Improving WSS Services in Small Towns: Engaging the Local Private Sector

Improving WSS Services in Small Towns: Engaging the Local Private Sector R. Mukami Kariuki, World Bank IWA Congress, Beijing China, September 10-13 2006

Overview • The Context: rapid urbanization in developing countries • The Challenge: highlights from 2000- 2005 • Lessons from recent experience: working with Small Towns • Engaging the Local Private Sector • Priority Actions: Scaling up Small Town WSS

The Context: Rapid Urbanization • In 2007 the world’s urban population will surpass rural population • Ninety five percent of this urban population will reside in developing countries • Most urban dwellers will reside in settlements with less than 500,000 people • 25% by 2000 will double by 2015 • WSS coverage levels are typically lower in smaller settlements – under 100,000 Ref: UN Habitat, Meeting Global Goals in Small Urban Centers: Water and Sanitation in the Worlds Cities

2007

Population in Select Cities: Kenya 32,431

Addressing the Challenge…/1 • Alarm raised at Global Small towns conference (2000) - impetus for change. • Water sector reforms – prioritization and funding, appropriate management models. • Decentralization – service delivery role, some autonomy in decision making. • MDGs – renewed effort to raise coverage levels – water, sanitation, slum upgrading • The financinggap – fiscal decentralization, access to local finance, performance based “settlements under 100,000 have the lowest coverage, but receive 13% of ODA for WSS”. UN Habitat

Addressing the Challenge…./2 • Forward planning - Monitor rapid growth rates, plan for overall development of infrastructure and services • Design and technological innovations for low density fast growing areas – phased design, demand responsive, options - on-site/piped, • Access to financing for infrastructure and services – generate revenue locally, leverage private capital, target the poor (subsidies) • Professional capacity inadequate for numerous and dispersed centers – aggregate, pool professional support, framework (regulate)

Experience: Four main institutional arrangements • Cooperatives and WUAs, rural growth centers, multi-village schemes, towns • Commercialisation and ring fencing of town WSS departments • National or Regional PSP – large contracts for all towns up to a certain class • Local PSP – small contracts for one or more towns, local service provider

World Bank Projects with Local PSP in WSS: Trends 1995-2005

Summary of key features • Contracts blend features of BOT, management, lease and/or concession contracts • Focus is on urban settlements between 5-30,000 (lower limit 1,000 upper limit 400,000) • All projects organize training for government staff, potential operators, other stakeholders • Most projects included a pilot phase to test and modify solutions • All contracts were competitively bid – limited bidders in some cases

Taxonomy of Local PSP in WSS Privately financed, publicly managed Privately financed, privately managed Publicly financed, publicly managed Publicly financed, privately managed 100% 50% DBO contract Cambodia 25% BO contract Paraguay Investment financed by private sector 10% BOI contract Colombia BO contract Colombia DBL contract Cambodia 0% O&M contract Uganda O&M contract Philippines DBL contract Philippines Design, build, own & O&M Bill & collect Operate & maintain Build, operate & maintain Design, build,O & M Main management functions taken by private sector

Key Features

Key Lessons • Models blend features of “traditional” PSP contracts – neither BOT nor lease, etc • Contract should be tailored to local context, and risks linked to rewards. • Contracts should be simple but complete – local private operator often subjected to undue risk. • Well-developed legal/regulatory framework is not essential – contract as regulatory tool • Local POs understand local context, have lower perception of risks than outsiders. • Limited financial capacity— ensure access to finance, assess need for subsidized investment finance.

Key Lessons (cont.) • Need to promote and foster the emergence of local private operators – construction firms dominant • There is a trade-off between qualification criteria and promoting competition. • Need to promote economies of scale – aggregate service areas, develop common source, cluster professional services. • Importance of community involvement during preparation and design phase – consumption, tariffs, service options. • Need to clarify and simplify oversight roles, and strengthen local capacity. • Need to study other experience, simplify and refine procurement processes.

Priorities for reform of Small Town Water Supply and Sanitation • Adapt national policy/legislative framework • Implications of decentralization agenda, regulation at lowest appropriate level, financing mechanisms, subsidies, standards • Identify “local characteristics” and and work with local actors • Preferred institutional arrangements, enable access to finance, assess local private sector capacity • Create incentives for towns to undergo reforms • Performance monitoring/benchmarking, conditional access to finance, introduction of performance based contracts, • Address sanitation needs of small towns - • Differentiated: low density areas on the periphery, high densities in the core, incremental upgrading, technological innovation • Plan for urbanization – rural-urban growth strategies • Forecasting and planning for future growth, trends in economic growth, population distribution (rural-urban linkages)

Thank You Detailed information is available on http://www.worldbank.org/

Improving WSS Services in Small Towns: Engaging the Local Private Sector