Making Services Work for Poor People: Water and Sanitation December 18, 2004 Junaid Ahmad OECD, Paris

2 The Traditional Approach Pricing services Level Chilean subsidy Colombian subsidy Johannesburg mechanism Pricing services Transition Guinee-Conakry Time path for price increase –Linked to service improvement –IDA financing Access Lower connection cost welfare losses arising from higher utility tariffs triggered by the reform, are more than compensated for by the welfare gains associated with expanding access to services (McKenzie and Mookherjee, 2002). But subsidy and access for what?

3 Ground Reality South Asia as an example Not one city or town in South Asia has 24 hour, 7 days a week water supply Hyderabad and Karachi : 3 hours every two days Delhi and Dhaka: 6-8 hours a day Intermittent supply: health implications Unaccounted for water: over 50% Cities in South Asia: leaking bucket Cost recovery: very low % of O&M Sanitation Open defecation Little waste water treatment (less than 8-10%) Decaying infrastructure: no O&M Scale without sustainability 30-40% not connected Use of infrastructure for patronage and politics!!

4 Re-defining the problem The ground realities suggest that pricing of services is not the problem of making a system pro-poor Making services work is essential to making services work for poor people Going from hours of water a day to 24 hours (or increasing access by 10%) is a matter of money and technical solutions: its a managerial problem Going from 3 hours every other day to 24 hours (or increasing access by 40%) is not a matter of money and technical solutions, it is an institutional problem Dont fix the pipes, fix the institutions that fix the pipes

5 Messages of the WDR What kind of institutional reforms? Ones that ensure that the institutional relationships between key players in service delivery chain are such that they: Empower poor people to Monitor and discipline service providers Raise their voice in policymaking Strengthen incentives for service providers to serve the poor Pricing/subsidies/access are the tails that wag the dog So, what are these institutional relationships?

6 A framework of relationships of accountability Poor peopleProviders Client power: short route of accountabilty

7 Poor peopleProviders Policymakers A framework of relationships of accountability Long route of accountability

8 Poor people Policymakers A framework of relationships of accountability Providers voice

9 Mexicos PRONASOL, Large social assistance program (1.2 percent of GDP) Water, sanitation, electricity and education construction to poor communities Limited poverty impact Reduced poverty by 3 percent Even an untargeted, uniform per capita transfer would have reduced poverty by 13 percent

10 PRONASOL expenditures according to party in municipal government Source: Estevez, Magaloni and Diaz-Cayeros 2002

11 A framework of relationships of accountability Providers Policymakers Poor people compact

12 Policymaker-provider: Contracting NGOs in Cambodia Contracted out: NGO managed & could hire, fire, & transfer staff, set wages, procure drugs Contracted in: NGO managed and could transfer but not hire and fire staff Control group: Services run by government 12 districts randomly assigned to each category

13 Contracting for Outcomes: health services in Cambodia Source: Bhushan, Keller and Schwartz 2002 Use of facilities by poor people ill in previous month

Applying the framework to water and sanitation

15 Urban water networks: politics and patronage

16 Strengthening the compact in urban water networks Government owns assets, sets policy, regulates, delivers: judge and the jury are one and the same For accountability: Separate the policy maker and the provider Decentralize assets Service and political jurisdictions fit each other better Regulation & service delivery can be separated by tiers Centre can use legislation & fiscal incentives to shape well- benchmarked local compacts and capacity growth Freed of responsibility for service delivery, centre has incentives to ensure local service delivery works Use private sector participation Direct, powerful way of separating roles But information, good regulation, parallel sector reform needed Third-party regulation may be required Multi-tiered government provides further opportunities Information and benchmarking

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18 Strengthening client power in urban water networks User charges: back to where we started can increase accountability of providers strengthen voice Help separate policy maker and provider Small independent providers can offer choice & competition Legalize No exclusive service contracts for formal providers Enable contracting between formal provider and independent provider Allow poor people to use subsidy to pay independent providers

19 Rural areas: the problem

Rural Areas Low density areas

21 Center/State LG Communities Public Agency Capacity Support Transition Costs Monitoring & Evaluation Society SRP Rural Drinking Water

22 Rural sanitation: A problem of demand price quantity D2: Optimal demand D1: Private demand D2 D1

23 Measure rural sanitation outcomes correctly Usually measured as building latrines Creates incentives to construct, not to use latrines Outcome to measure: extent of open defecation Orients accountability correctly

24 What does a latrine subsidy do? Sanitation is a community outcome So, co-production of sanitation is key Household subsidy distorts community participation and co-production Paves the way for patronage

25 How to create community outcomes and co-production? Techniques and mechanisms of mobilization of communities VERC in Bangladesh NGO Forum and others Reward the community and co-production community subsidies for outcomes Nirmal Gram Purashkar program in India Use local governments to facilitate community participation

26 Poor peopleProviders National and Local policymakers Total sanitation Communities

27 Implications for urban sanitation Supply of sanitation, not demand, the problem for networks Property rights and regulation Dar-es-salam cesspit cleaners Orangi style co-production linked to networks Community toilets in Pune

28 Donors and service delivery Global funds Community driven development Project implementation units Poor peopleProviders Policymakers

29 Poor peopleProviders Policymakers Services work for poor people when accountability is strong

30 Targeting Poor People: Minimum Service Delivery Minimum standards and cost (India) 40 lpcd – 120 lpcd Choice of technology: hand-pumps to piped network Target uncovered areas, special groups, 90 percent capital costs Expenditure on basic services (Chile) Below poverty level Expenditure < than 5% Through service provider Monitored by Local Governments Support to poor people (South Africa) Grants to municipalities Based on number of people below poverty level Lump sump grants: service choice left to local governments In the context of India, poor people are better served by making services work: focus fiscal transfers on institutional reform rather than poverty targeting

31 Reforming Institutions Which path? Through local governments: South Africa Through the WSS: Chile Which path for India?

32 Reforming Through Local Government: South Africa City towns State capital operating capacity incentives Utilities, Departments, Regional systems

33 Reforming Through Utilities: Chile City towns State City UtilityRegional Utility consumers

34 Co-locating Reforms: 74 th Amendment City Utility towns State CityRegional Utility consumers