Even if responsibilities are devolved to Community level, it may need to “delegate upwards” (e.g. to a Municipal Government or broader association) or contract with private sector to actually deliver and monitor the services efficiently. I.E., CDD does not escape from need for good intergovernmental and sectoral policies

14. Rural Infrastructure: An example from the rural road sector Christina Malmberg Calvo

15. Rural Infrastructure services (RIs) • RIs are heterogeneous (energy, telecom, transport, water) but there are cross-cutting themes (decentralization, private sector, capacity bldg, etc.) • Inst’l arrangements depend on: i) the nature of service - one size does not fit all ii) local context - the existing inst’l env’t matters Nonetheless, inst’l arrangements must meet 3 criteria: i) appropriate level of decentralization ii) appropriate reliance on private sector iii) accountability • Gov’t (central and local) & communities play complementary roles.

16. Example: Rural roads • Roads are networks • Focus on inst’l arrangements for local gov’t roads, and community roads and paths • Nature of service & context req. different arrangements for management & financing • Role to play by all levels of Gov’t incl. Communities, and CBOs

17. Local gov’t roads • Management entrusted to LG:s + know local priorities, can intervene timely - weak techn’l capacity - can be solved • Financing + can stretch avail. $ thru selective interventions - weak resource base - need devolution & innovation • Tension btw + proximity & - capacity (managerial, financial, technical)

18. Community roads and paths • Managed by communities (community roads associations) + efficient - a stitch in time - weak org’l & techn’l capacity - can be strengthened • Financing CR and paths + cost-sharing stretches avail. funds & signals priority - little exp. w/managing cost-sharing for maintenance • Int’l experience signals that legal ownership is critical

19. Zambia: Government, Social Fund and Nat’l Roads Board • LG/District roads: • local gov’t decides on priorities • central gov’t finances capital works (ROADSIP) • road fund (national roads board) finances maintenance (cost-sharing not yet worked out) • Community roads and paths • social fund finances portion of capital works on community road and paths (SRP & ROADSIP) • road fund finances portion of maintenance (25%)

20. Guatemala: 13 rural councils join to procure road management • Each council too small (50-250 km roads) and too poor to have sector expertise • Jointly 13 councils have 1,300 km of local roads • Established association of 13 councils to jointly address common issues • Procure planning and contract management services from private firm - strengthen council’s capacity to be informed client

21. Concerns (and challenges) • Sustainability (of improved RIs) • Replicability (can pilots/area approaches be scaled up at nat’l level?) • Governance (accountability, transparency) in decision-making, mgmt, financing • Poverty reduction: RIs can increase ec.opportunity, improve capabilities (educ., health), facilitate empowerment, reduce risk & vulnerability. • That poor people can access RIs - exclusion related to HOW RIs decisions are made & governed

22. Lessons from experience • Role to play for gov’t, communities & CBOs • Clarity in roles - ownership, mgmt, financing • Depending on type of RIs, participation form varies (consultation in LG owned infra, ownership and mgmt of community owned infra) • Legal, policy and strategy env’t key - clarity thru rules • Consistency in interventions

23. URBAN DEVELOPMENT AND DECENTRALIZATION IN AFRICA Challenges and Opportunities for Community Driven Development Catherine Farvacque-Vitkovic (AFTU2)

24. MAJOR CHALLENGE OF TODAY AND TOMORROW • High Urbanization Rate • -- Africa = 80% rural at Independence • = 40% urban today • By 2020, 63% of population in West Africa will live in cities • Increasing Growth in Urban Poverty • This raises issues of SCALE plus SUSTAINABILITY. • How can we keep up with demand and reduce shortages in • basic services and infrastructure?

25. SPECIFICITY OF URBAN AREAS AND IMPLICATIONS ON CDD • Body of Elected Officials and Local Government institutions • in place • Legal framework for roles and responsibilities of municipal governments in place • -- Local Government code clear definition of • services and infrastructure falling under the responsibility • of municipal governments • Typically, municipal services include: • (a) Infrastructure: roads, drainage, street lighting • (b) Social facilities: primary health centers, schools and • community centers • (c) Administrative facilities • (d) Commercial facilities: markets, bus stations • (e) Solid waste management and street cleaning

26. SPECIFICITY OF URBAN AREAS AND IMPLICATIONS ON CDD • Budgetary process in place: important to keep CDD on budget and not off budget • Necessity to be coherent with trunk infrastructure • Necessity to be coherent with national programs (i.e., health and education maps and staffing policies) • Necessity to keep standards low

27. IN SUMMARY Institutions matter: Do not bypass local institutions Impact on budget matters Linkages in the chain of service / infrastructure delivery matter Sound programming of priority projects, sound finances, reliable implementation procedures (procurement and execution of works), appropriate maintenance arrangements matter BOTH IN URBAN AND RURAL AREAS

28. HOW IS THIS TRANSLATED IN THE NEW GENERATION OF URBAN DEVELOPMENT AND DECENTRALIZATION PROGRAMS? • Fifteen (15) years of World Bank experience in municipal development / decentralization have confirmed the recognition that local communities, through their local governments, are better equipped to grasp local needs and to make the extra effort for sustainable improvements at the local level. • Recent projects in Africa are leading the way: Senegal, Mauritania, Guinea and new projects are in the pipeline in Mozambique, Cote d’Ivoire, Nigeria and Uganda.

29. ONE EXAMPLE OF A PARTICIPATORY BOTTOM-UP PROGRAM: THE UDDP IN SENEGAL • A US$100 million program targeted at all 60 municipalities in Senegal. • Project preparation has involved consultations with all parties: The price to pay is time. • Project implementation is carried out entirely by local staff with the support of frequent, intensive, and regular World Bank missions: The price to pay is money. • Accountability of communities through local governments is key ingredient.

30. SENEGAL UDDP: INNOVATIVE INSTRUMENTS • Objective: Get baseline information on existing level of infrastructure and services, patterns of urbanization, pockets of poverty, municipal budgets, municipal organization, community group representation. • Urban Audit (municipal level): Draws a diagnosis of the city’s needs in terms of infrastructure and services, identifies and quantifies gaps, and defines a coherent set of priority sub-projects that fits the demand as expressed at the local level, the value of which corresponds to the budget envelop determined by the Financial Audit: PIP and PEP. • Financial Audit (municipal level): Determines the city’s financial capacity and therefore the value of investments to which it can aspire as well as the adjustment measures the city is willing to take to improve its management and finances: MAP.

31. SENEGAL UDDP: INNOVATIVE INSTRUMENTS • Objective: Community based programs are by definition “evolving products” - NOT all investments are known at appraisal. However it is crucial to determine up-front eligible categories of sub-projects/investments. • Catalogue of eligible community/municipal sub-projects has been designed with 2 goals -(a) To help communities/municipalities make an informed choice; and(b) Prevent cost overruns • Municipal Contracts: The results of the audits (Priority Investment Programs, Maintenance Programs and Municipal Adjustment Programs) are confined in a Municipal Contract, a binding agreement between the municipality, the central government, the funding agency and the executing agency.

32. SENEGAL UDDP: INNOVATIVE IMPLEMENTATION ARRANGEMENTS • From AGETIP to UDDP = The BridgeImportant questions are being addressed: • Are we financing what should be financed? • Do these investments meet priority needs? • Are procurement procedures transparent and speedy? • To what extent are community groups and municipalities involved in the selection, financing and maintenance of projects? • To what extent are projects sized to local/municipal financing and management capacity? • The way to the future: A clearer articulation between the decision- maker in the selection of projects, the financial intermediary and the executing agency.