Development Dialogue: PPPs for Small-Scale Water Providers

Across the developing world, millions of people rely on the private sector for their daily water and sanitation needs. In the majority of cases, the providers of these essential services are not large multinational corporations, but local entrepreneurs operating on a small scale – businesses that see selling water and sanitation services to the poor as market opportunities like any other.

This conversation will look at the role of public-private partnerships in increasing access to affordable, reliable clean water and safe sanitation through small-scale providers. By sharing examples of what’s working, what’s not working, and what’s needed to scale up these innovative models of last-mile delivery of water and sanitation, we’re providing creative solutions with the potential to change people's lives.

Laurence Carter, Senior Director, Public-Private Partnerships, World Bank Group, Moderator.

Poor people have to be creative to get water every day – and now it’s our turn to be creative about solutions that will give them access to this essential resource. That’s why we’re launching this online Development Dialogue on the role of small-scale water public-private partnerships (PPPs). The conversation isn’t a philosophical debate, but a forum for practical ideas on private provision of water and sanitation services that can improve the lives of millions of people. 

Many small-scale enterprises on the ground have already figured out their role and are providing water to the poor. To achieve universal coverage in water and sanitation, we’d like to help governments and businesses improve the ways they work to deliver services. This conversation can advance that goal with forward-looking responses to these two questions: 

How can governments ensure good service?  What governments do - and don’t do - matters greatly to small-scale water and sanitation enterprises. The challenge for governments is to develop PPPs that promote competition and transparency while ensuring a quality service at an affordable price. Governments have opportunities to remove risks to entry by providing market intelligence. Officials can also reduce policy obstacles and minimize bureaucracy around small business issues but this cannot be at the expense of proper oversight and regulation. 

How can small-scale enterprises grow alongside ever-expanding need? Most small-scale enterprises are able to make a profit, but they face many constraints in expanding. Inadequate access to investment financing and the lack of security to operate are key barriers that limit their ability to scale up and achieve their sizable market potential. 



Here’s where your creativity comes in. As part of the World Bank Group’s commitment to stimulating debate around some of the toughest development challenges, we invite you to share practical experiences and ideas about small-scale provision of water and sanitation services that will lead to better solutions. Practitioners and experts from across the water and sanitation sector are invited to contribute, but you don’t need to be an expert to participate. If you are curious about an aspect of the topic that hasn’t been brought up, or want to challenge the orthodoxy, please post a question to encourage the group’s learning.  

To extend the life of this dialogue, lessons from the discussions will be consolidated and shared in publications and in Handshake, the World Bank Group’s quarterly journal on public-private partnerships. Together, we can grow the body of knowledge on small-scale water providers, applying our best ideas to our hardest problems.

Jemima Sy, Senior Water and Sanitation Specialist, Water and Sanitation Program, World Bank Group, on renewing rural water institutions and instruments.

As global development discussions turn from the millennium to sustainable development goals, we remind ourselves that the largest gains in access to clean water in the last two decades have been in urban areas. By contrast, among people without access to improved water, 89 percent live in rural areas. During the water decade (1980s), the mantra was community participation in managing infrastructure. The solution before that: point source development. The challenges of sustained delivery to rural areas are well-known, but more complex than ever: dispersed population, experiencing rapid densification or depopulation; low incomes reliant on (water-using, predominantly, low value) agriculture; weak capacities at multiple points of the supply chain; and sometimes, scarcity.  The complexity calls for new water institutions and instruments that can respond to changing conditions – a national rural waterworks agency or village committee is just not going to do!

Public-private sector partnerships are often associated with large urban concessions, but as early as the 2000s, governments particularly in sub-Saharan Africa1, have been letting the management of rural water supply systems, including the maintenance of hand pumps, to local private sector.  In these countries, an estimated one-third of small piped water schemes are under the management of private operators.



Private participation in these markets is not new – in some respects they were born out of exclusion. The market excluded from public supply can be significant: in three countries that we studied, household outlays on water suggests that people in rural and semi-urban areas of Bangladesh, Benin, and Cambodia spend at least $620 million a year on water, out of which spending by poor households comprise 43 percent. Of this market, the contribution of small-scale piped water schemes is projected to grow from $23 million in annual sales in 2012 to $90 million by 2025.  Private participation is already happening; PPPs offer a chance to institutionalize accountability and to structure the industry for better efficiency.

The big story is not the transaction.  It is the institutional reforms that drive a successful delegation and achievement of public policy objectives.  What is happening in both Benin and Senegal, for example, is exciting.  In Benin, the World Bank Group is supporting a new generation of rural water delegation where local companies are contributing equity and where viability is boosted by clustering schemes together; extending the concession period and supporting connections by poor households to improve levels of consumption. In Senegal, besides assisting transactions, the World Bank Group is assisting government to establish a rural asset holding company (AHC) to manage the process of procurement and implementation of increasingly larger scheme clusters.  The AHC is expected to be self-financing in the medium-term; able to support renewal of assets over the long-run; and, be able to monitor the performance of private operators on an on-going basis.  Strengthening all stakeholders (public sector, operators, financing institutions and consumers) is a key ingredient that goes beyond ‘getting buy in’ for the transaction into enabling them play their roles within the reform agenda.


[1] e.g. Benin, Burkina Faso, Mali, Mauritania, Mozambique, Niger, Rwanda, Senegal, and Uganda.

Heather Skilling, Senior Water and Sanitation Advisor, Water Office, U.S Agency for International Development, on small-scale public-private partnerships in improving access to water and sanitation services for the poor.

The Challenge Statement, and this “development dialogue,” spring from the reality that where water and sanitation service gaps exist, the market vacuum can, and will, be filled with private activity.  This is not new information.  In 1998, WSP and UNDP recognized the prevalence of the small scale providers with a seminal paper1 on the typologies of these actors and acknowledgement that in some cities, like Dakar, more than 70% of some market segments were filled by these providers.  
It is interesting to see the evolution of the thinking on small private providers.  As the Challenge Statement notes, we have moved away from the perception that the presence of these providers is implicitly negative for consumers. Instead, there is growing understanding of the role they play in reaching low income consumers in particular. 

But there is an inherent tension in categorizing small scale private providers as being “pro-poor”.  I believe the conversation should be re-framed around universal access and the need for a holistic approach to water and sanitation service delivery within geographic areas. This framework would cultivate the full range of possible partnerships under an umbrella of transparent and agreed sector goals and oversight.  

Reframing the conversation in this way accomplishes several objectives:

  1. It moves us away from thinking about the poor as a sub-set of consumers. Increasingly, there has been work with utilities, policy makers, and even financial institutions, to recognize the poor as a fundamental part of the customer base that, if served, contributes to the financial viability of the sector. By continuing to link the poor with small scale service provision may constrain our thinking about what can work in terms of service provision.
     
  2. It elevates the small scale private providers to the status of providers – without the qualifying adjectives. This changes our approach in terms of service delivery expectations, regulation, and access to business support services. In other words, it mainstreams the small scale providers into the sector and opens the door to growth.
     
  3. It establishes the basis for partnership and coordination to accomplish sector objectives.

In the course of this dialogue, it will be important to think about how to strike the right balance and sequencing in the water and sanitation sector – moving toward universal access along an equitable path while cultivating the potential of every service provider to play a constructive role.


[1] WATER AND SANITATION SERVICES FOR THE URBAN POOR.  Small-Scale Providers: Typology & Profiles, WSP-UNDP Working Paper Series.  December 1998. Suzanne Snell

 

Henry Northover, Head of Policy for WaterAid, on a two-fold perspective for the issue of Public-Private Partnerships (PPPs).

At WaterAid our perspectives on the issue of PPPs are two-fold. 

  • Firstly, Loans vs Grants
     

WaterAid research (2012) on World Bank support for extending network connections in Ouagadougou raised questions over whether the levels of concessionality in financing had a material impact on the targeting of services. The hypothesis – and one that we would urge further research on – is that the on-lending of finance to sub-sovereign authorities skews the targeting of service provision. The speculation is that municipalities are more likely to target the non-poor where there is pressure to repay loans for capital expenditures; particularly where national Finance Ministries have hiked interest rates. Would PPP financing modalities embed those skewed targeting incentives?

  • Second, are PPPs fit for purpose for extending networks?
     

Think Local, Act Local, the WaterAid 2008 report, highlights how low resourcing and low capacity at local government level undermines delivery of water and sanitation infrastructure and services. Fiscal de-centralisation has been ineffectively implemented in many countries, leaving local authorities under-resourced. With the diversity of agencies and informal actors involved, can PPPs be designed and operated in ways that strengthen the capability of local authorities to deliver public services.

Juan Luis Mesa, Public-Private Partnerships Consultant, on supporting small, local private entrepreneurs to provide water and sanitation services in rural areas and small towns.

Many local and national authorities have failed to provide potable water and sanitation in rural areas and small towns despite their obligation to guarantee these services. To bridge this gap, small, local private entrepreneurs have assumed the role of service provider, either self-financing infrastructure or with the support of local authorities for start-up infrastructure.

This initiative is positively viewed in general, as the private operators assume part of the constitutional obligations of local and national authorities. However, several questions arise:

  • Is it enough to just provide a subsidy of infrastructure to stimulate Small Scale PPPs?
  • How do we oversee on these initiatives to ensure quality in service provision?
  • Are regulatory national frameworks suitable to small private entrepreneurs?
  • Do small private entrepreneurs have the ability to survive or even grow to scale?
  • Is there a universal contract for PPPs suitable for all needs (proper tariffs, infrastructure coverage enhancement, etc)?
     

A single national authority may have the capacity to develop PPP transactions, however it can´t be the structuring agent for so many providers (more than 3000 rural areas and small town in the Colombian case) as they are located far from most of these rural areas and are too busy to monitor closely. National authorities can only follow up properly on pilot experiences. On the other hand local authorities are much closer to service providers and customers, yet most lack the capacity to address the challenges of implementing PPPs by themselves.

I have two main ideas to address these issues:

  1. An intermediate level entity between national and local authorities needs to be created. In Colombia, a regional umbrella figure was promoted and put in charge of receiving training and budget from the national authorities. This body then became responsible for supporting local authorities in service provision, proper regional budget allocation, prioritizing project investment, PPP contract administration and providing feedback to help national authorities adjust their programs.
     
  2. We need to regionalize these services by promoting fewer but stronger private, small local entrepreneurs.
New Question
Are there successful models of leveraging the comparative advantages of both urban centralised utilities and local private sector in the same space?