1. Mainstreaming OBA in the Bank: Urban and Energy Examples Patricia Veevers-Carter Program Manager Global Partnership on Output-Based Aid (GPOBA) Finance, Economics and Urban Development Department World Bank February 21, 2008 SDN Week 2008

2. 2 Contents Context and What is Output-Based Aid (“OBA”)? OBA core concepts OBA in the WB

3. 3 Context How to attract more investment in the infrastructure and social service sectors so that the poor have access and so MDGs can be reached by 2015? Total cost recovery of services through user fees difficult. How to ensure greater efficiency and sustainability of infrastructure and social service provision? How to ensure that operators are accountable, and rewarded for actually reaching the intended beneficiaries? How can aid be more effective?

4. 4 What is Output-Based Aid? Output-Based Aid (OBA) is one method for improving the delivery of basic services – such as water and electricity– when the inability of users to pay full cost would justify performance-based subsidies to complement or replace user fees. Under OBA, service providers are for the most part paid after delivery of the agreed output. Therefore the disbursement of the subsidy is linked to the delivery of a specified output.

5. 5 OBA Core Concepts Explicit subsidies: Ensures transparency -- who provides subsidies for what. Lends easily to targeting the poor. Payment on output delivery: Shifts performance risk to provider by making him accountable. Innovation and efficiency : Predetermined subsidy paid on agreed outputs instead of inputs provides incentives for innovation and efficiency; competition or bench-marking could lead to value-for-money Mobilizing the private sector: Encourages private sector to serve targeted (usually poor) customers; opportunity to leverage private finance and expertise for non-subsidized customers as well. Monitoring: Internalizes tracking of results Sustainability: Subsidies that minimize distortions in consumption; stresses final results and source of future funding

6. 6 Example of a typical OBA Project Municipality Provider Poor Communities not yet connected OBA Fund Financial Intermediary Subsidy (4) Output Delivered = Connections Installed, service delivered (2) Greenfield or Incumbent Provider (private or public) Water, Sanitation, Electricity, Telecoms or Transport Services Concession contract or other form of Legal mandate Verification Agent (3) One-off connection subsidy Consumption Transitional subsidy Consumption subsidy Pre-finance (1)

7. 7 OBA Experience To Date (as of Dec 31, 2007) OBA Projects by Sector Water 32% Transport 14% Energy 22% Telecom 19% Social 13%

8. 8 GPOBA Grant Agreements by Sector Sector Total Subsidy US$m # of beneficiaries Avg subsidy/ person Health4.3250,00017.2 Water30.61,282,90023.8 Energy18.4559,00033.0 Telecom0.322,00011.8 TOTAL53.62,113,90021.5

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