Restructuring Cities for Efficient Service Delivery Vivek Srivastava WSP-SA ASCI-WBI Program on “Strengthening Urban Management - Unlocking the Potential of Indian Cities” Hyderabad January

Productive Cities as Centers of Growth

The Context A New Global Setting Urban Millennium A New Management Challenge Creating World Class-Cities

Share of Cities in GNP Level of Development Share of Urban Areas in GNP Low-income55% Middle-income73% High-income85%

Important Implication Municipal service delivery cannot be seen in isolated context; How municipal services come together to serve the city-economy; Managing cities to be credit worthy National economic growth and poverty reduction efforts will be increasingly determined by the productivity of cities and towns

Models of Urban Governance

Which Model of City Governance? Metropolitan Government Metropolitan Government with Economic Decentralization Metropolitan Government with Political Decentralization

Key Differences In the politically decentralized model, political and fiscal power is shared between the metropolitan and municipal tier.The metropolitan tier and municipalities jointly keep each other in check. In the economic decentralized model, political and fiscal powers resides at the metropolitan level. The regions are de-concentrated arms of the metro unlike the independent municipalities of the first model

Similarities Fiscal and political power is devolved to city governments. Both models adopt corporate structures for the financing and delivery of municipal services with user-charges. In both models the city has share ownership with expected dividends from the corporations. Danger of political deadlock.

Evaluating Decentralization Political Stability Quality of Public Services Equity –Horizontal (inter-state/city) –Within state/city Impact of Macro-economic Stability

Issues in Service Delivery

The Problem Chronic poor performance is the rule rather than the exception in many publicly run municipal services Technical losses Poor cost recovery Subsidies do not reach the poor

Current Situation - Water Technical and commercial losses “filling the leaking bucket” 3 hour connectivity Poor quality of service High coping costs Low Tariffs Fiscally and financially unsustainable

Why? The Judge, The Jury and the Executioner are the Same! Policy RegulationDelivery Define the Objectives –24-hour supply –Clean water –Extended Access Define the Rules Enforce the Rules –Monitor Compliance –Regulate Pricing Deliver the Service Play by the Rules.

Goals 24 hour delivery coverage for by all: geographic and household quality pressure

Elements of Separation Government ownership of some form –Public good nature of water –Sustainability as a resource: time and quality –Attacking poverty Business approach to delivery –Private good nature of water –Demand driven; customer responsive Independent regulation

City Restructuring: Johannesburg Example

Johannesburg’s Original Structure 4 municipalities and one metro Fragmented: no economies of scale Duplication of service delivery Typical line function responsibility No integrated planning

IGOLI 2000 Program A: Utilities Water and Sanitation, Power Distribution, Waste Management Program B: Agencies Roads and Stormwater, Parks and Cemeteries Program C: Privatize Metro Gas, Airport, Stadiums, Power Generation Program D: Corporatize Zoo, Bus Co., Market, Property and Project Program E: Traditional Governance Admin, HR, Planning, Budget, Finance, Community Services, Welfare, etc.

Restructuring of Johannesburg Delivery Contract Fiscal Surplus Water & Sanitation Waste Electricity IT Transport/Roads Slum-upgrading Primary Health Peoples Center R1R1 R2R2 R 11 Spatial Planning Fiscal Budget Local Economy Metropolitan Government

PSP Options for Service Delivery

Why PSP? Efficiency Flexibility in procurement Appropriate incentives Technology Investment Accountability

The Basic Options Compared

Large City Utility

The potential PPP A public asset holding corporation (AHC) with –state and municipal shareholders A private operating company (PO) with –with shareholder agreement with domestic and international partners –holding a concession contract with AHC Appropriate mix of public and private finance Appropriate division of risks between AHC and PO A competent autonomous regulator

Asset Holding Company Operating Company State Govt.Municipalities shareholders contrac t Regulator Service delivery obligations Access by poor Pricing and subsidies O&M Human resource management Investment expansion

Medium and Small Towns

Need of Alternative Management Model Too big to be managed by communities –Large and dense enough to benefit from economies of scale offered by piped water systems Too small and dispersed to be managed by a conventional utility

Possible option Regional or multi-town utilities Advantages –Economies of scale in management –Minimize transactions costs of contracting –Viable volumes of business

Criteria for Clubbing Large enough population base  Clusters of 1-2 million “ Manageable ” overall distance Within a watershed boundary Voluntary or prescribed

International Examples: UK Economies of scale up to population of 1 million 10 large utilities with population of 2-10 million 15 smaller utilities with population base of 250,000 to 1.2 million Jurisdiction based on watershed boundaries

International Examples: France WSS responsibility of Local Governments Voluntary “ Syndicates ” undertakings for municipalities – 2/3 per grouping SEDIF manages water services for 144 municipalities and about 4 million customers

Regional Utility Shareholders: ULBs, State government ASSET HOLDING COMPANY Contract Private sector operator Town 1Town 2Town 3

Rules of Engagement “ Top down ” : Statutorily create the regions and enforce all ULBs to be members e.g. England, Scotland –Need to ensure compatibility with 74 th amendment “ Bottom up ” : Voluntary association e.g. France –Slow –How to create incentives for association?

Governance Vesting O&M control of water related assets by lease (or otherwise) to AHC/AMC Share ownership proportional to asset value Voting rights possibly allocated on a more equitable basis State government as shareholder, coordinator and arbiter Rules of entry and exit

PSP and the Poor

Current situation: Status of the poor How are the poor being served today? –Free water through stand posts and tankers ( lpcd) –15% of population not covered by public system Is Water Really Free? –Poor quality water with adverse health implications –Time, physical energy, drudgery and space costs

PSP and the Poor A sound and competitively procured PPP will benefit the poor through efficiency gains In addition, benefits to the poor can be further enhanced by specific contractual design The Manila example: –600,000 poor connected within two years –The poor now consume three times more water at half the price –The poor now have more time for productive work and more living space

Maximizing the benefits for the poor Designing Pro-poor Contracts: –Service expansion obligations designed to include the poor –Some form of subsidy (or finance) for one-time connection fee –Gradual phasing of prices: transition finance –Concessionaire responsible for providing water by alternative means where private connections are not feasible or during a transition period

Thank you