Overcoming Obstacles to Serving the Urban Poor in the Water and Sanitation Sector

1. Overcoming Obstacles to Serving the Urban Poor in the Water and Sanitation Sector Patricia Veevers-Carter, GPOBA World Water Forum Istanbul, March 2009

2. Outline of Presentation • Obstacles to be addressed: • Appropriate Investment Finance, Cost-Recovery & Subsidy Policies • Give the Poor a Voice / Land Tenure / Eliminate Administrative & Legal Barriers • Strengthen & Regulate Service Providers • Advice on structuring schemes

3. Appropriate Investment Finance, Cost-Recovery & Subsidy Policies • Possible solution: Output Based Aid (OBA) => • A method for improving the deliveryof basic services – such as water, electricity and health– when the inability of users to pay full cost justifies performance-based subsidies to complement or replace user fees. • Services are contracted out to a third party, which could be a private or public provider, NGO or CBO. • Service providers are - for the most part – re-imbursedafter delivery of the (pre-) agreed output. • Sources of subsidy funding are generally from public sources, such as taxes, ODA and foundations funding.

4. OBA – Core Concepts • Targeted Subsidies=> transparency • Payment on Output Delivery=> accountability • Innovation and Efficiency=> value for money • Mobilization of resources=> more investment servicing the poor • Monitoring and Independent Verification=> internalizes tracking of results • Sustainability=> focus on affordability, cost recovery and future source of funding

5. Typical OBA project structure demonstrates how core concepts are applied Municipality Financial Intermediary OBA Fund Subsidy (4) Independent Verification Agent (3) Accountable Provider Pre-finance Output Delivered = Connections installed, service delivered (2) Targeted poor communities not yet connected (1) Workshop: Output-Based Aid Approaches

6. Outline of Presentation • Obstacles to be addressed: • Appropriate Investment Finance, Cost-Recovery & Subsidy Policies • Give the Poor a Voice / Land Tenure / Eliminate Administrative & Legal Barriers • Strengthen & Regulate Service Providers • Advice on structuring schemes

7. Give the Poor a Voice =>Kenya Community Water

8. Give the Poor a Voice =>Kenya Community Water • Obstacle: The voice of the poor often is not heard, and misperceptions about the poor persist • Solution: work closely with community based organizations (CBO) • Example: Community-based Water Supply Projects with Micro-finance in Kenya - • OBA subsidies available to CBOs combined with micro-lending by a local bank • Community actively engaged in project design and structuring for efficiency and sustainability • Transfer of pre-financing and performance risk to CBOs • Poor households heard, engaged, reached and served!!!

9. Kenya Community Water • Objective: Pilot 21 community based water schemes in rural and peri-urban areas in Kenya, working with a micro-finance institution (MFI) • Geographical Targeting: Poor communities. Demand-driven. • Outputs:1) Household connections or public kiosks and 2) continued service delivery through sales revenues. Project will benefit about 60,000 people. • Resources Mobilized: MFI loan for 80% of capital costs, partly collateralized by subsidies (40%). Up-front user contribution of 20%. • Efficiency: Subsidy per person approximately US$19 (not including TA) • Sustainability: Demand-driven; up-front contribution; tariffs cover O&M plus non-subsidized capital cost (pay remainder of loan over 5 years)

10. Kenya Community Water • Onus on communities to mobilize up-front user contributions, securing MFI finance, securing registration under Kenyan law for Community Water Provider (CWP), securing license by respective Water Services Board (WSB) • Process is facilitated by WSP-AF, multi-donor program with local offices • Strong sponsor: K-Rep Bank, a leading MFI - adds rigor to due diligence and discipline during project implementation (sustaining accounts, collections etc.) USAID DCA guarantee. • Monitoring of outputs through independent audit firm, consent by WSB on a no objection basis.

11. Land Tenure => Morocco Urban Water

12. Land Tenure =>Morocco Urban Water • Obstacle: Land ownership and tenure issues often create barriers to the provision of service to the poor • Solution: development of strong local partnerships to ensure ensure that parties responsible for urban planning play their part – don’t expect operator to solve it by itself. • Example: Morroco Urban Water • Very few official land titles => not criterion for connection • Land title replaced by authorization from the municipality

13. Limited awareness of admin/legal requirements => Uganda NWSC

14. Limited awareness of admin/legal requirements => Uganda NWSC • Obstacle: The poor may be unaware of administrative and legal requirements, or find it difficult to understand them and comply. • Solution:creation of specilaized units by the service provider to provide tailored solutions for the poor. • Example:Uganda NWSC Pro-Poor Branch • more appropriate billing systems • greater sensitization on hygiene and related issues • assistance when applying for connections

15. Outline of Presentation • Obstacles to be addressed: • Appropriate Investment Finance, Cost-Recovery & Subsidy Policies • Give the Poor a Voice / Land Tenure / Eliminate Administrative & Legal Barriers • Strengthen & Regulate Service Providers • Advice on structuring schemes

16. Strengthen and regulate service providers => Uganda NWSC

17. Strengthen and regulate service providers => UgandaNWSC • Obstacle: Public service providers sometimes lack the autonomy, financial and human resources, and incentives to provide services to the urban poor • Solution: management of service providers are partly compensated through performance payments • Example: Uganda NWSC • Incentive regime to deliver, including delivery to the poor • OBA assists NWSC by making connections, some of which are metered kiosks, more affordable

18. Strengthen and regulate service providers => UgandaSmall Towns

19. Strengthen and regulate service providers => UgandaSmall Towns • Obstacle:The services provided by Small Private Service Providers (SPSPs) are not recognized, encouraged and regulated. • Solution: Government explicitly recognizes service providers • Example: Uganda Small Towns • Providers licensed and regulated • Cost-recovery tariff regulated by contract

20. Outline of Presentation • Obstacles to be addressed: • Appropriate Investment Finance, Cost-Recovery & Subsidy Policies • Give the Poor a Voice / Land Tenure / Eliminate Administrative & Legal Barriers • Strengthen & Regulate Service Providers • Advice on structuring schemes

21. Advice on Structuring an OBA Water Project for the Urban Poor • Involve the community – make sure service is affordable and meets their needs • Use independent verification agents to ensure that results are being delivered on the ground and at an acceptable quality level • Make the subsidy eligibility requirements and disbursement procedures as simple and transparent as possible

22. About GPOBA • Established January 2003 by DFID &World Bank. • Other donors include AusAid, SIDA, IFC and DGIS. • $300 million in funding for for TA, Dissemination and Subsidy Financing • US$100 million Subsidy Portfolio of over 25 pilots targeting 5 million poor • Positive Mid-Term Review by Ernst and Young (Fall 2007) • Vision: • Mainstream OBA in development finance over next 3-5 years period. • Assist development partners, including governments, to set up OBA facilities and disburse own program funds on an output-based basis.

23. Thank you. Please visit us at www.gpoba.org 23 Supporting the delivery of basic services in developing countries