MAIN SERVICE PROVIDER - MUNICIPALITY

Municipalities are generally under an obligation to ensure the provision of public services, including water supply and sanitation, to their residents. Management of water supply and sanitation services is typically carried out within a dedicated municipal department, or at times through a separate water board

Tasks and Scope:
Municipalities are typically required to provide or arrange for the provision of water supply and sanitation services.

Strengths and Weaknesses:
Managing water supply and sanitation at the municipal level offers the potential of exploiting considerable economies of scale. Municipalities can also coordinate activities among various city departments—for example, bringing water and sanitation specialists together with those working in education to promote hygiene instruction in schools. Municipal providers, however, continually face legal, financial, political, and institutional constraints that make the provision of high-quality service—particularly to low-income households—challenging. For example, extending a piped network to low-income areas located beyond the official city limits may be prohibited by law. Political interference in personnel management may divert the attention of staff away from poor neighborhoods to those with more political influence. Pressure to keep service prices low, along with reduced transfers for public services, often creates a situation in which the municipality barely has enough funds to maintain the water and sanitation infrastructure it has, much less extend networks to unserved areas.

Small-scale Independent Providers are typically self-employed entrepreneurs who provide water supply and/or sanitation services to a segment of the municipal population.

Tasks and Scope:
SSIPs operate standpipes or kiosks, transport and sell water drawn from a variety of sources, or provide sanitation services such as latrine cleaning. Small-scale providers employ both simple technologies, such as delivering water in jerricans on carts and bicycles, to more sophisticated equipment such as emptying septic tanks with suction tanks.

Strengths and Weaknesses:
SSIPs invest their own resources in their business, which gives them a strong incentive to provide reliable, responsive services to customers. Small-scale providers often play a key role in low-income neighborhoods, where municipal networks do not reach, as well as in smaller towns, where municipalities have gradually withdrawn from the management of water supply and sanitation services. The cost of water supply from an SSIP is typically much higher than that supplied by a municipal network, even in competitive markets. Poor households who are unable or unwilling to invest in network services thus pay more per cubic meter than wealthier (connected) households. Most SSIPs are not formally registered enterprises; they generally do not pay taxes and are not regulated. Many researchers warn, however, that efforts to organize or regulate these providers may result in their going out of business, thus eliminating the most reliable source of water supply and/or sanitation services available to the poor.

(See 10-country report on SSIPs: Collignon - PRIVATE OPERATORS WHO SUPPLY WATER TO SMALL AFRICAN COMMUNITIES AND POOR DISTRICTS IN BURKINA FASO, MAURITANIA, MALI, AND SENEGAL.)

• Role of SSIPs (Link)
• Potentials and Limits (pdf download available)
• Publications (Link)
• Example in Paraguay (Link)
• Regulation and Reform: Presentation of the role of small-scale providers in developing countries, Clive Harris, 2001. (ppt download)
  • Case studies highlight and discuss implications of sector reform, including privatization of network service providers of different sizes for various sectors. Water: water carriers and vendors, water tankers, small scale networks; Power: mini-grids, household systems, small generators selling to grid; Telecoms: small scale public phone provision; Transport: private mini buses etc.; and Different types of organizations involved: NGOs, for-profit businesses.

See: Intermediate and Independent Service Providers: Filling the Gaps

Civic organizations such as NGOs and CBOs are typically non-profit or volunteer organizations, organized geographically and/or around a particular interest (such as improving public services to poor neighborhoods). They may be formally registered associations or informal groups.

Tasks and Scope:
Where civic organizations play a role in water supply and sanitation, they may be managing communal facilities such as neighborhood taps or toilets; they may also partner with the municipality to provide services such as education, community development, or the management of public water points or toilets, to particular neighborhoods.

Strengths and Weaknesses:
NGOs and CBOs are often important partners in the effort to bring improved water supply and sanitation services to low-income neighborhoods. These organizations tend to have knowledge of, and credibility with, the poor that municipalities are lacking. Most civic groups have limited resources and a localized focus; their impact will thus tend to be small relative to the scale of the problems of inadequate service. (See Sulabh International in India for NGO example )

Municipalities are increasingly involving the private sector in water supply and sanitation service delivery, a result of fiscal pressures, the drive for increased efficiency in service delivery, and donor agency advocacy for greater private-sector participation.

Tasks and Scope:
A range of options for private-sector participation in water supply and sewerage exists, from service contracts for individual functions such as billings and collections, to concessions for full operations, maintenance, and expansion of the network. Private-sector firms may have citywide responsibility for particular functions, or may have responsibility for particular geographic areas (e.g., public latrine management in a central business district). Even in cities with publicly managed water and sewer networks, the private sector is often actively providing services to poor neighborhoods in the form of small-scale independent providers. See also SSIP.

Strengths and Weaknesses:
Private firms typically have greater access to capital as compared to public agencies, which can translate into higher rates of investment in the maintenance and expansion of piped networks. Private firms also operate on commercial principles, with an emphasis on cost-cutting; thus they have an incentive to seek out technical and institutional innovations that would allow a larger number of households to be served for a given outlay of money. This focus on the “bottom line,” however, can also be detrimental to poor households—unless they are given incentives to do so (e.g., subsidies or regulation), private operators will be less interested in serving poor neighborhoods where the potential for revenues is thought to be low.

• Utilities and PSP (Link - 1) (Link - 2)
• Toolkit for PSP (Link)
• Privatization and the Poor's Needs in Latin American (pdf download available)

A variety of arrangements are possible in which the municipality collaborates with small-scale independent providers, civic organizations, or private-sector firms for water supply or sanitation service delivery.

Tasks and Scope:
The range of options for partnerships in water supply and sanitation is very wide. In most cases, the municipality retains primary responsibility for management of the piped network, and uses partnerships to extend services to particular neighborhoods or to improve the quality of particular functions (e.g., health education, billing).

Strengths and Weaknesses:
A municipality can benefit from arrangements in which partners bring alternative technologies (SSIPs), credibility with low-income communities (NGOs and CBOs), access to capital (private sector firms), or other comparative advantages to the water and sanitation sector. Such partnerships often have the potential to benefit poor consumers in particular; for example, partnerships with SSIPs or civic organizations may help municipalities improve water supply and sanitation services for neighborhoods to which piped networks cannot be extended (See the case of Abidjan, Cote d’Ivoire).

Many households in urban areas undertake private investment in water supply or sanitation services. Low-income households often do not have access to the municipal network; find the cost of access is prohibitive; or are renters who are reluctant to invest in infrastructure services for dwellings they do not own. Higher-income households may be dissatisfied with the municipal services they receive and make investments to supplement those services (e.g., adding a pump to draw more water out of the network).

Tasks and Scope:
Self-provision ranges from paying a vendor to deliver water, or paying for the use of a toilet facility, to constructing a private latrine or borewell. Households who invest in water supply and sanitation services must obtain the financial resources necessary for these improvements; arrange for any needed private-sector services; and maintain their own infrastructure.

Strengths and Weaknesses:
Self-provision helps households receive better water supply and sanitation services, and is an understandable response to inadequate service from the municipality. In some cases, however, self-provision creates considerable problems for the municipal provider. The cumulative effect of hundreds or thousands of households’ decisions to abstract groundwater through wells or boreholes, pump additional water from municipal pipes, and/or establish illegal connections to the network, can be devastating for managing service delivery at the municipal level. Moreover, individual service provision cannot take advantage of economies of scale—in most cases, if the funds that households spent on individual solutions could be invested in the municipal network, many more customers would benefits from improved services.

The provision of urban water supply and sewerage often has monopoly characteristics, which makes competition prohibitively costly. A regulator can provide some of the same incentives for efficiency improvements that a service provider would face in a competitive market.

Tasks and Scope:
A regulator may be involved in decisions about service pricing, service quality, and/or network expansion.

Strengths and Weaknesses:
Price regulation can help ensure that services remain affordable for customers, while regulations related to coverage expansion and service quality can help poor households gain access to water and sewer networks. For regulation to be effective, the regulator must be fairly independent both of the service provider and of the political wing. In many parts of the developing world, such regulatory bodies do not exist; instead it is elected bodies, such as city councils or state legislatures, that often have authority over service prices and standards.

Issues:

• Roles and responsibilities.
The case for multi-industry agencies. There are three main issues in defining a utility regulator's role: the scope of its coverage, its role in relation to ministers, and its role in relation to other regulatory entities such as the competition agency or agencies dealing with environment or health and safety. This article makes a case for multi-industry agencies covering everything from power to water to transport. Multi-industry agencies have several advantages that are especially important for developing countries. They allow the pooling of scarce expertise. They reduce the risk of industry and political capture. They reduce the risk of inconsistency in regulatory approaches across sectors. And they help to deal with the blurring of industry boundaries as utilities enter one another's markets (as when power utilities enter telecommunications, and water and power utilities merge). (See link)

• Regulatory independence.
Some governments are reluctant to surrender political control over regulatory decisions, and some who agree on the general desirability of independent agencies may question whether they are feasible in all country settings. This article argues that regulatory independence is worth the effort even in countries with little tradition of such government entities. The agencies should have arm's-length relationships with regulated firms, consumers, and politicians, and they should have the funding and expertise to underpin such independence. He explains the requirements for achieving independent agencies, including formal safeguards, and suggests possible paths of transition for setting up such agencies. (See link)

• Decision-making structures, resources, and start-up strategy.
The design of a regulatory agency's decision-making structure encompasses issues relating to the number of decision-makers, the basis for selecting them, the role played by stakeholders, and the regulatory and appeals processes. The selection of the regulator is critical-especially in countries that have yet to establish a reputation for competence and reliability. When agencies are to be independent, the goal should be to select regulators with the personal qualities needed to exercise independent judgement and resist improper pressures. An appeals process is also important to ensure that the regulator does not stray from its mandate and that it remains accountable. (See link)

• Introducting competition.
Deregulation and new technology, including the advent of smart markets, have provided new opportunities for competition in power, water, transport, and telecommunications. This article looks at the various options for competition--competition for the market (franchising), competition in the market (open access, pooling, and time-tabling), and competition among networks. How network competition is introduced and how effectively and easily it is implemented will vary from one network industry to another. But the authors propose some general rules: The more complex the network and the lower the sunk costs, the greater the value of introducing competition from other networks. The faster the rate of technical change, the greater the dynamic benefits from competition. And the lower the regulatory capacity, the more efficient it will be to opt for competition. (See link)