1

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

R. Mukami Kariuki, World Bank

IWA Congress, Beijing China, September 10-13 2006

2

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

3

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

4

2007

5

Population in Select Cities: Kenya

0

50000

100000

150000

200000

250000

300000

350000

1969 1979 1989 1999

Eldoret

Kakamega

Kisumu

Machakos

Meru

Nyahururu

32,431

6

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

7

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 financing gap – 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

8

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)

9

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

10

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

11

0123456789

1994-96 1997-99 2000-02 2003-05

Year of Project Approval

No.

of P

roje

cts

0

5

10

15

20

25

No.

of C

ontr

acts

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

12

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

13

Taxonomy of Local PSP in WSS

Main management functions taken by private sector

Bill & collect Operate & maintain

Build, operate & maintain

Design, build, O & M

Design, build, own & O&M

Inve

stm

ent f

ina

nce

d b

y pr

ivat

e s

ect

or

0%

10%

25%

50%

100%

Privately financed, publicly managedPublicly financed, publicly managed

Privately financed, privately managedPublicly financed, privately managed

O&M contractUganda

O&M contractPhilippines

BOI contractColombia

BO contractColombia

DBL contractPhilippines

BO contractParaguay

DBO contractCambodia

DBL contractCambodia

14

Key FeaturesCountry/ Contract Type

Contract Term

No. of Contracts

No. Towns/ Contract

Population of Towns (range)

Av. Connect. per Contr.

Total Population

Cambodia–DBO 15 4 1 5,000-25,000 2,213 34,000

Cambodia - DBL 15 12 1 10,000-25,000 1,113 67,000

Colombia – BOI 15-30 10 1-4 10,000-425,000 1.2m

Colombia – BO 10-15 3 1-2 2,000-30,000 42,000

Paraguay 10 6 1-4 2,000-10,000 920 28,000

Philippines- DBL 15 6 1 2,000-10,000 1,094 33,000

Philippines - OM 15 16 1 1,000-5,000 620 50,000

Uganda 3 10 1 5,000-40,000 370 173,000

15

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.

16

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.

17

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)

18

Thank You

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