Poverty International Policy Centre for Inclusive Growth Number 18

Poverty Number 18, August 2009

International Policy Centre for Inclusive GrowthPoverty Practice, Bureau for Development Policy, UNDP

Equitable Access to Basic Utilities:Public versus Private Provision and Beyond

2 International Policy Centre for Inclusive Growth

F R O M T H EE D I T O R S

P roviding universal access to basic utilities is justified on human rightsgrounds and also because of the positive externalities involved. Adequate

provision of water, sanitation and electricity contributes to the achievement of theother Millennium Development Goals (MDGs). Access to these services, however,is still unequal in the developing world. Services do not adequately reach the poor.This Poverty in Focus brings together a mix of policy issues and some country experiences.

Degol Hailu and Raquel Tsukada provide an overview of the broad challenges involvedin making access to basic services equitable and universal.

Hulya Dagdeviren and Simon A. Robertson point out the difficulties of expanding utilitynetworks in slum areas, which include technical barriers and a lack of land and housingtenure. They make a case for stronger public interventions.

Kate Bayliss argues that the allocation of demand and investment risks duringprivatisation in Sub-Sahara Africa is distorted. This is because the risks are borneby governments and end users instead of the private contractors.

David Hall and Emanuele Lobina provide a critique of both the investment potentialof the private sector and cost recovery schemes in the provision of sanitation services.

Ashley C. Brown discusses the externalities involved in supplying basic infrastructure tothose who can least afford it. He argues that, contrary to established views, cross-subsidyschemes actually benefit all users and not only the targeted population.

Alison Post emphasises the benefits of water metering but highlights problemsof implementation and poor design in Argentina.

Degol Hailu, Rafael Osorio and Raquel Tsukada examine the reasons for the privatisationand then renationalisation of the water supply in urban Bolivia.

Andre Rossi de Oliveira explores water privatisation in Brazil. He argues that the expansionof coverage has stemmed mainly from high levels of investment by private operators.

Suani Teixeira Coelho, Patricia Guardabassi, Beatriz A. Lora and José Goldemberg note thatgeographically isolated communities without access to electricity grids, such as thosein the Amazon, can be served by renewable energy sources.

Luc Savard, Dorothée Boccanfuso and Antonio Estache present the findings of a generalequilibrium model that assesses the impact of electricity price changes on thepoor in Mali and Senegal.

Joana Costa, Degol Hailu, Elydia Silva and Raquel Tsukada empirically show that waterprovision reduces the total work burden on women in rural Ghana.

Nitish Jha conducts a sociological analysis of access to water and sanitation in India,emphasising the challenges encountered in community-based schemes.

Julia Kercher explains why and how a human rights framework must guidethe design and implementation of private utility provision.

We hope that this collection of articles will contribute to the discussionof how to provide vital infrastructure services more equitably.

This Poverty in Focus is the result of an International Workshop on Equitable Accessto Basic Services held on 5 December 2008 in São Paulo, Brazil. IPC-IG and theDavid Rockefeller Centre for Latin American Studies at Harvard University (DRCLAS)jointly organised the workshop. We gratefully acknowledge DRCLAS’ contribution.

The Editors

Poverty in Focus is a regular publication of theInternational Policy Centre for Inclusive Growth(IPC-IG). Its purpose is to present the resultsof research on poverty and inequality in thedeveloping world. Support is provided bythe Swedish International DevelopmentCooperation Agency (Sida).

Editors

Degol Hailu and Raquel Tsukada

International Advisory Board

Desktop PublisherRoberto Astorino

Copy EditorAndrew Crawley

Front page: Photomontage by Rosa MariaBanuth. It includes photos by Christian Lehmann,Raquel Tsukada, Steve Ford Elliott, Erik Araujo andBruno Spada from the Ministry of SocialDevelopment and the Fight Against Hunger, Brazil.IPC-IG and the Editors thank all for grantingpermission of use.

Editors’ note: IPC-IG and the editors are gratefulfor the generous contributions, without anymonetary or material remuneration, by all theauthors of this issue. We also would like toacknowledge the support of the Brazil Office ofDRCLAS at Harvard University; special thanks goto Jason Dyett and Lorena Barberia.

IPC-IG is a joint project between the UnitedNations Development Programme and Brazil topromote South-South Cooperation on appliedpoverty research. It specialises in analysingpoverty and inequality and offering research-based policy recommendations on how to reducethem. IPC-IG is directly linked to the PovertyGroup of the Bureau for Development Policy,UNDP and the Government of Brazil.

IPC-IG Director (a.i.)Degol Hailu

International Policy Centre for InclusiveGrowth (IPC-IG), Poverty Practice,Bureau for Development Policy, UNDP

Esplanada dos Ministérios, Bloco O, 7º andar70052-900 Brasilia, DF Brazil

[email protected]

The views expressed in IPC-IG publications are theauthors’ and not necessarily those of the UNDP orthe Government of Brazil.

Rights and Permissions – All rights reserved.The text and data in this publication may bereproduced as long as written permission is obtainedfrom IPC-IG and the source is cited. Reproductions forcommercial purposes are forbidden.

Oscar Altimir, CEPAL, Santiago de ChileGiovanni A. Cornia, Università di FirenzeNora Lustig, Universidad Iberoamericana, MexicoGita Sen, Indian Institute of Management, BangaloreAnna Tibaijuka, UN Habitat, NairobiPhilippe van Parijs, Université de Louvain

* We express our sincere condolences on the recent passingof Professor Peter Townsend, who was a member of theAdvisory Board.

Poverty in Focus August 2009 3

More than 1 billion peopleglobally are living inextreme water deprivation.Over 40 per cent of theworld’s population alsolack access to safe andclean sanitation services.

About 1.6 billion peopleworldwide do not haveaccess to electricity. Of these,706 million are in South Asiaand 554 million in Africa.

While access to basicservices should be a humanright, it is also a publicgood with numerouspositive externalities.

The policy challengethat developing countriesface is to increase thepoor’s access to utilitieswhile simultaneouslyreaping the benefits ofthe positive externalities.

The Millennium DevelopmentGoal (MDG) for water is to halvethe proportion of people withoutaccess to safe drinking water by 2015.The urgency of meeting this targetis reflected in the UNDP’s HumanDevelopment Report 2006, which warnsthat more than 1 billion people globallyare living in extreme water deprivation.Over 40 per cent of the world’spopulation also lack access to safe andclean sanitation services. The report alsonotes that “not having access to waterand sanitation is a polite euphemism fora form of deprivation that threatens life,destroys opportunity and undermineshuman dignity” (UNDP, 2006, p. 5).

Similarly, about 1.6 billion peopleworldwide do not have access to electricity.Of these, 706 million are in South Asiaand 554 million in Africa, despite largemining and industrial conglomeratesenjoying cheap access to an enormoussupply of electricity (see McDonald, 2009).The figures indicate how inequitableis access to basic utilities, both acrossand within countries.

Communities with the least access toutility infrastructure often live in slumdwellings and remote areas. Rapidurbanisation and informal settlementspose particular problems for waterprovision. As Hulya Dagdeviren andSimon Robertson report, the numberof residential water connectionshas fallen in most unplanned urbansettlements in the past decade.The authors also highlight theobstacles that large-scale privateproviders cannot resolve withoutimposing exorbitant tariffs to cover costs.Those obstacles are two-fold in origin.First, technical difficulties such as thetopographical location of informalsettlements pose physical challenges.Second, lack of tenure for land andhousing creates uncertainties. In these

cases, market-oriented policies are notappropriate means of providing accessto water in the slums of the developingworld. They note that “there are seriousdoubts about the potential gainsof both privatised network utilities(where planning and developmentchallenges persist) and small-scale serviceproviders (because of pricing and qualityissues). Ultimately, these concerns can beresolved by investing in the expansion ofthe public water and sanitation network.”

While access to basic services shouldbe a human right, it is also a publicgood with numerous positiveexternalities. The impact on the otherMDGs, for instance, is clear. Makingwater, sanitation and electricityavailable empowers women by freeingthem from the burden and dangers ofcarrying water, often over long distances,and allows them more time to attendschool. As Joana Costa et al. show, theprovision of utilities in rural Ghanareduces the burden of unpaid work.In addition, for women already engaged inremunerated activities, work time seemsto have increased, which in turn hasa gender-empowering impact. Theystress that “additional public policiesare needed to achieve that goal[reducing work burden], especiallypolicies related to educational trainingand childcare facilities”.

The policy challenge that developingcountries face is to increase the poor’saccess to utilities while simultaneouslyreaping the benefits of the positiveexternalities. For the past two decades,policy has focused mainly on privateinvestment and foreign capital. Just as the“market failure” argument gave rise topublic ownership of certain enterprises,so the “government failure” reasoningpaved the way for privatisation. Thelatter was supported by developmentsin economics, which emphasised public

Equitable Access toBasic Utilities:An Overview

by Degol Hailu and Raquel TsukadaInternational Policy Centrefor Inclusive Growth


choice, property rights and principal-agent theories as justifications forprivate ownership.

A fiscal case was also made: gainsfrom the sale of enterprises, savings fromsubsidising unprofitable companies andnew tax revenues from the privatisedfirms would improve governmentbudgets. Additionally, privatisationwas seen as a permanent shift to a marketeconomy—what the World Bank called“lock-in” in the 1990s. Unlike, say, changesin interest rates or exchange rates, whichcan be reversed overnight, privatisationwas seen as a commitment to reform, onethat sent the right signals to investors.

The above arguments are well capturedin a World Bank (2004) research report,which stated that:

“In a globalised economy, poorlyperforming state-owned infrastructureproviders were increasingly seenas constraining economic growthand undermining internationalcompetitiveness. Developing countriessimply could not continue to absorbthe fiscal burden of these enterprises.Around the world, it became evidentto policymakers that the problems ofpublic enterprises could be solvedonly by implementing radical structuralchanges and realigning the rolesof the government and the privatesector” (p. 35).

Under utility privatisation andcommercialisation schemes, governmentsusually retain ownership of assets whileinviting private contractors to run theoperations and provide managementservices. While there are plenty of casesin which publicly managed utilities aremarked by poor maintenance, wastageand uncollected bills, social welfare goalssuch as increasing the poor’s access tobasic services can be organisedsuccessfully by public initiatives.

As Vickers and Yarrow (1991, pp. 113–114)note: “public ownership may have theadvantage if externalities are largerand the pursuit of personal agendasis more constrained, for example by awell-functioning political system.”For instance, large private enterprisescan be highly inefficient, leading toa concentration of market structures.

This is mainly related to a lack ofcompeting firms and scarce capital.Such outcomes are confirmed by privateinvestors’ interest in sectors with lesscompetition, such as utilities.

The debate on private versus publicprovision of utilities is complex, butthe guiding principle for the kind ofprovision preferred must be the initiallevel of access to water, sanitation andelectricity. Where access is already high indeveloped and middle-income countries,privatisation may yield productive anddynamic efficiencies.

Private providers have incentives toimprove overall performance throughnew techniques and novel managementprocesses. Where access to utilities islow and the focus is on increasingcoverage of the poor in low-incomecountries and neighbourhoods, publicprovision makes sense. This is becauseof problems associated withaffordability, how much cost recoverycan be pushed, and regulatory capacity.The persistent challenge, however, isfinancing investment outlays. Theoptions are reducing system lossessuch as water leakages; improvedbilling; domestic resource mobilisation;and external financing (both donor andprivate bond/equity financing).

Historical experiences are particularlyenlightening. Privatisation had beenrelatively successful in the UnitedKingdom and the United States, becausethese countries embarked on privateutility provision after achieving 100per cent access to water and electricityby the 1980s. As David Hall and EmanueleLobina observe, “the sewerage systems inEurope, the United States and Japanwere not developed through full costrecovery from users; they were paidfor by distributing the costs among thepublic, using taxation and cross-subsidy.”

The overall evidence is that privatisationof utilities is not a solution where initialaccess is low and the objective is thecoverage of the poor. This point is made inthe article on Bolivia by Degol Hailu et al.

The private concessionaire and thegovernment agreed on coveragetargets to provide universal accessin the city of La Paz and 82 per cent

coverage in El Alto by 2001. The poor’saccess to water connections increased,but the private company could not meetthe targets. Inevitably, the limits ofcost recovery and profitability had beenreached. The tariff increases needed toconnect the additional poor consumerswere so high that they sparkedpublic outrage.

Similarly, as Alison Post reveals,private concessionaires in Argentinaentered into a contract with thegovernment to increase water meteringup to 100 per cent. Fees were imposedfor the installation of the meters andtariffs were increased. The result wasintense public protest. In Mali andSenegal the poor have not benefitedfrom privatisation, simply becausethey were not connected to the gridin the first place. The tariff hikes afterprivatisation affected them indirectlyas a result of economy-wide effects,a point stressed by Luc Savard et al.The concessions in Argentina,Bolivia, Mali and Senegal haveall been terminated.

Contract cancellations andrenationalisation are often the result of apolicy that transfers risk to governmentsand end users. As Kate Bayliss argues,the focus in Sub-Saharan Africa hasbeen to transfer investment, demand andcurrency risks in order to attract privateinvestors. She argues that “in industrialisedeconomies, the transfer of risk to theprivate sector is considered essential ifefficiency gains from privatisation ofthe delivery of basic services are to reachend users. In SSA [Sub-Saharan Africa],however, the emphasis is on reducingthe risks faced by the private sector inorder to encourage private investment.”The upshot is always exorbitant tariffsand neglected infrastructure. Thiscontrasts with the standard practice indeveloped countries, where risk is usuallytransferred to private providers at thetime of privatisation.

One reason why private participation in thewater sector has been successful in Brazilseems to be the transfer of investmentrisk. Contracts with the variousgovernment entities at the state andmunicipal levels clearly outlined theinvestment obligations of the privateoperators, particularly in low-income areas.


As Andre Rossi de Oliveira points out, theprivate operators had invested aboutU$500 million by 2004. He underscoresthat “the positive outcomes in Brazilare related to contract design... Mostcontracts stressed investment obligations,something relatively easy to monitor.”

The limitations of public and privateprovision to increase the poor’s accessto utilities have enhanced the role ofcommunity and small-scale waterproviders. The absence of economiesof scale, however, means that waterprices are typically high. Maintenancefacilities are inadequate and thereis no proper accountability forservice interruption.

The quality of small-scale providers’supply is not always assured. Moreover,it is not easy to regulate community andsmall-scale providers, and neither is itpossible to engage in cross-subsidy.In India, as Nitish Jha argues, community-based water provision schemes are oftenpoorly designed and implemented.Because of a lack of social cohesion,vulnerable groups are often excludedfrom decision-making processes.

What are the lessons? The debateshould move away from a narrowfocus on public versus private toanalysis of the constraints on publicintervention, possible improvements,and the potential for alternativeprovision under a poverty reductionframework. Three issues seem to matter.

First, where initial utility coverage islow, subsidy and cross-subsidy schemesare the best alternative. As Ashley Brownreminds us, another externality comesfrom connecting the poor to infrastructurenetworks though cross-subsidies.

All consumers benefit if the cross-subsidyis designed in such a way that the poorcover the variable cost and make somecontribution to fixed costs. Income-basedtargeting schemes, for instance, with amix of some consumption-, age-and geography-based targetingof beneficiaries, can be sustainable.

Second, decentralised and locally basedutility provision has been promisingin the electricity sector. Geographicallyisolated communities, such as those in

and around the Amazon, have benefitedfrom locally managed electricitygenerating facilities. The difficulty hasbeen expanding the traditional gridsystem in the densely forested areas.As Suani Teixeira et al. report, followingthe ambitious Light for Everyoneprogramme in Brazil, local renewableenergy-generating services usingphotovoltaic, small-scale hydropowerand biomass sources have becomeviable solutions.

Third, where initial access to utilitiesis high and privatisation is considered,better contract design is neededto take account of political and socialconsiderations. Risk must be transferredto private providers, not to governmentsand consumers. As Julia Kercher explainsa human rights framework must guidethe design and implementation ofprivate provision based on the principlesof availability, accessibility, acceptabilityand its quality.

Finally, utility provision can onlysucceed if effective regulatory andintuitional capacities are put in placeto enforce contracts and ensure theefficiency of cross-subsidy mechanisms.Regulation is most effective when lawsand institutions are stronger and arefree of political influence (see Estacheet al., 2003). Regulation is also country-specific, while technical skills, legalframeworks and dissemination ofinformation to the wider publicare essential.

Estache, A., J. L. Guasch and L. Trujillo(2003). “Price Caps, Efficiency Payoffs,and Infrastructure Contract Renegotiationin Latin America”, Policy ResearchWorking Paper 3129. World Bank(Washington, D.C.).

McDonald, D. (ed.) (2009). ElectricCapitalism: Recolonising Africa on thePower Grid. London, Earthscan and HumanSciences Research Council.

UNDP (2006). Beyond Scarcity: Power,Poverty and the Global Water Crisis.Human Development Report. New York,Palgrave Macmillan.

Vickers, J. and G. Yarrow (1991).“Economic Perspectives on Privatization”,Journal of Economic Perspectives 5 (2),pp. 111–132.

World Bank (2004). ReformingInfrastructure: Privatization, Regulation,and Competition, World Bank (Washington,D.C.) and Oxford University Press.

While there are plentyof cases in whichpublicly managedutilities are markedby poor maintenance,wastage and uncollectedbills, social welfare goalssuch as increasingthe poor’s access tobasic services can beorganised successfullyby public initiatives.


The increase in urbanisationand its disproportionateconcentration in informalsettlements pose problemsfor the expansion of waterand sanitation services.

Forced evictions are stillused extensively, especiallyin Africa and Asia, whereover 14 million peoplewere evicted between1998 and 2006.

The problem of inadequate accessto safe water is nowhere more pressingthan in the slums of the developingworld. Most countries in which a largeproportion of the urban populationlive in squatter settlements are unlikelyto meet the water-related MillenniumDevelopment Goals (MDGs). This articleargues that market-oriented policiesmake little, if any, difference inthose circumstances.

Trends in Slum DevelopmentAbout a third of the world’s urbanpopulation lived in slums in 1990, andthe total number of slum dwellers mightrise to 1.5 billion by 2020. Slum growthhas been particularly marked in Africawhere, on average, more than 70 per centof the urban population live in informalsettlement areas.

Public policies towards slums are highlypoliticised. They are influenced by factorssuch as the strength of non-governmentalorganisations (NGOs) and other socialgroups, as well as by the politics of slummanagement. So far, governments havedealt with squatter settlements andthe associated problems in three ways:

(i) clearing slums through forcedor legal evictions;

(ii) applying public policies that rangefrom benign neglect to occasionalinterventions; and

(iii) regularising settlement conditions.

Forced evictions are still used extensively,especially in Africa and Asia, where over14 million people were evicted between1998 and 2006 (UN-Habitat, 2007).

Access to Water in the Slums ofthe Developing WorldThe increase in urbanisation andits disproportionate concentration ininformal settlements pose problems forthe expansion of water and sanitationservices. Table 1 provides data on accessto safe water in the countries with thelargest slum populations in Asia andsub-Saharan Africa, where conditionsare particularly drastic.

UN-Habitat’s original database, whichincludes a larger number of countries,shows that urban access to improvedwater facilities declined in more thana third of African countries during theperiod 1990–2004. In many cities,there is a notably low rate of accessto water through private householdconnections from network infrastructure.More than two-thirds of the urbanpopulation in Africa depend on waterfrom non-residential connections.In half of the African countries, the shareof residential water connections eitherdeclined or was static.

by Hulya Dagdevirenand Simon A. Robertson,

University of HertfordshireAccess to Water inthe Slums of theDeveloping World

Table 1Access to Safe Water in Countries with the Largest Slum Population (%)

Slum populationto urban

population ratio

Urban populationwithout access to

safe drinking water

Urban householdswithout residential

piped water supply

Asian countries 1990 2001 1990 2004 1990 2004

Afghanistan 99 99 90 37 94 85

Nepal 97 92 5 4 59 48

Bangladesh 87 85 17 18 72 76

Pakistan 79 74 5 4 40 51

India 61 56 11 5 47 53

Sub-Saharan African countries

Ethiopia 99 99 19 19 98 68

Chad 99 99 59 59 90 90

Tanzania 99 92 15 15 67 57

Niger 96 96 38 20 81 65

Mozambique 95 94 17 28 67 82

Malawi 95 91 10 2 56 71

Mali 94 93 50 22 92 71

Uganda 94 93 20 13 76 93

Madagascar 91 93 20 23 72 84

Sudan 86 86 15 22 25 54

Source: UN-Habitat (2007).


Table 2Cost-Benefit Ratio of AchievingUniversal Water Coverage

Sub-Saharan Africa 3.9

Arab States 5.9

East Asia and Pacific 6.6

South Asia 3.9

Latin America 17.2

Source: Hutton et al. (2006).

Lack of access to safe water in general,and lack of residential supply in particular,is positively correlated to the proportionof the population living in unplannedsettlement areas. An important trend inAfrica, and to some extent in Asia, is thatimprovements in access to safe drinkingwater were frequently accompaniedby a decline in residential connectionsduring the period 1990–2004. In otherwords, more people now rely on publicstandpipes, boreholes, “protected” wellsand springs.

Challenges for Public Utilities in ImprovingAccess to Safe Water in the Slums1. Technical difficulties of infrastructureextension: The supply problems facingpublic utilities are exacerbated bya number of barriers that make itimpractical to build the network insome slum areas. The most important are:

The topographical location ofsettlements in previously unusedland such as hills, ravines, floodplains and desert land.

The physical conditions of thesettlements, which are marked by arandom and haphazard developmentpattern and overcrowding.

The quality of the materials usedto build housing units, such asthickened mud, plant leaves andstems, tin and plaster boards, whichare unsuitable for permanent waterpipes and taps.

2. Lack of tenure for land or housing: theresult of the invasion of public or privateland, can pose a significant obstacle tothe provision of water services. This isbecause provision by utilities and theextension of water services by localauthorities often depend on theexistence of legal tenure for property.

These two issues are challenging forpublic policy. Overcoming the difficultiesassociated with the settlement conditionsoutlined in (1) requires relocation ofslum dwellers to more suitable areasand enforcement of housing standards.Granting full tenure in order to tackle theproblems associated with the insecurity oftenure outlined in (2) may raise propertyprices and encourage the developmentof new slum areas. Dwellers may sell their

plots and squat elsewhere. The policymay benefit the non-poor, especiallyproperty merchants. Opposition toredistributive policies, involvingrelocation and/or the formalisation ofslums, can be testing for governments.

Can Privatisation of UtilitiesProvide an Answer?Thus far, policies geared to improvingaccess to water have emphasised theimportance of market-oriented solutions(World Bank, 2004). The shift towardsprivate or commercialised services hasmeant that direct public investment inthe water sector has declined. But theresulting gap has not been offset byprivate sector investments (Estache, 2006).Where public utilities have been privatisedthere have been numerous problemsrelated to cost recovery, affordabilityand regulation of services. Private serviceproviders have not performed better thanpublic operators. Nonetheless, thoughthe outcomes have been disappointing,the drive for privatisation continues withrenewed emphasis following a shortperiod of critical reflection.

The potential for privatisation is evenmore limited in countries where asignificant proportion of the urbanpopulation live in squatter settlements.In these settlements, the multifacetednature of the problems (such as tenure,technical difficulties in building waterinfrastructure, widespread poverty, highpopulation turnover) seriously constrainthe capacity of privatised utilities.

Types of Informal Water Services in theSlums and Their LimitationsIn the middle- and upper middle-incomecountries, slums are often supplied fromthe public network. In low-incomeeconomies, however, the provision ofwater in informal settlements is dominatedby community-managed water schemesand small-scale private suppliers.

Community managed water schemes:Typically, these are facilitated by NGOsthat help the community to build ashared water point such as water kiosk,which is then managed and run bypeople employed by the community’smembers. These small-scale projects arecrucial to the provision of water in theabsence of other alternatives, but they

are not problem-free. Water charges arehigher and cross-subsidisation is notfeasible because the projects do notbenefit from economies of scale. Theirlong-term maintenance can be difficultbecause of a lack of social cohesion,financial resources, and technical andmanagement capacity.

Small-scale private water suppliers: Some50 per cent of the urban population inAfrica obtain water from small suppliers.These include water tankers, streetvendors and other water re-sellers(that is, households with a piped supplyor wells in their yards selling water tothose without access). Their services areproblematic for three reasons. First, theirprices are much higher, partly becausethey lack economies of scale. Second, thequality of the water is highly dependenton the quality of sanitation services inthe locale. Finally, where regulationis absent (which is often typical), pricesmay be subject to collusion. Whileit is desirable to regulate small, privatesuppliers, it is intrinsically difficult andcostly to do so because of their size,variety and number.

Policy RecommendationsThere are three fundamental reasonswhy governments should play a moreactive role in the provision of water andsanitation. First, universal access to safedrinking water has positive externalitiesin the form of lower rates of illness andmortality, an associated increase inproductivity, and reduced medicalcosts. The returns from universal watercoverage can be significant, varying fromUS$4 for each dollar invested in sub-Saharan Africa to US$17 in Latin America(Table 2). Second, privatisation is not anoption in poor and low-income areaswhere services are not profitable.


In industrialised economies,the transfer of risk to theprivate sector is consideredessential if efficiency gainsfrom privatisation of thedelivery of basic servicesare to reach end users.In SSA, however, theemphasis is on reducingthe risks faced by the privatesector in order to encourageprivate investment.

In the energy sector,the contractual terms of thePPA mean that demand riskrests with the government.All the power produced issold to the state-ownedtransmission utility and theamount sold is fixed so theprivate sector has nodemand risk.

Finally, as outlined above, there arespecific failures associated with non-state,small-scale supply systems.

In short, solutions to the lack ofsafe water services in the slumsof the developing world lie inthe following approaches:

Coordinated public sectorinterventions: Improving waterservices depends heavily onupgrading slum conditionsmore generally. Urban planningand tenure issues requiremultifaceted interventionswithin the remit of governments.

That requires thinking outside the“water and sanitation box” (IIED, 2003).

The expansion of public networkutility: Long-term policy should bedevised in light of the costs andbenefits of alternative systems ofprovision. There are serious doubtsabout the potential gains of bothprivatised network utilities (whereplanning and developmentchallenges persist) and small-scaleservice providers (because of pricingand quality issues). Ultimately, theseconcerns can be resolved by investingin the expansion of the publicwater and sanitation network.

Estache, A. (2006). ‘PPI Partnerships vs.PPI divorces in LDCs’, Review of IndustrialOrganization 29, 3–26.

Hutton, G., L. Haller and J. Bartram (2006).“Economic and Health Effects of IncreasingCoverage of Low Cost Water and SanitationInterventions”, HDR Office Occasional Paper.New York, UNDP.

IIED (2003) Water and Sanitation: WaterWill Deliver the Improvements Requiredfor Urban Areas. International Institute forEnvironment and Development. London.

UN-Habitat (2007). Enhancing Urban Safetyand Security: Global Report on HumanSettlements 2007. Un-Habitat. Nairobi.

World Bank (2004). Reforming Infrastructure:Privatization, Regulation, and Competition.Oxford University Press. Oxford.

Rates of access to water andelectricity in Sub-Saharan Africa (SSA)remain below those of other developingregions. More than 42 per cent of allAfricans—some 300 million people—lack access to an improved water supplyand 64 per cent—477 million people—do not have adequate sanitation.Only one in four Africans has access toelectricity, and in some countries accessrates are as low as 7 per cent.

Infrastructure financing requirementsfor water and energy in SSA exceed theamounts that donors and governmentscan provide. Policy-makers are lookingto the private sector to reduce the“financing gap” and to bring efficiencyto ailing utilities (Bayliss, 2009).

Private sector participation (PSP) ininfrastructure peaked in 1997 beforetailing off, but is now increasing (Figure 1).Telecommunications attracted mostinvestor interest. On a regional level, just6 per cent of total private investmentwent to SSA between 1990 and 2007(Figure 2) and over 70 per cent of this

was for telecommunications. Less than 1per cent was for water and sewerage.

Donors and country governments haveincreased their efforts to attract privateinvestment into infrastructure inSSA. Central to these policies andprogrammes is the reduction of riskfor the private sector.

The generally accepted principle of riskallocation is that risk should lie with theparty best able to manage it. While this isfairly straightforward at the two endsof the spectrum—construction risk lieswith the private investor, and politicalrisk with the government—there arenumerous grey areas in between, such asdemand risk, investment risk and the riskof fluctuations in the prices of key inputs,as well as currency devaluation.

In industrialised economies, the transferof risk to the private sector is consideredessential if efficiency gains fromprivatisation of the delivery of basicservices are to reach end users. In SSA,however, the emphasis is on reducing the

by Kate Bayliss,School of Oriental and

African Studies, University of LondonPrivate Investment inAfrican Infrastructure:Who Bears the Risk?


risks faced by the private sector inorder to encourage private investment.As a result, the burden of risk has shiftedtowards governments, taxpayers andend users—not because of their abilityto manage it, but because of a focuson the needs of private investors. Usingthe private sector to provide infrastructurealso poses additional risks for the publicsector (Bayliss, 2009). Some risk allocationmechanisms are explored below.

Investment RiskSector policies are increasingly designedto ensure that governments—rather thanprivate businesses—bear investmentrisk using sector restructuring andgovernment guarantees. The water sectorhas been restructured in a number ofcountries to separate ownership of theassets from the day-to-day runningof the service. The state assumes theasset ownership and is responsiblefor investment in infrastructure, whileoperations such as billing and revenuecollection are offered for privatisation.This approach has been adopted inSenegal, Ghana, Tanzania and Cameroon,and is planned for Angola.

The much-needed finance forinfrastructure investment is providedby the government and/or donors;examples are water privatisation inGhana and Tanzania, electricity in Kenya(Leigland, 2008) and planned electricityprivatization in Senegal. This is intendedto bring in private sector efficiency whilenot deterring investors by requiringthem to actually commit finance.

The private sector may makerecommendations or even decisionsregarding investment, but does not haveto finance the investment itself.

With electricity, PSP has mainly taken theform of stand-alone private generationplants. These are usually underwrittenby power purchase agreements (PPAs),whereby the state-owned powercompany makes a commitment tobuy all the power produced at a pricefixed in foreign currency. These contractterms are usually fixed for 20 yearsor more and are underwritten by asovereign guarantee, thereby protectingthe private sector from investment risk.

Demand RiskVarious methods are used to protectinvestors from demand risk in the water

Sector policieshave been reduced tocreating an attractiveenvironment forinvestors, to thedetriment of competingpriorities such asequitable access.Prices have increasedsubstantially andessential investmentin infrastructurehas been neglectedbecause attentionhas focusedon privatisation.

Source: World Bank Private Participation in Infrastructure Database.

Source: World Bank Private Participation in Infrastructure Database.


sector. These include payment to thecontractor based on availability of servicerather than demand, and a paymentsystem whereby the governmentcommits to top up fees if they fallbelow a certain level. Alternatively,remuneration can be in the form ofa flat rate that is not based on user fees.

In the energy sector, the contractualterms of the PPA mean that demand riskrests with the government. All the powerproduced is sold to the state-ownedtransmission utility and the amountsold is fixed so the private sector hasno demand risk.

Where demand falls below expectations,the private sector may seek to increaseprices to make up for a decline in theoverall revenue position. For example,when drought caused a reduction inpower consumption in Uganda becauseof load-shedding, the private distributorthreatened to raise unit prices inorder to compensate.

Input Cost and Currency RiskInvestors prefer prices (rather thansubsidies) to cover costs, since thisreduces their reliance on governmentpayments. Institutionalised tariff-settingpractices established in much of SSAallocate cost fluctuations to end usersthrough “automatic tariff adjustment” (ATA).

This means that variations in exogenouscosts such as inflation, exchange ratesand key inputs like fuel are automaticallyincorporated into the tariff structure forwater and electricity; this happened, forexample, in Ghana, Nigeria and CapeVerde. In Uganda, a clear reason for ATAis to provide operating companies with areasonable profit and to give confidenceto current and new investors.

ATA can lead to moral hazard. There is noreason for the private investor to try tolower exposure to currency devaluation,for example, when the cost can bepassed on to consumers. The use of ATApricing methods conflicts with the notionthat risks should rest with those bestable to manage them.

In SSA, end users are not best ableto manage the risk of exchange ratefluctuations and changes in fuel input

costs. They have no control over thesecosts and cannot diversify away fromessential services such as electricity andwater unless they increase the use of lesssafe alternatives. Consumers of utilityservices in SSA have the least bargainingpower. Such an approach is a cleardemonstration of the way in which theneeds of investors take priority overthose of end users.

Additional Risks for GovernmentsAs well as absorbing risks from theprivate sector, PSP raises further risks forgovernments. The process of preparingfor PSP is costly and demanding.Countries have restructured utilities anddrafted new legislation to encourage PSP,spending vast amounts on consultants,yet governments face the risk that therewill be little or no interest from theprivate sector.

In theory, competitive bidding isregarded as essential in order to deriveefficiency gains from privatisation.In practice, lack of competition in SSAseems to be overlooked.

In Cameroon, the government spentnearly a decade trying to privatise thewater utility before finally managing itin 2007. In Senegal, privatisation ofthe electricity distribution utility wasattempted in 1997 and again in 2001. Thegovernment is now trying for a third time.

In Lusaka, plans to privatise the waterutility were eventually shelved afterseveral years when it became clearthat the risk profile was still too high forinvestors. In Malawi, the Lilongwe andBlantyre Water Boards were readiedfor sale in 1996 but privatisation waseventually dropped in 2004.

Sometimes few bids are received.There was only one bid for theprivatisation of water in Dar es Salaam.

PSP creates information asymmetries.Regulation relies on informationprovided by the private firm. Governmentsface a high risk that firms will not complywith disclosure requirements, and theyare in a weak bargaining position whenfew bids have been received. Investorsboost their own profits from PSP invarious ways, such as paying themselves

technical assistance fees or using transferpricing to pay a subsidiary companyfor services or inputs. This lowers theprofitability of the concession butincreases the overall revenue ofthe investor (Leigland, 2008).

Such practices can be complex and mightnot be disclosed, making it virtuallyimpossible for the regulator to judgewhat profit is being made. Weak statecapacity is presented as a reason forintroducing PSP, but weak governmentskills can undermine the efficiency gainsPSP is supposed to bring if private firmsare not effectively regulated.

ConclusionPSP now has such momentum that it iseffectively a policy goal in itself. But theefforts that governments make in orderto mitigate the risks that the privatesector faces also mitigate the supposedgains from the introduction of PSPin infrastructure in SSA.

The private sector brings virtually noinvestment finance to water. The financethat is leveraged in the electricity sectoris at high cost and secured with long-term government guarantees.

Lack of competition and ineffectiveregulation threaten to counteract thesupposed efficiency benefits of PSP.By the time the state has enoughcapacity to effectively regulate theprivate sector it could, arguably,provide the service itself.

Furthermore, sector policies havebeen reduced to creating an attractiveenvironment for investors, to thedetriment of competing priorities suchas equitable access. Prices have increasedsubstantially and essential investmentin infrastructure has been neglectedbecause attention has focusedon privatisation.

Bayliss, K. (2009). “Private SectorParticipation in African Infrastructure:Is it Worth the Risk?” Working Paper No. 55.International Policy Centre for InclusiveGrowth (IPC-IG). Brasilia.

Leigland, J. (2008). “The Rise and Fall ofBrownfield Concessions: But Some Signsof Recovery After a Decade of Decline”, PPIAFWorking Paper 6. Public-Private InfrastructureAdvisory Facility (Washington, D.C.).


Affordability andFinancing of UrbanSewerage Systems

The sewerage systems inEurope, the United States andJapan were not developedthrough full cost recoveryfrom users; they were paid forby distributing the costsamong the public, usingtaxation and cross-subsidy

The explicit or implicitposition of most of theofficial donor publicationsis that, despite the clearbalance of benefits,household sewerageconnections cannotbe afforded.

The idea that the privatesector can or will investsignificant money indeveloping sanitationor sewerage systems isalso now knownto be wrong.

by David Hall and Emanuele Lobina,PSIRU Business School,University of Greenwich

Hall D. and E. Lobina (2008), “Sewerage Works –Public investment in sewers saves lives”,Public Sector International Research Unit (PSIRU),University of Greenwich, UK. Available at: <http://www.psiru.org/reports/2008-03-W-sewers.doc>.

The current discussion of sanitationmarginalises sewerage, usually on thegrounds that it is too expensive formost developing countries. Yet seweragesystems have a massive impact on publichealth, especially child health. This is aclassic example of a public good, andan affordable infrastructure investmentfor countries in which the great majorityof people need a connection.

Urban sewerage was first developedin the ancient cities of the Indus valleyaround 4000 BC, and is thus a SouthAsian invention. The first modernsystem was introduced in Londonin the nineteenth century, and hadfour key features:

1. the technology of a network ofsewers throughout the city, flushedby water;

2. public administrative structures tofinance, build and manage these“expensive works”;

3. a public environmental measure,rather than an attempt to alterindividual behaviour;

4. a universal public measure appliedto everyone, not selectively targeted(Mackenbach, 2007).

These same principles have been appliedin every high-income country in theworld. It was very expensive to developthe system and it was financed fromtaxation or massive cross-subsidies:“public financing of sanitationinfrastructure was seen as the onlyoption for ensuring investment adequateto protect public health” (UNDP, 2005, p. 83).

The same principle of cross-subsidycontinues to be applied in Europe at atransnational level. The European Unionraises taxes in all member states, theequivalent of €20 per person per year, to

support the cost of water and sanitationimprovements in the poorer countries.

The need for new urban sewerage ishighly concentrated in relatively fewcountries. Half of all the new sewerageconnections needed to meet a target ofhalving the urban population without ahousehold sewerage connection are in justfour countries: India, China, Indonesia andBrazil. Three-quarters of all the connectionsneeded are in just 20 countries.

The next question is how this need canbe met, and particularly how it should befinanced. The main policy advice ofdonors and development banksemphasises three key policy positions:

the insistence on the need to financedevelopments through cost recoveryfrom users;

the preference for a central rolefor the private sector;

the assumption that sewer systems aretoo expensive and thus unaffordable.

The UN World Water Development Report(WWDR), for example, states:

“Population growth and burgeoningwater demand have convinced mostpolicy-makers that the cost of watersystem development will increasinglyhave to be met by users, especially if theMillennium Development Goals (MDGs)are to be achieved … With private sectorparticipation—ranging from small watervendors to large private utilities—projected to increase in the next decades,the issue of pricing is critical”(UNESCO, 2006, p. 419).

However, the sewerage systems inEurope, the United States and Japanwere not developed through full costrecovery from users; they were paidfor by distributing the costs among thepublic, using taxation and cross-subsidy.


Source: PSIRU calculations based on World Bank, JMP (Joint Monitoring Programme of the World Health Organizationand the United Nations Children’s Fund), UNDESA (United Nations Department of Economic and Social Affairs), andHutton and Bartram (2008).

Table 1Cost of Household Connections for Water and Sewerageas Percentage of GDP

Country People needingconnection to

sewers (m.)

Aidneeded >1%

of GDP (US$ m.)

% ofglobal total

Annualcost (US$ m.)

Annualcost as % GDP

China 251 22% 7,878 0.30 -

India 184 16% 5,764 0.64

Indonesia 73 6% 2,291 0.73

Brazil 60 5% 1,881 0.21 -

Nigeria 43 4% 1,364 1.48 440

Philippines 34 3% 1,069 0.89

Pakistan 32 3% 1,000 0.82

Bangladesh 27 2% 855 1.22 156

Iran 25 2% 790 0.38 -

Congo DR 15 1% 485 6.29 408

Total in all 1,141 100% 34,900 2236developingcountries

Total of top 4 568 50%(China, India,Indonesia, Brazil)

An important step was to moveaway from private consumer choice tocollective public decisions to connect allhouseholds: “Connection to a main sewerwas compulsory for households, andtherefore it was covered by local taxes”(Barraqué, 2007, p. 124).

The idea that the private sectorcan or will invest significant moneyin developing sanitation or seweragesystems is also now known to be wrong.

A World Bank research paper, reviewingactual private investment in a 22-yearperiod from 1983 to 2004, concludedbluntly that:

“PPI [private participation ininfrastructure] has disappointed—playing a far less significant role infinancing infrastructure in cities than washoped for, and which might be expectedgiven the attention it has received andcontinues to receive in strategies tomobilize financing for infrastructure …PPI is inherently limited in scope forfinancing urban infrastructure forthe wide array of non-commercialinfrastructure services cities need”(Clarke Annez, 2006).

The explicit or implicit position of mostof the official donor publications is that,despite the clear balance of benefits,household sewerage connections cannotbe afforded. Measured as a proportion ofGDP, however, the capacity of developingeconomies to manage this form ofinvestment is surprisingly high.

Table 1 uses World Bank/World HealthOrganization estimates of the annualcosts of investments needed to meetthe MDGs, with full household waterand sewerage connections, for the 20countries that account for 90 per cent ofthe need for urban sewerage connection.

For many of the middle-incomecountries, the cost is less than half of 1per cent of GDP per year. China, Braziland India already plan to spend as muchon development of water and sanitationas these estimates suggest is needed forthe MDGs with the household-connection and urban-sewerage target.

For some lower-income countries, the costwould exceed 1 per cent of GDP per year.

If donor aid were concentrated on thesecases, the total aid required is aboutUS$2.2 billion per year, which also seemsperfectly affordable.

This level of spending makes greaterdemands on countries’ taxationsystems. Establishing sustainablepublic revenues, and building thecapacity of public authorities, arethus more important for developingthese services than cost recovery fromusers or creating opportunities forprivate investors.

From the other perspective, waterand sanitation investments can drivethe development of public financemechanisms, such as municipal bonds,as they did in European and NorthAmerican countries a century ago.

Donors should stop encouragingcountries to try to finance thedevelopment of sewerage systemsthrough cost recovery from users, andstop encouraging countries to believethat the private sector will makeany significant contribution toinvestment in sanitation.

Barraqué, B. (2007). “Small Communes,Centralisation, and Delegation to PrivateCompanies: The French experience”,Journal of Comparative Social Welfare 23 (2),pp. 121–130.

Clarke Annez, P. (2006). “Urban InfrastructureFinance from Private Operators: What HaveWe Learned from Recent Experience?”World Bank Policy Research WorkingPaper 4045. World Bank (Washington, D.C.).

Hutton G. and J. Bartram (2008).“Global Costs of Attaining the MillenniumDevelopment Goal for Water Supply andSanitation”, Bulletin of the World HealthOrganization 86 (1). WHO website<www.who.int/entity/bulletin/volumes/86/1/07-046045-ab/en/index.html>.

Mackenbach, J. P. (2007), “Sanitation:Pragmatism Works”, British Medical Journal334 (1), s17. BMJ website <http://www.bmj.com/cgi/content/full/334/suppl_1/s17?maxtoshow=&HITS=10&hits=10&RESULTFORMAT=&fulltext=Mackenbach+2007&searchid=1&FIRSTINDEX=0&resourcetype=HWCIT>,accessed June 2008.

UNESCO (2006). Water – A SharedResponsibility. The UN World WaterDevelopment Report 2. UNESCO. Paris.<http://www.unesco.org/water/wwap/wwdr2/index.shtml>, accessed June 2008.

UNDP (2005). Health, Dignity, Development –What Will It Take? Millennium Projectwebsite <www.unmillenniumproject.org/documents/WaterComplete-lowres.pdf>,accessed September 2008.


If the poor lose servicebecause they are unable topay, the network becomessmaller and its value for allcustomers is diminished.

The rationale forfinding ways to provideinfrastructure services tothe poor seems compellingfor a variety of reasons.

Since doing so willdoubtlessly requiresubsidies, it is critical thatthe subsidy, if it is to beeffective and sustainable,should be efficient,well targeted at thepoor, and professionallyadministered in waysthat limit politicisation.

Infrastructure policy andregulation is fraught with externalitiesthat cannot go unaddressed. Oneexternality that unquestionably intrudesinto infrastructure regulation is theprovision of regulated products andservices to those who cannot affordto bear the full cost of obtaining them.In dealing with the dilemma of makinginfrastructure available to the poor, somebasic issues are unavoidable. They can becharacterised as Why, Who and How.

Why?The basic reasons for supplying suchservices as electricity, water/sanitation,telecommunications and fuel to the poorare both humanitarian and pragmatic.Those basic services allow the poor tohave a better quality of life, be healthier,be better educated and informed, andlead more productive lives. The provisionof these services to areas where the poorare concentrated also increases thelikelihood of broader economicdevelopment that makes possible a long-term and sustainable reduction in poverty.

Enabling poor households to obtaininfrastructure services is not simply amatter of humanitarianism. There areoften overlooked network benefits foreveryone in keeping poor customers onthe network. If a cross-subsidy is designedso that tariffs for poor consumers requirethem to make payments that cover all ofthe variable costs of serving them, and tomake some contribution to the fixed costsof the system, then all other customersbenefit by retaining the subsidisedcustomers on the network rather thanlosing them and having to absorb thefixed costs that otherwise would havebeen paid by the poor.

In telecommunications, having morepeople connected enhances the value ofnetwork access for everyone. If the poor

lose service because they are unable topay, the network becomes smaller and itsvalue for all customers is diminished.Enabling the poor to retain electricity,water and other infrastructure servicemay also have net social benefits inthe areas of health, the environment,encouragement of microenterprisesand even education. Finally, if affordableaccess is provided there is less incentiveto illegally obtain service and a greaterlikelihood of producing some revenuerather than none at all. Subsidies to thepoor therefore provide real benefitsand do not only entail costs.

Who?Despite the indisputable evidence thatregulatory decisions about infrastructurecan have significant social effects, there isa vigorous debate about whetherregulators are the appropriate authoritiesto address those issues, or whether suchdecisions should be left to policy-makers.

Those who contend that regulatorsshould refrain from intruding intoexternalities such as poverty argue thatregulators are given specifically-definedlegal powers. The exercise of thosepowers may well have effects far beyondthe regulated sector but, in the viewof those who take a narrow view ofregulatory powers, that does not justifyregulators stepping outside thoseconstraints. Proponents of that view,however, neither deny the effectsof regulatory actions nor necessarilybelieve that those effects should gounaddressed. Rather, advocates oflimited regulatory powers contendthat addressing the external effectsof regulatory policies and decisionsshould be left to broader policy-makers,such as legislators and/or executive figures.

Legislative and executive decision-makers, it is argued, are more

by Ashley C. Brown,Harvard Electricity Policy Group,John F. Kennedy School of Government,Harvard University

Poverty Issues inInfrastructure Regulation:Why, Who and How?


accountable to the public in makingwhat are essentially political decisions.Moreover, political authorities haveaccess to broader resources than thoseavailable to regulators (such as the publictreasury and taxing powers) to addressthe external effects. Some maintain thatsince the resources available toregulators are the revenues collectedfor regulated services and products,any effort to direct those revenuestoward social objectives—such asalleviating poverty—will inevitablydistort price signals that will adverselyaffect the overall efficiency of the sector.

Of course, a countervailing argumentis made by those who contend thatregulators must be conscious of, andperhaps should specifically address, theexternal effects of their decisions. Thereare several arguments for that point ofview. The first relates to the fact simplybecause laws may not explicitly addressexternalities does not necessarily meanthat policy-makers did not intendregulators to address them, but onlythat they did not or could not haveanticipated all of those effects. Moreover,most regulatory statutes require thatregulators fully consider the impactof their decisions on consumers.

A second argument is that regulators,being somewhat insulated politically,can address poverty issues in a moretargeted, efficient, less politicised andtherefore more sustainable manner thanpoliticians.1 Hence there is a trade-off:on the one hand, regulators may createcross-subsidies in order to addresspoverty issues, and thereby make pricingless efficient; on the other hand, theyare more likely than politicians tomake subsidisation more efficient andsustainable. On balance, the trade-offmay be worth making. In many cases,political officials, in order to avoidmaking difficult choices, would simplyprefer that regulators assumeresponsibility for the poor.

How?Regardless of who decides, thereare fundamentally different ways ofdesigning subsidies and cross-subsidiesfor the poor. Each approach has bothbeneficial and adverse aspects. They fallbroadly into four different structural

approaches: (i) consumption-based;(ii) age-based; (iii) geographically-based;and (iv) income-based.

Consumption-basedThe consumption-based approachassumes that, as a general rule, the poorconsume less infrastructure service thando more affluent customers. Thus tariffsmight be designed so that customers payless for an initial block of consumptionthan for consumption above thatthreshold (for example, $0.05 per kWh ofelectricity per month for the first 60 kWh,and $0.09 per kWh for every kWhconsumed beyond 60 kWh). Anothervariation of the consumption-basedapproach is to use a two-part tariff(one part reflecting fixed costs and theother reflecting variable costs) and toallocate a greater share of the coststo the variable part of what thecustomer pays. Since the fixed costs areunavoidable but the variable costs canbe avoided by reducing consumption,low-use customers are advantaged.While the latter approach is notordinarily used specifically to help thepoor, those who favour a consumption-based approach have often argued thatit serves that purpose.

The benefits of the consumption-basedapproach are that it is relatively easy toadminister, it encourages conservation,it is generally consistent withlongstanding tariff practices, and it iseasily understood. If pre-paid meters areused, it also has the benefit of being self-enforced. Those benefits, however, maybe outweighed by the weaknesses of theapproach. The most important weaknessis that its basic assumption—thatthe poor and low-volume users areessentially the same consumers—mayvery well be wrong. Many low-volumeconsumers are not necessarily poor, suchas the elderly, single-person householdsand users in vacation homes.

Since eligibility is based on consumption,not income, many relatively affluentcustomers will gain from tariffs designedto benefit the poor. Additionally,modifying the allocation of costsbetween fixed and variable costs inorder to subsidise the poor better, asopposed to actually reflecting costs, cansend significantly distorted price signals

to the consuming public in general.Consumption-based approaches,therefore, while relatively easy to effect,may be highly inefficient.

Age-basedAge based programmes assumeeither that age and poverty are closelycorrelated, or that age groups such as theelderly or children merit subsidies as partof a general social welfare programme.Since this article is about poverty, it doesnot discuss the latter motivation. Suchprogrammes, particularly when focusedon retirees, are often politically popularand are therefore appealing to somepoliticians. The programme design isquite straightforward: either throughsome methodology or administrativefiat, a discounted tariff is establishedfor all customers who are age-eligible or,perhaps, who have age-eligible personsin the household.

The benefits of an age-based programmeare that it is both easy to administer and,absent fraud, is utterly transparent interms of who benefits. The problem,however, is that many households haveelderly and children who are not poor,and who therefore do not need a subsidyfor utility service. Hence age-basedprogrammes are not poverty-specificand are therefore highly inefficient.As noted below, it is possible tosuperimpose an income test on an age-based programme, but that means thata decision has been taken to makeservice affordable to some poorhouseholdsbut not to others.

Geography-basedUsually, geography-based programmesare based only partly on considerationfor the poor. More often than not theyare designed to promote rural servicessuch as electrification, or to fostereconomic development in a particularregion. As with age-based programmes,a tariff is set on the basis of somemethodology or by administrative fiat,and that tariff provides a discount tocustomers located in a defined territory.Understandably, such programmes areappealing to local politicians.

The benefits of a geography-basedprogramme are that it is very simpleto administer and, like age-based


programmes, is transparent in termsof identifying the beneficiaries.The problem is that most if not allgeographic regions have poor andnon-poor residents. Thus the subsidywill have many unintended beneficiaries,a circumstance that makes it inefficientand of dubious sustainability. It is alsohighly subject to politicisation, as hashappened in India, where rural subsidiesare prevalent and are very difficult toeliminate or even reduce once theyare in place.

Income-basedThe income-based approach isconceptually simple. Poverty is usuallydefined in terms of family income, andcustomers whose income is below acertain threshold are offered servicesunder tariffs designed to maintainservice to the poor. Once eligibility isdetermined, there may be two basicsecond stages. One is to apply oneof the other approaches (consumption,geography, or age) and superimposean income eligibility test for them sothat customers can only qualify for thesubsidy if their income qualifies andthey meet one of the other criteria.

The alternative second step is to devisea tariff geared to income. An exampleis a tariff that requires income-eligiblecustomers to pay either a statedpercentage of their income or the full bill,whichever is less. Hence the customernever has to pay more than thatpercentage of income. The percentagecan be derived from what a typicalhousehold pays for that service.2 If thepercentage of income is less than thefull amount owed, either the balance isforgiven or, if it is not entirely forgiven,at least the service cannot be terminatedfor non-payment as long as the income-percentage payment is current.

The benefit of an income-based systemis that it specifically targets the verifiablypoor, and thus the subsidy itself is highlyefficient. The effect of the programme isalso quite transparent because, absentfraud, it is beneficial only to peoplewho are verifiably poor. Income-basedprogrammes also put the ability to avoiddisconnection for non-payment into thehands of the poor, thereby eliminating aconvenient excuse governments and

companies often use for failure toenforce payment obligations. Theproblem is that the system is difficultto administer because it requiresdocumentation of income-eligibility,a process that can be labour-intensiveand subject to fraud. This difficultymight be mitigated when there are othergovernment programmes that requireincome, eligibility and a person’sparticipation in such a programmeautomatically makes them eligiblefor an income-based payment system.

As regards income-based payments(as opposed to income-eligibilityrequirements), economists have arguedthat the price signals are incorrect sincethe customer payments are not linkedto consumption. Thus, it is argued,income-based programmes provide anincentive for inefficient and wasteful useof energy. For many customers that maybe true, but the poor cannot afford tobuy as many appliances that use energyor water, and thus it is not clear thatprice signals carry much significance.Additionally, customers being served onan income-based tariff can be required totake part in energy-efficiency programmes.

ConclusionThe rationale for finding ways to provideinfrastructure services to the poor seemscompelling for a variety of reasons.Since doing so will doubtlessly requiresubsidies, it is critical that the subsidy,if it is to be effective and sustainable,should be efficient, well targeted at thepoor, and professionally administeredin ways that limit politicisation. Giventhe considerations set out above, it issensible that regulators be empoweredto play a key role in designing andadministering the programme, that theprogramme include elements that focuscarefully on providing benefits only tointended beneficiaries, and that it doesso on an efficient and sustainable basis.

1. There are innumerable examples around the worldof well-intentioned politicians who create subsidiesfor the poor but are unable to resist the entreaties ofmore affluent customers seeking to be deemedeligible for the subsidised rates. Rural subsidiesfor electricity in India and natural gas subsidies forthe elderly in Philadelphia come to mind.

2. In the US State of Ohio, the first to adopt such asystem in 1983, the percentage was 15 per centof income for gas and electricity combined.

Enabling the poorto retain electricity,water and otherinfrastructure servicemay also have netsocial benefits inthe areas of health,the environment,encouragement ofmicroenterprisesand even education.


Metering consumptionprovides strongdisincentives againstwasteful consumption,reducing total demand andthereby helping utilitiesmaintain adequate pressurelevels in outlying districts.

Introducing water meteringon a more widespread basisin developing countriespromises to have numerouspositive effects, especiallyfor poorer city-dwellersliving on the urban fringe.

Metering should loweroverall demand, therebyallowing utilities to expandservices and improvepressure levels in outlyingdistricts with fewer majornew investments insystem capacity.

Two contrasting yet related scenescan be observed in Argentine citiesduring hot summer months. In affluentcentral districts, apartment buildingsuperintendents begin the day bywashing off the sidewalks in front oftheir residences, waving hose nozzlesfrom side to side as if water were free.Meanwhile, in outer and often lessaffluent districts, water pressure falls tosuch low levels that utilities must rationservice; running water may only beavailable a few hours a day.

Water metering systems can help rectifysuch unfair allocations of a scarce resource.Metering consumption providesstrong disincentives against wastefulconsumption, reducing total demand andthereby helping utilities maintain adequatepressure levels in outlying districts.

Reducing total demand, where there isshortage of water, also enables utilities touse existing infrastructure more efficiently,thereby freeing up system capacity forexpansion into the urban fringe, where theurban poor tend to live in many developingcountries. This is very important, becausethe construction of facilities such as waterand sewerage plants does not tend tobe accorded political priority; after all,they are not as visible as bridges orschools and do not deliver concretebenefits to individual constituents.As a result, governments tend to under-invest in such “invisible” infrastructure.

Water metering, along with private sectormanagement and regulation, wasadvocated by international institutionsunder the Washington Consensus reformprogramme of the late 1980s and 1990s.Despite the aforementioned benefits foroverall system efficiency and for poorercity residents in particular, efforts tointroduce water metering have met keenpolitical resistance in developing

countries. This article examines efforts tointroduce water metering by privatisedutilities in the Argentine provinces. Ithighlights the types of political resistanceencountered and the strategies identifiedby utilities and political officials toaddress household concerns.

Water Metering Provisions in Argentinaunder Washington Consensus ReformsIn response to pressure from the nationalgovernment, most of the Argentineprovinces chose to “modernise” theirwater and sanitation systems duringthe 1990s: 11 provinces granted 30-yearmanagement and investment contracts(concession contracts) to privateoperators, and two others establishedstate-owned private companies thatwould be monitored by independentregulatory agencies.1 Contracts and theenabling laws establishing regulatoryagencies stipulated very ambitious watermetering targets for the new serviceproviders in many cases.

Table 1 shows the eight provincialconcessions granted during the 1990sthat had stringent targets. Note thatthese contracts typically requiredconcessionaires to install meters forbetween 50 and 100 per cent of theirresidential customer base withinthe first few years of the contractor face financial penalties.

Problems of ImplementationBetween 10 and 15 years after the startof the Argentine concession contracts, asTable 1 indicates, no concessionaire hasmet its contractual targets. Only two havecome close to meeting their goals: Aguasde Corrientes and Servicio de Aguas deMisiones (SAMSA).2 Importantly, this lackof progress is observable in concessionsthat have been widely regarded assuccessful in terms of extending servicesto new users, such as Aguas de Salta.

by Alison E. Post,University of California,

BerkeleyThe Paradoxical Politicsof Water Metering inArgentina

1. The contract for the Buenos Aires metropolitanarea was granted by the national government ratherthan a provincial government. Three other provincialconcessions were granted after the 1990s: Catamarca,La Rioja and a contract encompassing one part ofBuenos Aires province.

2. As Table 1 indicates, only one of the eight contractswas cancelled: the Azurix contract. The rest remainedin place as of January 2009.

3. See the August and September 2004 issues ofEl Tribuno, the provincial newspaper for Salta, Argentina.

4. While tariff hikes of 100 per cent in the provinceof Tucumán received international attention, moretypical in Argentina were increases of 5-20 per centat any one time.


What has stood in the way ofimplementation? One might supposethat tariff systems did not provideconcessionaires with financial incentivesto switch consumers from fixed chargesto metered consumption. In theArgentine contracts listed above,however, concessionaires could generallycharge higher tariffs when consumptionwas metered and when householdsconsumed above a certain allotment.Rather, the main stumbling block hasbeen consumer resistance. The historicallyquiescent population of Santiago delEstero province, for instance, took to thestreets to march in protest against theinstallation of water meters, and secureda multi-year delay in the meteringprogramme (Tenti, 2005, p. 165). Meanwhile,in neighbouring Salta province,individuals vandalised newly-installed

water meters, staged major protests inthe central city, and voted not to acceptmetering at neighbourhood assemblies.3

What prompted these strong publicreactions against meter installation?Let us start with the obvious explanations.First, metering was introduced at thesame time as other controversial measuresdesigned to move utilities to cost-recovery,including scaled tariff increases, the morevigorous enforcement of bill payment,and the “regularisation” of clandestineconnections.4 Initially, regulatoryframeworks for most of the contracts alsorequired households to pay for the costof meters in instalments. Governmentsand firms responded to protests sparkedby this second issue by shifting thefinancial burden for meter installationonto the firm or government in most cases.

There were, however, more subtlereasons why consumers rejectedmetering, reasons that stem fromwidespread reservations about themotives of public and private institutionsin societies plagued by corruption.The fact that different householdspaid different rates, for instance,aroused scepticism; who was to ensurethat meters functioned correctly andbills were being calculated fairly?Technical difficulties only contributedto such doubts. Invisible leaks inhousehold pipes, for example, couldlead to extremely high monthlyconsumption rates. In areas wherecompanies were unable to provideconstant levels of water pressure,customers also wondered if they werepaying for air rather than water comingthrough their pipes.

Table 1Argentine Concessions from the 1990s with Stringent Water Metering Targets* and Progress toward Water Metering Goals

Concessionaire(Province)

Year ofContract

Contractual Target

Aguas de Corrientes S.A.(Corrientes)a

Aguas de Formosa S.A.(Formosa)b

Aguas de Santiago S.A.(Santiago del Estero)c

Aguas Cordobesas S.A.(Córdoba)d

Aguas de Salta S.A.(Salta)e

Obras Sanitariasde Mendoza S.A.(Mendoza)f

Azurix S.A.(Buenos Aires)g

Servicio de Aguasde Misiones S.A.(Misiones)h

1991

1995

1997

1997

1998

1998

1999

1999

Meters for 100% of customersby 3rd year of the contract.

Meters for 100% of non-residentialusers within 12 months; meters for50% of residential users within 2 years.

Meters for 100% of non-residentialusers within 2 years; meters for 50%of residential users within 2 years(except in two villages).

Meters for 20% of households by endof year 1, 40% by end of year 2,100% by end of year 5.

Meters for 10% of households by the endof year 1; by year 2, 30%; by year 3, 50%;by year 4, 70%, by year 5, 90%.

Meters for 95% of customersby 2005.

Meters for 40% of households by year 5;70% by year 10, 100% by year 15.

Meters for 90% of users in Posadas byyear 3; for 90% in Garupá by year 6.

Metering rate for residentialusers circa 1997**

88% (9/97 - 8/98)

19% (1997)

0% (11/97 - 8/98)

0% (5/97 - 4/98)

0% (8/98 - 9/98)

0% (11/97 - 10/98)

37% (1996)

58% (1997)****

2003: 96%2004: 92%

2003: 15%2004: 14%2005: 14%

2003: 0.4%

2003: 16%

2003: 1%2004: 8%

2003: 5%2004: 8%2005: 8%2006: 9%

2003: 40%

2003: 77%*****

Metering rate in 2003,2004, 2005, 2006***

Notes: * Not included: concession contracts for Tucumán, Santa Fe, and the Buenos Aires metropolitan area, which had less stringent metering targets; ** Metering rates calculated fromdata reported by companies in ENOHSA-COFES (1999); residential users comprised the vast majority of accounts, and consumption by non-residential users was typically metered beforeprivatisation; *** Metering rates reported by companies from the ADERESA benchmarking project, 2003, 2004, 2005, 2006; **** Company (SAMSA) records indicate that the metering ratewas only 18.4% at the beginning of the concession. An additional 20% of consumers were billed at metered rates but had non-functioning meters or no meter at all; ***** SAMSA reportsthat, as of 2008, the company meters 95% of its consumer base.

Source: a.: Pliego de Bases y Condiciones, Capítulo 10; b.: Pliego de Condiciones Particulares, Anexo V, Parte E; c.: Pliego de Bases y Condiciones, Anexo V, Artículo 14.5; d.: Pliego de Basesy Condiciones, Anexo XIII, Artículos 1.14, 1.15; e.: Contrato de Concesión, Artículo 4.2.1; f.: Contrato de Concesión, Anexo II, Capítulo III; g.: Contrato de Concesión, Anexo F, Artículo 2.2;and h.: Contrato de Concesión, Anexo I.


Political discontent andpopular mobilisation inBolivia led to the earlytermination of the privatecontracts in 2005.

Since the concessionairedid not comply with thenumber of new connectionsstipulated in the contract,the government feltcompelled to demandtermination of the contract.

Ways ForwardThe difficulties encountered in theArgentine provinces highlightthe importance of approaching theintroduction of meters in politicalterms; consumer expectations andscepticism must be anticipated andaddressed pre-emptively. Fortunately,one can glean some effective strategiesfrom the Argentine concessions.

Metered tariff formulas must be clearand intelligible to consumers whenthey read their bills.

Rates for modest levels of consumptionshould be lower than those for higherlevels, and a level of consumptionadequate for modest family livingshould cost no more than the fixed-rate regime.

Meter installation will meet lessresistance if firms or governments footthe cost of installation. Users will ofcourse end up funding metersthrough regular tariffs, presumingthe system is not subsidised, butusers are unlikely to see this.

Utilities can send households billscontaining meter readings for severalmonths before metered billing is

utilities to expand services and improvepressure levels in outlying districts withfewer major new investments in systemcapacity. Recent efforts to implementmetering under the WashingtonConsensus, however, have facedsignificant political resistance.

Future efforts to introduce meteringshould be preceded by careful thinkingabout political strategy, particularly thequestion of how to address longstandingcitizen scepticism about the motivesof public and private institutions.The aforementioned strategies identifiedin the Argentine context may be of use indealing with consumer resistance inother settings.

Asociación de Entes Reguladores deAgua Potable y Saneamiento de AméricaLatina (ADERASA) (2003, 2004, 2005, 2006).Ejercicio Anual de Benchmarking.Processed data.

ENOHSA-COFES (1999). La Cobrabilidadde los Servicios Sanitarios en Argentina.Buenos Aires, ENOHSA-COFES.

Tenti, María Mercedes (2005). La Reformadel Estado Santiagueña: La Gestión políticaen los 90’. Santiago del Estero, Argentina:Ediciones Universidad Católica de Santiagodel Estero.

introduced. This gives individualsa sense of whether they shouldmoderate consumption levels beforethe new rates come into effect.

Utilities can schedule meter installationafter stabilising water pressure in givendistricts, so as to avoid disputesabout measurement.

Finally—and most effectively,according to officials of the Misionesconcession—utilities shouldproactively identify households withabnormal consumption levels before theintroduction of metered billingand send specialised techniciansto investigate if households haveserious leaks on their property.According to most contracts,fixing such leaks is a household’sresponsibility; such proactive effortsby a utility, however, will helpneutralise the most likely opponentsto metering once it is introduced.

Introducing water metering on a morewidespread basis in developing countriespromises to have numerous positiveeffects, especially for poorer city-dwellersliving on the urban fringe. Metering shouldlower overall demand, thereby allowing

A “Successful Privatisation”Was Nationalised in Bolivia.Why?

by Degol Hailu, Rafael Osorioand Raquel Tsukada,

International Policy Centrefor Inclusive Growth

Several developing countriescorporatised and privatised their waterprovision on the grounds that the publicsector lacked capacity to invest inmaintenance and service expansion.The arguments supporting privatesector participation in the provision ofbasic utilities are greater efficiencyand a lower burden on public finances.

Privatisation, therefore, is believed toimprove access to basic services throughlarge investments in maintenance,network expansion and excellence in

delivery (regularity, more connections,higher quality and so on). Governmentswould play a regulatory role, setting theexpansion targets and controlling tariffs.

There is scepticism, however, aboutwhether profit-oriented concessionaireswould really invest in expanding coverage.Concessionaires will not always expandthe water grid to poor areas due to lackof market incentives. Private utilities maynot find it profitable to supply slums-dwellers, for instance. The high incidenceof illegal connections and the low-


1. A caveat in the analysis arises from the fact thatCochabamba was privatised for a short period ofless than a year in 1999 (see Hailu and Hunt, 2008).For a detailed escription of the empirical frameworkand limitations of the analysis, see Hailu et al. (2009).

2. We calculate a performance index based onKakwani’s achievement function. The index is anon-linear transformation of the original coverageindicator, taking the starting level into account andallowing specification of the appreciation of degreeof effort (Kakwani, 1993).

income status of households may hindercost recovery and discourage privateinvestments. Moreover, there is a risk ofagency capture, preventing governmentsfrom fulfilling their regulatory role.

Ascertaining whether privatisationimproves access to utilities is an empiricalmatter. Bolivia provides an interestingexample, having privatised the waterutility in two important cities in the lastdecade. Water provision in La Paz andEl Alto was privatised between 1997and 2005. Private participation waseffected through “concession contracts”.

An international water consortium wonthe concession in those two cities.A 30-year contract (1997–2027) was grantedfor the operation and maintenanceof, as well as investments in, waterand sewerage provision. The upgradedinfrastructure would remain under stateownership after the concession period.In the other two largest Bolivian cities,water provision remained cooperativelymanaged (Santa Cruz) and under publicprovision (Cochabamba).1

Political discontent and popularmobilisation, however, led to the earlytermination of the contracts in 2005.Why were the private concessions endedprematurely? When the concessioncontracts were drawn up, the governmentand the company agreed coveragetargets: by 2001, installing 71,752 newwater conections—roughly universalaccess in La Paz and 82 per cent coveragein El Alto. Yet the private provider failedto meet the agreed targets. In addition,upward adjustment of tariffs provokedpublic outrage. Eventually theunpopularity of cost recovery and the

failure to meet legally binding targets ledto the termination of the contract.

In what follows we tell an empirical story.We use data from national householdsurveys carried out by Bolivia’s InstitutoNacional de Estadistica (INE) between 1992and 2005. We analyse access to water inthe period before and after privatisationin the cities that privatised waterprovision and in those that did not. Thisallows us to determine how far the privateprovider attempted to push the limits ofprivate provision and in the process howfar, paradoxically, the poor benefited.Access to water is considered from threeperspectives: delivery (coverage rate),equity (concentration of access) andaffordability (water expenditure).

DeliveryThe most fundamental indicator forassessing delivery is the water coveragerate—a headcount of households within-house access to piped water. Access tothe utility is closely related to income:connection fees are an entry barrier forthe poor, and infrastructure (extendedwater grids) barely reaches slums orinformal settlements. Hence the poorestquintiles of the population usually havemore limited access to piped water.

The analysis shows that in-houseaccess to water has expanded morethan proportionally in cities withprivate provision. In Cochabamba,access deteriorated in this period,while in Santa Cruz the coverage rateremained fairly constant (see Table 1).Furthermore, the results point to apositive relationship between havingaccess to water and living in citieswhere the water utility was privatised.

It is true that the cities had differentcoverage rates at the start of theperiod. The higher the initial coverage,the more difficult it might be toexpand access further. A performanceindex2 accounts for the effort madeby the utility to increase coverage.Taking that into account also, accessto in-house piped water still seems tohave increased substantially more inLa Paz and El Alto with privatisationthan in the other cities.

EquityEquity refers to providing all householdswith the same level of access to utilitiesdespite their income status. A policy-maker could redistribute wealth eitherby transferring physical assets from richto poor households or by increasingprovision to the poor more thanproportionally. This latter approachseems to be reasonable in the caseof utility infrastructure.

Access to piped water became moreequitable (deconcentrated) underthe private concessions (see Figure 1).In 2005, the difference in coverage ratesbetween the poorest 20 per cent and therichest 20 per cent of the population fellfrom 30 to 4 percentage points in El Altoand from 15 to 4 percentage pointsin La Paz, compared to the period priorto privatisation. A pro-poor increase inaccess to water is especially noticeablein El Alto. Extending access to the pooresthouseholds in particular led to a sharpde-concentration in access to water.

An already high coverage rate in theupper quintiles of the population,however, does not necessarily imply anextension of the water supply to lower-income areas. As mentioned earlier,private investment lacks marketincentives to serve areas of low

Table 1Piped Water Coverage Rate (%) in Four Bolivian Cities

Source: Authors’ calculations based on INE.* One year before privatisation. ** One year before renationalisation.

1996* 2001 2005**

La Paz 87.9 83.4 97.9 88.6 79.2 98.2 96.6 96.2 100

El Alto 76.2 55.6 85.6 69.4 78.1 87.4 87.8 86.0 90.8

Cochabamba 76.5 63.3 84.7 78.6 58.5 93.1 61.8 25.9 74.2

Santa Cruz 95.5 90.2 98.6 95.8 92.2 100 95.6 90.1 100

20%richestTotal 20%

poorest20%

richestTotal 20%poorest

20%richestTotal 20%

poorest


Note: The concentration curves show the distribution of access to water in each city. The lowest quintile (the poorer 20%)of population in El Alto, who had in 1996 14.6 percent of all water connections, increased its share to 19.5 percentby the end of the concession period. In a perfect equality world, the bottom 20 percent of population should hold20 percent of the total water access. As the curves move inwards (toward the equality line), a more equal distributionof the access to water is observed.

Source: Prepared by the authors based on household survey data released by INE.

purchasing power. Hence the pro-poorincrease in water access in La Paz andEl Alto stemmed mainly from enforcementof the targets in the concession contract.The contracts explicitly demanded thatthe companies provide services to low-income areas and, as stated, the targetwas to reach very high levels of coverage.

AffordabilityHouseholds should not spend morethan 3 percent of their income on waterbills. This is the acceptable affordabilitythreshold. Although data on householdwater expenditure is not available for theperiod immediately before privatisation,we can compare expenditure over 2001and 2005. Before the concessions inLa Paz and El Alto, a 19 per cent upwardadjustment in water prices was offeredas an inducement to private companies.In 2001, the first revision of targets

(scheduled every five years after theconcession) allowed a further 12 per centincrease in water prices.

In a cross-city analysis, as expected,the poorest income quintiles reveal thehighest incidence of households thatcannot afford water. In 2001, the shareof households that spent more than 3per cent of their income on water billswas as high as 64 and 78 per cent forthe poorest quintiles in non-privatisedCochabamba and Santa Cruz,respectively. Throughout the period,moreover, average household waterexpenditure, by income quintiles, waspersistently higher in these cities thanin those with privatised provision.

The burden of water expenditure washeaviest for poor households in SantaCruz, which spent on average 8.8 per

cent of their income on water in 2001,and 5.9 per cent in 2005. The poorestquintile in La Paz and Cochabambaalso had a heavy burden, respectivelyspending an average of 4.7 and 4.6percent of their income in 2001. In 2005,however, the poorest in La Paz couldafford water, spending on average 2.6per cent of income, while Cochabamba’spoorest households still spent abovethat threshold on water.

Concluding RemarksFrom a delivery perspective, the networkexpanded more in the cities whereprovision had been privatised than inthe others. Of course, we cannot tellwhether this would have been theoutcome in La Paz and El Alto if therehad been no private intervention. Indeed,household income has risen over theyears, which would naturally lead toan increase in access to water becauseof the affordability of connection fees.Nonetheless, an interesting featureof these cities is the large, pro-poorcharacter of water services expansion.The explicit five-year expansion targetsimposed by the concession contractsseem to have played a critical role inthe high growth of new connections.

Apart from the expansion of access, theprice of water services and households’capacity to afford water must also betaken into account. It is usually acceptedthat households would spend more onwater if the utility were private.

That is not necessarily what we havefound in a cross-city comparison in theperiod of privatisation. It is true that,before privatisation, water tariffs areadjusted so as to offer an attractive costrecovery outlook for prospective firms.In this case, households suffer a one-offwelfare loss. But quite a large proportionof poor households in the cities wherethe utility is public or cooperativelymanaged could not afford water either.Hence affordability seems to be aproblem in these cities as well.

The chief message of this analysisis that privatisation contracts notalways fare well in poor countries.The concessions in La Paz and El Altofailed. Though the poorest householdshad better access than before, price


Of those that earned lessthan the minimum salary in2007, for instance, only 69per cent had access to pipedwater supply, whereas 94per cent of those earningmore than 20 times theminimum salary had access.

Despite its abundant natural andhuman resources and its great potential foreconomic development, Brazil faces manysocial and economic challenges. There areof course many public policies available,but access to adequate water supplyshould be part of any initiative to thatend. The following statistics, compiled fromthe National Household Sample Surveys(PNAD) in several years, bear that out:

About a third of households withaccess to piped water supply inBrazil are in the rich Southeast region,whereas about half of the populationwithout access to water is in the poorNortheast region.

About 51 per cent of householdswithout access are in rural, isolatedurban or non-urbanised areas.

The illiteracy rate among individualswithout access is relatively very high,about 10 percentage points higherthan among those with access.

Individuals without access haveappreciably fewer years of studythan those with access. A striking 31per cent of those without access haveless than one year of study, and morethan 23 per cent have only betweenone and three years of study.

The characteristics associated withhouseholds and individuals without

access are consistent with those usuallyfound in low-income families. Moreover,even though access to water supply hasincreased significantly in the recent past,its distribution is considerably skewed.Access by households in the lowerincome brackets is clearly substandard(see Figure 1). Of those that earned lessthan the minimum salary in 2007, forinstance, only 69 per cent had access topiped water supply, whereas 94 per centof those earning more than 20 times theminimum salary had access.

It stands to reason, then, that furtherincreases in coverage of water supply

Private SectorParticipation and Accessto Water Supply in Brazil

by Andre Rossi de Oliveira,Department of Economics, Portland StateUniversity and Center for Studies onMarket Regulation, University of Brasilia

Note: MS = minimum salary, which was equivalent to about US$200 in June 2007.Source: National Household Sample Survey (PNAD).

increases created a negative perceptionamong consumers. Spending oninfrastructure and service provisionreaches the limits of profitability.The company could no longer exploit theability to pay and engage in cost recovery.

Furthermore, since the concessionairedid not comply with the number of new

connections stipulated in the contract,the government felt compelled todemand termination of the contract.

Hailu, Degol and Portia Hunt. (2008). “UtilityProvision: Contract Design in the Interestof the Poor”, IPC-IPG Policy Research BriefNo. 10. International Policy Centre forInclusive Growth. Brasilia.

Hailu, Degol, Rafael Osorio and RaquelTsukada (2009). “Privatisation andRenationalisation: What Went Wrong inBolivia’s Water Sector?” IPC-IG WorkingPaper No. 58. International Policy Centre forInclusive Growth. Brasilia.

Kakwani, Nanak (1993).“Performance in Living Standards:An International Comparison”, Journal ofDevelopment Economics 41, pp. 307–336.


techniques to data from the NationalSanitation Information System (SNIS).1

This includes information on severaltechnical indicators related to waterservices over the period 1995–2003for a large number of municipalities.

The control variables in our model areGDP per capita, productivity, investment,and cost variables that try to captureeconomies of scale and density, besidesauxiliary dummies. According to ourresults, private provision increasesaccess to water supply by more than 26per cent compared to public provision.

More importantly, the impact of privateprovision is higher in the lower incomedeciles, indicating that the benefits ofhigher access rates due to privatisationaccrue mostly to poorer municipalities.

These results, however, do not takeinto account possible “inertia” effects.This means that our results might bespurious if private provision weredisproportionately introduced inmunicipalities that had higher accessrates at the outset. To address this issue,we use a different dataset that allowsus to compare municipalities beforeand after the privatisation of watersupply services.

The database is from the Brazil HumanDevelopment Atlas (HAD), made availableby the United Nations DevelopmentProgramme in Brazil. This databaseconsolidates socioeconomic data availablein the 1991 and 2000 BrazilianDemographic Censuses.

We use a difference-in-differencesmethod to compare the change inoutcome in the treatment group beforeand after the treatment (here, privatisation),to the change in outcome in thecontrol group (here, the municipalitiesthat did not privatise their water services).

By comparing changes, it is possibleto isolate the effects of treatment fromother factors affecting the outcome.As in the previous estimations, thismethod generates a positive andsignificant estimated coefficient forprivate provision, confirming thepositive impact of privatisation onthe population’s access to water services.

It is safe to say, therefore, that privateprovision has led to an improvementin access to water services in Brazil, andthat this effect was more pronouncedin municipalities at the bottom of theincome (GDP) per capita spectrum. Theseresults allow us to conjecture that low-income households have benefited themost in that respect, since Brazil has arelatively high coverage rate in waterprovision (compared to other developingcountries) and higher-income families areusually the first to get access.

Part of this result might be attributableto investment obligations assumed byprivate operators at the time they weregranted their concessions. Total scheduledinvestments by private operators untilthe end of their concession contracts(between 2025 and 2030) amount toR$3.38 billion (about U$1.54 billion), ofwhich R$1.10 billion (about U$500 million)or 32.7 per cent had been disbursed bythe end of 2004. Disbursements to theend of 2009 are estimated at half thetotal value of investments.

Additionally, privately owned or managedcompanies in Brazil generally invest morethan public companies or governments,2

which may be one of the reasonsfor the relative success they have had inincreasing access rates (see Figures 2–4).

1. Published by the Programme for the Modernisationof the Sanitation Sector (PMSS) of the BrazilianMinistry of Cities.

2. In Brazil, these can be grouped into autarky,direct public administration, and publicly ownedor managed companies.

services should mainly benefit poorfamilies. In what follows, we suggest thatprivate sector participation in the watersector has been successful in doing justthat, and therefore should be considereda viable alternative to public provision.

To a great extent, water supply services inBrazil still reflect the policies establishedunder the National Sanitation Plan(Planasa) in 1971, which favoured large-scale investments and cross-subsidyschemes. The sector is dominated byregional companies that serve a largenumber of municipalities and haveextensive networks. Since the mid 1990s,however, many municipalities havechosen to outsource the provision of waterservices to privately owned or operatedcompanies. In urban areas, there wereabout 1,350 water and sewage entitiesin 2006, of which 32 had been privatised.

In the North region of Brazil, Manaus,the capital of the state of Amazonas, andNovo Progresso in the state of Pará arethe only cities where water is suppliedby private companies. In the Middle Westthere are private enterprises in the statesof Mato Grosso, Mato Grosso do Sul andTocantins. The Southeast has most of theprivate experiences, mainly in the statesof São Paulo and Rio de Janeiro, butalso in Espírito Santo and Minas Gerais.In the South, the states of Paraná andSanta Catarina have tried the privateprovision of sanitation services.

Private ventures undertaken so far differconsiderably in terms of financingand tariff structures. In some cases,companies subscribed the totalityof their initial capital, while in othersrelatively sophisticated financing schemeswere set up, including equity and debt.

Tariff structures are in line with thoseadopted in the past by the sector,based on minimum consumption ratesand increased block-rate tariffs, anddifferentiated according to user groups.In some cases, price-cap regulationwas implemented. Concessions arethe contractual instrument of choicein most cases.

In order to evaluate quantitativelythe impact of private provision onaccess, we first apply panel data

It is safe to say,therefore, that privateprovision has led to animprovement in accessto water servicesin Brazil, and thatthis effect was morepronounced inmunicipalities atthe bottom of theincome (GDP)per capita spectrum.


There is evidence that a greater presenceof private undertakings in the Brazilianwater sector can be beneficial—not onlybecause the sector has a great demandfor investments that cannot comeentirely from the public sector, but alsobecause private provision can improveaccess for the poor when undercontractual obligations.

This potential greater participationon the part of the private sector wouldhave a wider social impact if it camewith strings attached. For instance,it could be made to serve poor customersby placing emphasis on tariff design,so that low-income families weretargeted more accurately.

There are cases of private companies,such as Citágua in Cachoeiro deItapemirim (Espírito Santo state), thatactively engage in tariff policies designedfor low-income families, usually incooperation with the municipalities.Citágua has a joint programme with thecity that gives waivers to low-incomefamilies with up to 10 cubic meters ofconsumption. Families have to registerwith the municipal department of socialworks in order to be eligible.

In summary, the positive outcomes inBrazil are related to contract design,the size and location of municipalitiesand the sophistication of their staff.Most contracts stressed investmentobligations, something relatively easyto monitor. The municipalities are notlarge in size and are located in relativelyprosperous areas. Their staff havealso the capacity to enforce contracts.

Political, social and cultural institutionsor norms to monitor the private sectorshould also be fostered. Currently they arealmost non-existent. Municipalities andstate agencies are the only entities incharge of enforcing concession contracts.Finally, universal service obligations, nowabsent from most concession contracts,could be negotiated with or evenimposed on private providers.

Oliveira, Andre Rossi de (2008).“Social Policy, Regulation and PrivateSector Water Supply: The Case of Brazil”,in N. Prasad (ed.), Social Policies and PrivateSector Participation in Water Supply: BeyondRegulation. Houndmills, PalgraveMacmillan, pp. 126–148.

Note: Local operators are those that provide water service only to the municipality where they are located.

Source: PMSS – National Sanitation Information System (SNIS).

Note: Microregional operators are those that provide services to more that one municipality, normally in small numbersand adjacent to each other, including inter-municipal consortia.


Note: Regional providers are those that serve several municipalities, including the state water andsanitation companies (CESBs).



The Brazilian governmenthas therefore decidedto supply electricity to allthose living in rural areas.

Brazil’s federalgovernment has begunseveral initiatives to createincentives and obligationsfor concessionaires to investin rural electrification,and to supply the serviceto low-income consumers.

According to the World Bank, some1.6 billion people in the world, more thana quarter of humanity, have no access toelectricity and 2.4 billion people rely onwood, charcoal or dung as their principalsource of energy for cooking andheating. Two and a half million womenand children die each year from theindoor pollution from cooking fires.

In Brazil, the lowest levels of access toelectricity are in the North and Northeastregions. It is no coincidence thatthese regions have the worst HumanDevelopment Indices (HDI) of all Brazilianregions, a fact that reveals a closerelationship between living conditions andaccess to electricity in Brazil.2 Additionally,access to electricity is more of a problemin rural areas than in urban areas.

Rural households with the lowestmonthly incomes are also those with thelowest rates of electric lighting. The 2000Brazilian census (IBGE, 2001) shows that64 per cent of households without suchlighting have a monthly family incomeof less than two minimum wages (oneminimum wage in Brazil is equivalentto US$194). Some 89 per cent of suchhouseholds have a monthly familyincome below three minimum wages.

The Brazilian government has thereforedecided to supply electricity to all thoseliving in rural areas. That decision stemsfrom the perception that energy iscentral to reducing poverty and hunger,improving health, increasing literacy andeducation, and improving the livingconditions of women and children.

Programmes for Access toElectricity in BrazilBrazil’s federal government has begunseveral initiatives to create incentives andobligations for concessionaires to investin rural electrification, and to supply theservice to low-income consumers.

Under the aegis of the MME, the state-owned electricity utility, Eletrobras,launched the Light in the Countrysideprogramme to finance electricity accessfor 1 million new rural consumers overa three-year period, focusing exclusivelyon grid extension and contributing toBrazil’s national plan for rural development.The Light in the Countryside programmewas ended by the federal government inmid 2004, and its goals were incorporatedinto an initiative called Light forEveryone. Today, the latter is thegovernment’s main instrument toprovide universal access to electricity.

Table1 shows the increase in access toelectricity in Brazil between 2004 and2008, and the number of households andpopulation served by the programme.Table 2 gives recent figures forthe Amazon region.

It is important to note the higher rate ofelectricity access in Pará than in Amazonas,since in the latter state the rainforest is anatural barrier to the extension of theelectricity grid. In this case decentralisedsupply (such as through renewablesources) is fundamental to increasingenergy access.

In the Amazon region there is also afund, the Fuel Consumption Account(CCC from its initials in Portuguese),which began in 1993. Diesel oil issubsidised through this fund withresources collected from electricityconsumers. The CCC is financed byspecial taxes on all electricity bills forhouseholds in the interlinked systemoutside the Amazon region.3

Resolution 245/99 of the NationalAgency for Electrical Energy determinedthe conditions and timeframes forimplementing projects in isolatedelectricity systems that totally or partiallysubstitute for oil-fired thermoelectric

by Suani Teixeira Coelho,Patricia Guardabassi, Beatriz. A. Lora

and José Goldemberg,Brazilian Reference Center on Biomass

(CENBIO), University of São Paulo

Renewable Energyand PovertyAlleviation in Brazil1

1. This paper is based on the following studies preparedby CentroClima and CENBIO for the Global Networkon Energy for Sustainable Development (GNESD):“Energy Access III” (October, 2005) and “RenewableEnergy Technologies II Comparison Report” (May, 2007).

2. Inhabitants without access (per cent): Brazil = 5.5;North = 17.6; Northeast = 11.1; Middle West = 3.9;South = 3.1; and Southeast = 1.9 (MME, 2003).

3. The Brazilian Interlinked System (Sistema InterligadoNacional, SIN) comprises companies from the South,Southeast, Middle West, Northeast and North. Only3.4 per cent of the electricity production capacity of thecountry is outside the SIN, in small and isolated systemslocated mainly in the Amazon region. See the OperadorNacional do Sistema Elétrico (ONS) at: <http://www.ons.org.br/conheca_sistema/o_que_e_sin.aspx>.


improve living conditions and guaranteethe operation and maintenance of theRET system.

The Programme for Energy Developmentin States and Municipalities (PRODEEM), afederal initiative that began in December1994, was coordinated by the Ministry ofMines and Energy (MME). PRODEEM’s goalwas to expand access in Brazil’s isolatedregions that are not currently served

by the conventional electricity grid,mainly using photovoltaic systemsand locally available renewable sources,thereby fostering self-sustainable socialand economic development.

The most important achievements ofthis programme are the electrificationof schools (Brazil has about 50,000schools without electricity) and waterpumping in areas subject to droughts.

generation (diesel generators).The scheme will be in effectuntil May 2013.

Table 3 shows that in 1991,before the introductionof the CCC, 87 per cent ofBrazilian households—97per cent in urban areas and49 per cent in rural areas—had access to electricity,while the average in thenorthern region was 92per cent of households inurban areas and 54 per centin rural areas. Almost 17 percent of Brazil’s population live in ruralareas, but rural output accounts for just6 per cent of the country’s GDP.

In 2002, the rate of access to electricityin isolated systems was still quite lowcompared to the countrywide figuresfor Brazil. Moreover, access in urbanareas was substantially higher than inthe countryside, despite the CCC policy.Nonetheless, the increase in access forisolated communities is evident bycomparing the figures for 1991 withthose of 2002.

Renewable Technology forPoverty Alleviation in BrazilWhile supply structures similar to thosein industrialised countries have beenestablished in many urban-industrialagglomerations in developing countries,rural areas in the developing worldremained under-supplied. Theexpansion of grids into remote areaswith a low population density sooncomes up against its limits: longtransmission lines, lower averagepurchasing power, lower density ofconnections and smaller loads meanthat conventional energy utilities mustoperate such grid-based supplyat a loss. This is the reason for theexceptionally low rate of electrificationin many developing countries.

Poor communities in isolated regions arefar from the distribution grid and cannotafford fuel supply; often, they use dieselgenerators to produce electricity. Hencethe introduction of renewable energytechnologies (RETs) must consider theprofile of the community for the purposesof supporting commercial activities.These activities could create local jobs,

Source: MME.

North 8,265 41,009 90,067 77,220 99,547 316,108 1,580,540

Northeast 27,157 200,853 271,529 201,141 235,381 936,061 4,680,305

Southeast 24,229 67,342 151,457 59,817 39,413 342,258 1,711,290

South 4,218 36,913 42,896 33,743 33,363 151,333 756,665

Middle West 6,130 31,929 34,064 25,956 33,523 131,602 658,010

Total 69,999 378,046 590,013 397,877 441,427 1,877,362 9,386,810

Families Total

Numberof households

Population2004 2005 2006 2007 2008

Table 1 Annual Expansion of Access to Electricity Under the Light for All Programme

Table 2Expansion of Access to Electricity under the Light for Everyone Programme,Amazon Region Only

Source: MME.

Amazonas State Pará State

Number of households (2008) 4,694 68,895

Number of households 23,158 209,044(accumulated 2004–2008)

Number of inhabitants (2008) 23,470 344,475

Number of inhabitants115,790 1,045,220

(accumulated 2004–2008)

Table 3Electricity Access in 1991–2002 in Urban and Rural Areas of Braziland its Northern Region (Isolated systems)

Source: IBGE (1992) and MME.

Coverage (%)

Urban Rural Total

State 1991 2002 1991 2002 1991 2002

Acre 95 98.5 13 32.6 70 80.4

Amazonas 96 97.8 16 27.2 79 85.4

Amapá 94 99.3 42 52.0 89 95.6

Pará 91 97.6 37 39.0 71 82.2

Rondônia 90 98.5 20 58.8 68 85.7

Roraima 97 98.9 30 42.4 82 88.6

Region average 92 98.5 54 48.6 75 88.1

Brazil 97 98.8 49 73.2 87 94.8


At the beginning of 2003 the MMEdecided to restructure PRODEEM, and in2005 it was incorporated into an initiativecalled Light in the Countryside.

In Brazil there are many small andmedium-sized communities that areisolated from the urban centres andare not connected to the utility. Hencethey depend on fossil fuel for electricityproduction, particularly in the Amazonregion. But several of these places havefavourable conditions for the use ofrenewable energy sources, such asphotovoltaic (PV), small hydropower(SHP), biomass and so forth.

Given these conditions and the newrules for universalisation of electricityservices, it can be expected that moregeneration systems will be installedusing local energy sources in thenot too distant future.

For remote villages, PV, SHP and biomasssystems are the best options. Brazil’sintense solar radiation favours PVtechnology and biomass, circumstancesthat allowed the development of suchpilot plants. But PV systems still havehigh installation costs and are feasibleonly when other systems are notavailable. Thus the development of PVsolar energy in Brazil is recent and itscontribution as an alternative energysource is still tiny.

In these isolated communities, thecosts of transporting fuel (diesel oil)to the community make the fuel pricedouble that in urban areas, whilebioenergy production costs are lowerthan for diesel oil. Besides transportcosts there are environmental pollutionrisks during transportation, such asthe danger of fuel spillage. Electricitygeneration from biomass is appropriatein these conditions (Goldemberg andCoelho, 2003).

Biomass is a good option fordecentralised electricity generation.The most used forms are agriculturalresidues, wood residues, vegetable oilsand biogas. Vegetable oil pilot plantsmatch the conditions of users, resources,technologies and capacities. Butconstraints arising from the lawregulating the CCC make it hardto secure the benefits of the fund.

In the Amazon region there are projectsto test and implement demonstrationsunits of a conventional diesel enginethat has been adapted to operate withpalm oil. CENBIO (http://cenbio.iee.usp.br)has developed two pilot plants using palmoil in adapted engines in Pará state, withquite significant results.

RETs, in addition to their undisputedecological advantages, are often the mosteconomical means of supplying energyto remote and thinly populated areas.The typically decentralised renewableenergy systems using local energy sourcescan be easily adapted in size and capacityto meet a modest demand, and thus areespecially suitable for overcoming energypoverty in rural areas.

Renewable energy installations aretherefore already contributing to thereduction of greenhouse gas emissionsfrom the energy sector, albeit on avery modest scale. Many long-termprojections predict that renewableenergy will play a major role in theglobal energy supply in the secondhalf of the twenty-first century.

Despite these advantages, thedissemination of technologies usingrenewable energy sources has not yetacquired the desired momentum.Projects to spread renewable energies,particularly in developing countries,must overcome several obstacles:

1. Even RETs that are competitive from abusiness management viewpointmust surmount the hurdle of thehigh initial investment costs. Lack ofsecurity makes loans hard to obtain,especially in rural areas.

2. In many places, fair competitiveconditions have to be establishedbefore markets for new RETs can be

developed. Experience in Germanyhas shown that this goal cannotbe met until an appropriateeconomic policy framework and anenvironmentally sound regulatoryframework have been created, anduntil specific promotional measureshave been implemented.

3. In many regions, RET supplystructures are inadequate. Marketdevelopment is hampered by ashortage of qualified suppliers,rudimentary distribution channels, andinadequate service and maintenance.

Nonetheless, in recent years therehave been decisive improvementsin the conditions for expanding theuse of sustainable energy systems indeveloping countries. Renewable energyencompasses a number of sources andtechnologies at different stages ofdevelopment and maturity.

Generally speaking, many of thetechnologies have become matureover the last decade; they are no longercuriosities for a dedicated few, buthave become big business. Large globalcompanies have entered the marketsfor wind, solar and biomass technologies,and the traditional finance communityis gradually mainstreaming renewableenergy into its lending portfolios.

In this context, RET can play a significantrole in increasing the energy supply,mainly in remote regions, since adequatepolicies are being implemented toovercome the barriers discussed here.Such policies should include specialincentives to local utilities for RET,including appropriate capacity buildingfor operation and maintenance, as wellas economic subsidies.

Goldemberg J. and S. T. Coelho (2003).“Renewable Energy – Traditional Biomassvs. Modern Biomass”, Energy Policy 32 (6),pp. 711–714.

IBGE (1992). Pesquisa Nacional deAmostragem por Domicílios – PNAD.Instituto Brasileiro de Geografia eEstatística. Brasilia.

IBGE (2001). Censo demográfico. InstitutoBrasileiro de Geografia e Estatística.Brasilia. Available at: <www.ibge.gov.br>.

MME (2003). Programa Luz para Todos(Light for All Programme). Ministry ofMines and Energy. Brasilia. Available at:<http://www.mme.gov.br/luzparatodos>.

Biomass is a goodoption for decentralisedelectricity generation.The most used formsare agricultural residues,wood residues, vegetableoils and biogas.


An inadequate andunreliable electricitysupply is one of the mostserious constraints oneconomic growth inmany Sub-SaharanAfrican countries.

The MillenniumDevelopment Goals (MDGs)and the countries’ povertyreduction strategies callfor increasing electricitycoverage by 2015.

The privatisation of public utilitiesremains a controversial topic inthe policy arena. In many partsof the developing world, privatisationsdesigned to improve efficiency and costrecovery have often been associated withlarge price increases that have causedenormous social and political tensions(Birdsall and Nellis, 2003). In Africa theinfrastructure privatisation process hasbeen more sluggish (Estache, 2005), butslowly emerging evidence on the effectsof reforms is hinting at similar problems.Distributional impact analysis applied inSenegal and Mali provides usefulinformation for future reforms.

An inadequate and unreliable electricitysupply is one of the most seriousconstraints on economic growth inmany Sub-Saharan African countries. TheMillennium Development Goals (MDGs)and the countries’ poverty reductionstrategies call for increasing electricitycoverage by 2015. Reaching this goaland meeting demand will requiremassive investments, which will have tobe accompanied by reforms in the sector.

When a utility is privatised, it might benecessary to raise the price of electricityin order to generate the funds neededto reach the coverage target (capitalexpenses) set out in the povertyreduction strategy, as well as to coveroperating expenses. Raising prices,however, has implications for economicactivity in many sectors of the economyand for the welfare of households. In thepast, public electricity companies haverun deficits and governments have cross-subsidised electricity consumers.

In this article we apply a computablegeneral equilibrium (CGE) model toanalyse the impact of pricing reforms inthe electricity sector in Senegal and Mali.As suggested by Parker and Kirkpatrick

(2005), privatisation is ideally assessedusing CGE models when the goal isto verify the impact of relative pricechanges on different markets andsocioeconomic groups. Macroeconomicassessment is also important becauseutility reforms typically affect othereconomic markets such as labour,investments and savings, which can havea significant effect on poverty and on thewelfare of the poor. In recent years, thesemodels with micro modules have beenused extensively in distributional impactanalysis in developing countries. Whatdoes the evidence tell us?

Reform in MaliMali’s public utility operator, Energiedu Mali (EDM), was established in 1960,shortly after independence, with capitalfrom the Malian government and theFrench Development Agency. It offeredboth water and electricity services.

Initially, EDM operated small diesel-firedgenerating plants in Bamako and severalsecondary cities. The cost of producingelectricity was very high, whichencouraged the Malian governmentto develop hydro power through theconstruction of three plants. As a publicutility, EDM suffered from the sameproblems that afflicted other Africanutilities, including mismanagementand political interference.

In 1986, EDM adopted a performancecontract to try to improve operations butthe process was disrupted by politicalinstability. In 1994, the governmentsolicited bids to manage the utility.The international competition waswon by a French-Canadian consortiumincluding (SAUR, Hydro-Québec and EDF).Each member of the consortium wasresponsible for functions at EDM.The contract went well for the first yearor two, after which relationships between

by Luc Savard and Dorothée Boccanfuso,Department of Economics, Universitéde Sherbrooke; and Antonio Estache,European Centre for AdvancedResearch in Economics and Statistics,Free University of Brussels

Privatisation of Utilitiesin Mali and Senegal:Impact on Poverty


the partners and the Malian board ofdirectors deteriorated, and the contractwas cancelled in March 1998.

In 2000, the Malian government prepareda 20-year concession contract, which waswon by SAUR (the government retainedownership of 40 per cent). Under thiscontract, the operator would be requiredto increase coverage from 80,000 to300,000 electricity customers and, inurban centres, to increase accessfrom 34 to 97 per cent by 2020.

The associated investment needs wereabout 20 billion CFA francs per year.The contract specified a formula for tariffadjustments until a regulator, created bythe same reform, could begin to enforcea price-cap approach. The Ministry ofMines, Energy and Water retainedresponsibility for the technicalsupervision of EDM.

Reform in SenegalDuring the first attempt to reform theelectricity utility, a consortium assumedfull management in January 1999.In September 2000, just 18 months afterthe privatisation, the new governmentof Senegal bought back the consortium’sshare of the utility. In the secondattempt, the consortium that wonthe tender refused to complete thedeal, leading to another failure.

The pricing practices of Senegal’selectricity utility, Senelec, are quitestandard. Prices are differentiated byvoltage: users of higher voltages are billedthe highest price, and the price drops withthe voltage. Since March 2002, variouspricing schemes have been implementedfor specific clients. Tariffs are relativelyhigh by West African standards. Proposedchanges in Senelec’s prices must also beauthorised by an administrative processbefore taking effect.

With respect to investment, the three-year public investment programmes for2000/02 and 2002/04 foresaw investmentsamounting to 8 per cent of the country’stotal productive investment. The planconfirmed the government’s intentionto increase the supply of electricity.Other goals of the investment were toincrease efficiency in production, improvethe institutional framework for

production and distribution, promoteregional cooperation, and raise the rateof electrification in rural areas. Despitetwo failed attempts at privatisation, thegovernment reiterated its will to privatiseSenelec. To date, progress towards thechief goal of the proposed reform—toincrease the supply of electricity and theshare of the population with accessto it—has been modest.

Findings of the DistributionalImpact AnalysisThe impact analysis of electricity priceincreases and compensating schemes topoor households was performed for thetwo countries. The first important findingof price increases (ranging from 10 percent to 45 per cent) is their relativelysmall distributional impact. The smallnegative impact is promising sincecompensating policies are financiallyfeasible and this situation should helpimplement price increases.

The three main explanations for theseresults are: the relatively small extentof the electricity network (includinghousehold and non-householdconsumers); the very small portionof poor households connected to thenetwork; and the relatively high pricesof electricity before the reforms. Thissituation is very different from that inmany Latin American countries andcentrally planned economies in Europe.Original prices were in the ranges of orjust below the average tariffs in countriesof the Organisation for EconomicCooperation and Development (OECD).

Our cost-recovery simulations clearlyproduce positive effects for the electricityutility in both countries, but negativeones for government, households andfirms. The compensatory direct cash

transfer/direct subsidy programme1

for poor households directly affectedby higher power prices—for thoseconnected to the grid—attenuatesthe negative effect.

However, the negative generalequilibrium effect on factor payments(labour, land and capital) overrides thepositive general equilibrium effect ofthe goods and services price decreases;hence other households are negativelyaffected by those scenarios. It isimportant to highlight that the cashtransfer programme is relatively cheapbecause so few of the poor are presentlyconnected to the grid.

These findings highlight the importanceof taking into account the generalequilibrium effect of proposed reformsin order to fully capture their impacton poverty and inequality. Few poorhouseholds are connected to theelectricity grid. Moreover, few of thepoorest households are likely to benefitfrom early extensions of the network.

Thus it is not surprising that increasesin power prices have little direct effecton most poor households, whereas amuch larger group will be affected bythe general equilibrium effects of theincreases. In both countries, however,the biggest losers are the poorhouseholds not connected to thepower grid, because unconnectedhouseholds receive no transfers butsuffer from the general equilibriumeffects of the price increases.

Analyses similar to that presented herecan be very useful in policy-makingby illuminating the paths by whichthe effects of reforms are transmittedto the poor. It is also possible tomeasure the strength of those effects,by providing clues to the design of

Reforms of theelectricity sectorshould include anaggressive programmeto extend the networkand increase theaccess of the poor.

The MillenniumDevelopment Goals(MDGs) and thecountries’ povertyreduction strategiescall for increasingelectricity coverageby 2015.


effective compensatory policies forgroups disproportionately affectedby the reforms.

Reforms of the electricity sector shouldinclude an aggressive programme toextend the network and increase theaccess of the poor. Additionally, becausethe general equilibrium effects on the poorcan be clearly negative, it is important toexplore alternative targeting policies tocompensate the poor—not only for the

1. Both types of transfer programme are equivalentin the model, since we assume zero managementcost of the cash transfer programme. The direct subsidyprogramme would consist of maintaining the priceof electricity constant for poor households.

direct effects of price increases, but alsofor negative general equilibrium effectsof needed reforms.

Birdsall N. and J. Nellis (2003).“Winners and Losers: Assessing theDistributional Impact of Privatization”,World Development 31(10), pp. 1617-1633.

Estache, A. (2005). “On Latin America’sInfrastructure Experience: Policy Gaps andthe Poor”, in J. Nellis and N. Birdsall (eds.),Reality Check: The Distributional Impactof Privatization in Developing Countries.

Water Supply andWomen’s Time Use inRural Ghana

Center for Global Development,(Washington, D.C.). pp. 281–296.

Parker D. and C. Kirkpatrick (2005).“Privatisation in Developing Countries:A Review of the Evidence and the PolicyLessons”, Journal of Development Studies41 (4), pp. 513–541.

Women spend several hours aday performing domestic chores andcaring for other household members.In developing countries, the burden ofdomestic activities is intensified by thelack of basic infrastructure, such as accessto water and electricity. The time spent ondomestic chores is not remunerated andit represents significant forgone incomefor women. Infrastructure provision,such as access to indoor piped wateror community-provided services,potentially reduces women’s timeburden. The saving includes time spenton loading, unloading and purifyingwater, and on walking to and from thewater source. Testing for rural women inGhana, access to water infrastructure (inthe community or the household) seemsto be significantly related to a decreasein their total working time.

Women’s income poverty in developingcountries is usually exacerbated by timepoverty. Releasing time constraints wouldenable women to engage in productiveactivities (enter the labour market),dedicate more time to other domesticactivities (such as childbearing or caringfor elderly household members), pursueeducation or have a little leisure (whichmay also be used for improving health).Furthermore, access to safe water improvesoverall household living conditions

through its associated benefits, such asreducing waterborne diseases, loweringinfant mortality and preventing thethreat of violent aggression towardswomen on their way to the watersources, which are often locatedsome distance from their homes.

Thus far the literature has, however, notpresented much empirical evidence on therelationship between infrastructure andaccess to labour markets. One example isIlahi and Grimard (2000), which show thatin rural Pakistan, poor infrastructure (wateraccess) reduces the time that womendevote to market-oriented activities andincreases women’s total work burden.

Other studies only argue that womenare more likely to be time-poor thanmen (e.g., Bardasi and Wodon, 2006, forGuinea). Coulombe and Wodon (2008)found that access to infrastructure doesnot significantly affect the total amountof hours women work in Ghana,thus suggesting that time saved fromdomestic work due to infrastructureprovision might be used forremunerated activities.

To contribute to this debate and providesome additional empirical evidence weinvestigate the effect on women’s timeuse of providing households with basic

by Joana Costa, Degol Hailu,Elydia Silva and Raquel Tsukada,International Policy Centrefor Inclusive Growth

Women’s incomepoverty in developingcountries is usuallyexacerbated bytime poverty.

Infrastructure provision,such as access to indoor pipedwater or community-providedservices, potentially reduceswomen’s time burden.

This article is based on: Costa, J.; D. Hailu; E. Silvaand R. Tsukada (2009) “The implication of water andelectricity supply in Ghana for the time allocation ofwomen”, Working Paper No. 59, International PolicyCentre for Inclusive Growth (IPC-IG). Brasilia.


infrastructure. More specifically, weanalyse how access to piped waterinfluences women’s allocation of timebetween paid (labour market) and unpaidactivities (domestic chores and leisure)in rural Ghana.

The TheoryStudies of time allocation are oftenbased on Becker’s (1965) utility model,whereby households combine time andmarket-purchased goods to producecommodities that comprise their utilityfunctions. A household maximises utilityin line with the commodities and leisuretime consumed: its problem is decidingon the consumption level and timeallocated to each activity (waterproduction, market labour, householdactivities and leisure). This is constrainedby its available income and a dailytime endowment.

One or few household members usuallyfetch water. The household first decideswhether the individual will collect wateror not, and then decides how manyhours will be spent on this activity.Similarly, for the time women spend inthe paid market, there is first a decisionabout entering the job market or not,and then a decision about how manyhours to work.

Using data from the Ghana LivingStandards Survey, Round Four (1998–1999),we analyse a sample of 2,858 womenbetween 25 and 59 years old livingin 190 rural communities. Four modelsare estimated, with a view to assessingthe determinants of women’s timeallocation in the activities of fetchingwater, domestic work, market workand total work.

Evidence from the DataIn Ghana there is a clear different patternof time use among men and women(see Figure 1). We observe both a gender-based division of labour and a heaviertime burden on women. Unpaid activities(collecting water and domestic chores) areintensive in women’s work time, whilepaid activities are intensive in men’swork time. About 82.8 per cent of mendo not fetch water at all, and only14.5 per cent of them spend between0 and 5 hours per week fetching water.In contrast, 66 per cent of women

fetch water, and the majority of themspend up to 15 hours a week doing so.

This labour division and specialisationmay imply efficiency gains for thehousehold and, therefore, optimalhousehold behaviour. Nevertheless,women as individuals have less controlover the household assets (less economicautonomy) and a higher workload.

Figure 1 shows that the total work time(domestic plus market work) is muchhigher for women. For instance, 19.3per cent of women work more than 112hours a week, while for men a proportionten times smaller does the same.

Some 79.1 per cent of men in rural Ghanaspend time on domestic work, but 61.6

per cent of men spend less than 20 hoursa week doing so. On the other hand,96.5 per cent of women spend timeon domestic work, and 81.8 per centof total women spend more than20 hours a week. Interestingly, despitethe heavy domestic workload, 80 percent of women also spend some timeon market work, which includes anykind of income-generating activity(even simple home-produced goods).

The data shows that domestic workand fetching water are responsibilitiesthat fall mainly on women. Our nextstep is to investigate how waterprovision might determine women´stime use. We use econometric modelsto test the relationship between havingwater infrastructure and the time women


spend on fetching water, domesticwork, market activities and totaltime worked. There may be selectionprocesses involved in decidingwhether to collect water or not, aswell as whether to enter the labourmarket or not. A Heckman procedurecorrects for this sample selectionbias. Almost all women performdomestic work, so there seems to beno selection process for this activity.For this, and for the model of totaltime worked, we apply ordinaryleast squares, regressing the timeallocated to each activity in a setof control characteristics.

Access to water is defined according tothe household’s distance from the mainsource of drinking water. A householdhas indoor access to water if it is atzero distance from the water source.The community-level infrastructure ismeasured according to the percentageof households that have piped water asthe main source of drinking water. If theyamount to more than 50 per cent, thenthe community has access to water.

ResultsResults for the determinants of the timespent fetching water did not present anysurprise. As expected, community percapita income has a negative effect onthe time spent fetching water. This meansthat living in a richer neighbourhoodincreases the probability of havingpiped water.

If a woman’s household has no accessto the network, living in a communitywhere more than half of her neighboursare connected to the utility meansthat there is a lower probability offetching water from afar (it is likelythat other households would resellwater from their taps or simply let herfetch it from there). As expected, as thedistance to the water source increases,the time spent fetching water alsoincreases, at a decreasing rate.

In the analysis of women’s time spenton domestic chores, lower education andhaving children increases women’s timeburden. Women living in a communitywith access to water, however, spend lesstime on domestic activities. The resultsare also robust for the distance to the

water source: those living closer to thesource spend significantly less timeon domestic activities.

Determinants of women´s timededicated to labour market presentedinteresting patterns. Women who areheads of households or spouses ofthe heads are more likely to enter thelabour market, though spouses workfewer hours.

Small children constrain women fromengaging in market-oriented activities,while older children have a positiveinfluence on the probability of womencarrying out paid work. Living ina community with access to waterreduces the probability of womenentering the labour market, whileliving further from the water sourcedoes not seem to influence theprobability of entering that market.This does imply, however, longerworking hours for those womenwho have already decided to engagein income-oriented activities.

A possible explanation for this resultis the presence of a market for water,fostered by long distances to the watersource. Greater distances discouragehouseholds from engaging in watercollection once that activity implies agreater time cost. Households wouldhave the alternative of buying waterinstead of collecting it, and womenwould dedicate more time to theactivities in which they are alreadyengaged (such as paid work for thosein the labour market, or leisure).

In the case of a market for water,if households are to buy it, pricesmay increase with longer distancesto the water source. Higher income isthen necessary, so women would

work for longer hours, although theincome generated does not representa rise in household wellbeing.

In summary, when assessingthe overall hours worked, waterinfrastructure seems to be associatedwith a lesser work burden for women(see Table 1). Women’s total workinghours are lower in communitiesprovided with water, and lower forthose living closer to the water source.

ConclusionAccess to water has a significantimpact on women’s time use. Poorwomen from rural Ghana are alsotime-poor, and the difficulty in accessingwater increases the time they spend onboth domestic and market activities.Hence, having access to waterinfrastructure can reduce thetime burden that women face.

It is not implicit, however, that thetime women save on water collectionwould be devoted to paid activities.Additional public policies are neededto achieve that goal, especially policiesrelated to educational training andchildcare facilities.

Bardasi, E. and Q. Wodon (2006).“Poverty Reduction from Full Employment:A Time Use Approach”, MPRA Paper 11084,World Bank (Washington, D.C.).

Becker, G. (1965). “A Theory of the Allocationof Time”, The Economic Journal 75 (299),pp. 493–517.

Coulombe, H. and Q. Wodon (2008).“Time Use and Time Poverty in Ghana from1991 to 2006”. Mimeographed document.

Ilahi, N. and F. Grimard (2000).“Public Infrastructure and Private Costs:Water Supply and Time Allocation ofWomen in Rural Pakistan”, EconomicDevelopment and Cultural Change 49 (1),pp. 45–75.

Table 1Impact of Infrastructure Provision on Women’s Time Allocation

Domestic work Market work Total work

Having community Decreases Probability of participation: decreases Decreaseswater provision

Shorter community Decreases Probability of participation: not significant Decreasesdistance from the Working hours: decreaseswater source


Barriers to Community-Based Water Supplyand Sanitation in IndiaIn India, there is an urgent need toaddress the institutional and socialobstacles to the provision of waterand sanitation. Institutional hurdles,compounded by bureaucratic inertia andthe lack of political will to foster greaterconvergence, create a breach betweenproject planning and implementation.Meanwhile, attitudinal and socioeconomicbarriers pose challenges not just tothe operation and managementof community-based schemes but,in some cases, to their very adoption.

Despite the large investments in waterinfrastructure for drinking purposesand other domestic uses, India still ranks133rd among 180 countries for its poorwater availability—1,880 cubic metres perperson annually. Over 480 million people(or at least 45 per cent of the population)still lack access to adequate safe drinkingwater (Pangare et al., 2006). Nonetheless,figures on water supply coverageindicate that India is well on its wayto covering its entire population ofmore than 1 billion (see Figure 1).

The mid-term assessment report of theMillennium Development Goal (MDG)for water supply and sanitation shows thatIndia has surpassed Target 10 in terms of

nationwide water supply coverage (WHOand UNICEF, 2006). According to that source,87 per cent of the population was coveredin 2004, up from 70 per cent in 1990.Of those covered in 2004, almost 70 percent lived in rural areas (Figure 1). Thesenational-level statistics seem to be at oddswith unofficial sources and, even if true,they conceal wide regional disparities.

According to WHO and UNICEF (2006),sanitation coverage increased from a mere14 per cent to 33 per cent in the period1990–2004, and most of the gains werein rural areas (see Figure 2). The estimatesseem quite low, but it is possible that thereal circumstances are worse becausethese figures are based on physicalinfrastructure delivered, rather than onobservations of the actual practice ofindoor sanitation. Even in terms of nominalsanitation, however, as indicated bystandard coverage, India appears to beworse off than some low-income countries.

The questions that bedevil servicedelivery in India’s water supply andsanitation sector is why, despite morethan six decades of official efforts tobring these utilities to the poor, accessto safe water is still highly inequitableand open defecation remains widespread.Studies reveal that there are problemswith the way in which these schemes areplanned and delivered by governments,on one hand, and users’ receptivity ofthe schemes, on the other.

On the supply side, the breach betweenplanning and effective implementationin this sector by state agencies is dueto various factors, including the lack ofinstitutional convergence; the limitedbudgets or personnel available forimplementation; an emphasis on meetingdelivery targets in infrastructural termsrather than on the scheme’s long-termmanagement; the absolute discretionaryauthority and lack of accountabilityof state agencies; and, not least,limited understanding of the fact that

by Nitish Jha,Energy and Resources Institute,

New Delhi

The questions that bedevilservice delivery in India’swater supply and sanitationsector is why, despite morethan six decades of officialefforts to bring these utilitiesto the poor, access to safewater is still highlyinequitable and opendefecation remainswidespread.

In many communities,disadvantaged groups areexcluded from decision-making processes.

Source: Prepared using data from WHO and UNICEF (2006, p. 32).


sociocultural factors play a substantialrole in determining why schemessucceed or fail (McKenzie and Ray, 2005).

Community-Based Provision:A Recent Institutional InnovationGiven these problems and the privatesector’s negligible presence in this field,a new model is being tried, in keepingwith recent thinking in internationalpolicy circles about how best to supplythese utilities to rural and some poorurban communities. This fresh approachcombines water and sanitation delivery,and entails transfer of the managementof the drinking water supply andsanitation schemes from stategovernments to user communities.

The main goal is to have communitiesparticipate in the schemes’ management,thereby increasing the efficiency andeffectiveness of water delivery. Thereare definite advantages to such aninstitutional arrangement if the transferto community management is carriedout smoothly. These schemes often fail,however, because mechanisms to fostercommunity ownership are poorlydesigned and implemented.

Barriers to Community-BasedWater Supply ManagementIt is hoped that community members, ledby locally-elected water committees, willbe able to run their own schemes withminimal external assistance. However, thechief obstacle to an effective switch tocommunity management of water supplyis the prevailing view that water is a rightto be provided by the state. In manycases where making water availableis problematic, it is hard to convincecapable people to play voluntary rolesin procuring and supplying water tothe larger community for a fee. A relatedproblem is that of using short-termprogrammes to build much-neededorganisational capacity among the usercommunity in managerial, financial andtechnical terms.

The dynamics of community decision-making also deserve attention. In manycommunities, disadvantaged groupsare excluded from decision-makingprocesses. A scheme’s design andimplementation should give dueconsideration to the issue of whoperforms tasks of system management.Otherwise, it is very likely that the groupswith the heaviest burden in water and

sanitation management at thehousehold and community levels will beput under further strain, simply becausethey have no say in decisions thatadversely affect their welfare.

Another cornerstone of communitymanagement is economic self-reliance,especially in matters of day-to-dayoperation and maintenance. Despiteexpressions of willingness to pay duringa project’s initial stages, the subsequentinability of a critical number ofhouseholds to pay for serviceswould threaten a scheme’s financialsustainability. Hence, if a communityhas a substantial proportion of poorhouseholds that cannot afford evenminimal payments, it might be necessaryto use a subsidy from external sources orcross-subsidies within the community.

As regards technical management,agencies of the Indian government wantcommunities to retake the lead in waterand sanitation management (a role theyplayed before government supply wasinstituted), but there is no explicitrecognition of the fact that thetechnology for utility delivery haschanged considerably. This unfamiliarityposes challenges because of issues suchas water treatment, as well as the use,maintenance and repair of non-local andlargely invisible (that is, underground)infrastructure (Black and Talbot, 2005).

Barriers to Community-BasedSanitation ManagementAs with water supply schemes, social,financial and technical factors limitequitable access to sanitary facilities.

In the case of sanitation, however,cultural and attitudinal barriers posechallenges to the very adoption ofmodern practices, let alone the operationand management of community-basedschemes. In many parts of the country,open defecation is a longstanding andsocially-sanctioned practice. Theimplementation of community-basedschemes is bound to suffer if the deliveryof physical infrastructure is stressedwithout addressing the attitudes thatare not conducive to its proper use.

From a social or religious viewpoint, thenon-adoption of indoor sanitation is due tothe perception of faeces as being rituallyand literally polluting. This attitude isexacerbated by the negative view of toiletsbeing located close to homes because ofthe smells they generate. Another majorobstacle to acceptance of toilets is theneed for maintenance. In households,this duty—along with bringing waterfor personal cleansing post-defecation,as well as the socialisation of children inmatters of sanitation and hygiene—usually falls to women.

Communal toilets are more cost-effectivethan individual household toilets interms of the money and land theyrequire, but their maintenance problemstend to be more serious. Different castes,religions or ethnic groups in a communityhave their own social norms, which includerestrictions on interactions with others.Such limitations on group members notonly include rules about whom they maytrade with or marry, but also moremundane matters such as with whomthey may eat, bathe or share a toilet.

Source: Prepared using data from WHO and UNICEF (2006, p. 32).


Failure to take account of such mattersoften results in communal toilets beingbuilt in a sanitary “no man’s land” or inan area where one social group uses thetoilet to the exclusion of all others.Because of the consequent lack of well-defined roles and duties, these structuresare poorly maintained and ultimately fallinto disuse. Conversely, somecounterintuitive attitudinal factors resultin some village residents preferring opendefecation to indoor sanitation. Forinstance, for relatively wealthy, high-caste women who are otherwise subjectto ritual seclusion, communal defecationallows for a degree of social interactionthat they would lose if they opted fortoilets in or near their homes.

RecommendationsCommunity schemes complement ratherthan replace traditional water andsanitation management. A scheme bringswith it a new set of tasks to be performed,and thus imposes an additional burden.Certain individuals bear the brunt of thisheavier burden of water and sanitation ifthe new intervention ignores the existingdivision of labour.

An explicit account of water- andsanitation-related tasks and roles reveals

the extent of the burdens borne atdifferent levels within a community—individuals, households and groups. Forexample, an examination of the prevailinggender division of labour in the ruralwater and sanitation sector may highlightthe exclusion of women from decision-making in both the household and publicrealms, despite their responsibility formany of the tasks in this sector. Based onan appraisal of the gender division oflabour in any given community, therefore,a concerted effort can be made to ensurethat women play a role equal to men in allaspects of decision-making in the sector.

Other fault lines may stem from caste orclass. A caste-based analysis may showthat one group bears an inordinatelyheavy burden for sanitation in thecommunity but is simultaneouslyexcluded from drawing water from thevillage well. This burden will grow if socialrelations remain unchanged, even as anew scheme is being introduced. In India,projects have been scuttled because localelites have captured resources such aswater. Moreover, schemes are oftendesigned to exclude certain groups onthe basis of their caste or religion, whichmay correlate with their weaker politicaland economic status.

Thus, for community-managed utilityprovision to be sustainable in the longterm, donor and implementing agenciesshould pay more attention than theyhave so far to social and attitudinal factors.In the medium term, they should alsoconsider the importance of “handholding”in the capacity building process. Untilsuch time as there is greater parity indecision-making, there should be lessemphasis on participatory managementper se and more on factors such asinstitutionalising leadership and rules,building skills and creating knowledge.

Black, M. and R. Talbot (2005). Water—A Matter of Life and Health: Water Supplyand Sanitation in Village India. OxfordUniversity Press, New Delhi and UNICEF.

McKenzie, D. and I. Ray (2005). “HouseholdWater Delivery Options in Urban and RuralIndia”, Working Paper 224. Stanford Centerfor International Development (SCID),Stanford University.

Pangare, G., V. Pangare and B. Das (2006).Springs of Life: India’s Water Resources.Academic Foundation. New Delhi.

World Health Organisation (WHO)and United Nations Children’s Fund(UNICEF) (2006). Meeting the MDG DrinkingWater and Sanitation Target: The Urbanand Rural Challenge of the Decade.WHO Press. Geneva.

Efforts to privatise basic services canhave serious human rights consequences.While the human rights framework doesnot “prohibit” privatisation, it must guidethe design and implementation ofprivatisation arrangements.

In the past, the “human rights agenda”and the “development agenda” wentseparate ways. Development assistancewas officially treated as apoliticalcharity, heavily influenced bygeopolitics. The human rightsdiscourse was political and materialisedmostly as a gesture to ratify human rights

treaties, such as the Conventionon the Rights of the Child in 1989.

There was a tendency for communistcountries to highlight economic, socialand cultural rights and for capitalistcountries to prioritise civil and politicalrights (hence the adoption of twoseparate human rights treaties in1966: the International Covenant onCivil and Political Rights (ICCPR) and theInternational Covenant on Economic,Social and Cultural Rights, (ICESCR).Much of this only changed after theend of the Cold War.

by Julia Kercher, Poverty Practice, Bureaufor Development Policy, UNDP Utility Privatisation

through the Lensof Human Rights

By ratifying one of thekey international humanrights treaties governmentspledge to realise fourdimensions of human rightsin delivering basic services:their availability, physicaland economic accessibility,acceptability and quality.


compromising equal, affordable andphysical access to sufficient, safe andacceptable water” (CESCR, 2002, p. 9).Human rights, therefore, provide a yardstickto guide the adequate delivery of services.

Human Rights: Guiding PrivatisationA state’s main obligation in privatisationprocesses is to protect people’s humanrights—in the case of water, for example,by preventing third parties from adverselyaffecting equal, affordable and physicalaccess to enough safe, acceptable water.

With this in mind, a number of practicalsteps can be suggested from a humanrights perspective to guide the privateprovision of basic services.

Undertake an impact assessment: Where suchassessments have been undertaken onwater privatisation projects, they havebeen able to systematically identify risks,for instance with regard to accessibilityand quality of the water supply; examplesinclude the Argentine cases documentedby Rights and Democracy (2007).

Consider alternatives through genuine publicparticipation: Governments that haveguaranteed the right to water in theirconstitutions, as South Africa does, areopen to involving the private sectorbut require local governments to firstconsider public alternatives, includingcommunity-managed schemes, socialprivatisation or internationally-financedschemes (COHRE et al., 2007).

Negotiate loan conditions with lenders: This isoften politically difficult, given manycountries’ dependence on support fromdonor institutions. The renationalisationof utilities in Bolivia, however, shows clearlythat civil society pressure can open upspace for governments to (re-)negotiateconcession contracts (see the article byHailu, Osorio and Tsukada in this issue).

Regulate private actors through legislationand the design of service agreements: In theirduty to protect, states must regulatethird parties to ensure that privatisationdoes not lead to a decline in access toutilities by the poor. For example,they need to ensure:

Economic accessibility: Poor householdsshould not be disproportionatelyburdened with water expensescompared to richer households(CESCR, 2002).

Physical accessibility: Marginalisedpopulations such as indigenouspeople and deprived urbanpopulations should obtain equalaccess (and also to obviate thedanger that providers might “cherry-pick” the most lucrative customers).

Monitor compliance of private actors andensure access to remedies: The draftguidelines on the right to waterpresented to the UN Sub-Commissionon Human Rights (UN, 2005) call for theestablishment or the authorisation ofindependent institutions such as humanrights commissions or regulatoryagencies to carry out monitoringactivities in a manner that ensuresfull transparency and accountability.In addition, the guidelines stressthat everyone should have access toadministrative or judicial proceduresin order to complain about acts oromissions in contravention of theright to water and sanitation.

In summary, using a human rightsframework as a guide is not only amatter of legal obligation for states thathave signed the relevant human rightstreaties. It is also vital for setting andraising standards of a life in dignityacross countries.

CESCR (2002). General Comment No. 15: TheRight to Water. Geneva, UN Committee onEconomic Social and Cultural Rights. UNHCHRwebsite, <http://www.unhchr.ch/tbs/doc.nsf/0/a5458d1d1bbd713fc1256cc400389e94/$FILE/G0340229.pdf>.

COHRE et al. (2007). Manual on the Rightto Water and Sanitation. Geneva,Washington, D.C., Berne and Nairobi,Centre on Housing Rights and Evictions,American Association for the Advancementof Science, Swiss Agency for Developmentand Cooperation, United Nations HumanSettlements Programme. COHRE website,<http://www.cohre.org/store/attachments/RWP%20-%20Manual_final_full_final.pdf>.

Rights and Democracy (2007). Human RightsImpact Assessments for Foreign InvestmentProjects. International Centre for HumanRights and Democratic Development.Montreal. Rights and Democracy website,<http://www.dd-rd.ca/site/_PDF/publications/globalization/hria/full%20report_may_2007.pdf>.

UN (2005). Draft Guidelines for theRealization of the Right to Drinking Waterand Sanitation. UN Sub-Commission onPromotion and Protection of Human Rights.Geneva. UNHCHR website,<http://www2.ohchr.org/english/issues/water/docs/SUb_Com_Guisse_guidelines.pdf>.

Privatisation: Impact on Human RightsBy ratifying one of the key internationalhuman rights treaties, the ICESCR,governments pledge to realise fourdimensions of human rights in deliveringbasic services: their availability, physicaland economic accessibility, acceptabilityand quality. But reality is often different.For instance, Bolivia’s “water war”in Cochabamba attracted significantattention for human rights reasons.The government followed the WorldBank’s recommendation that no subsidiesshould be given to ameliorate theincrease in water tariffs. Tariffs increasedby as much as 200 per cent. For some,this translated into bills that amountedto 20–25 per cent of household monthlyincome. Privatisation, moreover, did notadequately protect their customary uses ofwater, such as for agriculture. Widespreadprotests and civil unrest ensued, whicheventually led to the cancellation of theconcession. Did the Bolivian governmentviolate its people’s economic rights?

The sharp increase in water tariffs made itdifficult for many Bolivians to economicallyaccess (afford) water. Households were cutoff from the water supply altogether,so people may not have been able tophysically access water. By disallowingcustomary indigenous uses, thearrangement did not ensure that waterwas supplied in ways that are culturallyacceptable. Privatisation arrangements canalso affect water quality, such as whenclose monitoring by a regulator is lacking.

Signatory states also have three kinds ofobligations: to respect, protect and fulfilhuman rights. While the obligation torespect requires that the state itself refrainfrom interfering with the enjoyment ofpeople’s human rights, the obligationto protect requires a state to prevent thirdparties from interfering with those rights.The obligation to fulfil requires statesto actively strengthen people’s ability tomeet their own needs and, if individualsor groups cannot provide for themselvesin exceptional cases, to provide therealisation of those human rights.

In the case of the privatisation ofbasic services, the emphasis of a state’sobligation is on protecting the humanrights of people relative to private actors.The relevant UN committee thus stressesthat “where water services […] areoperated or controlled by third parties,States […] must prevent them from

Au

gu

st

2009

International

Centre for Inclusive Growth

International Policy Centre for Inclusive Growth (IPC - IG)Poverty Practice, Bureau for Development Policy, UNDP

Esplanada dos Ministérios, Bloco O, 7º andar70052-900 Brasilia, DF - Brazil

Telephone: +55 61 2105 5000

E-mail: [email protected] URL: www.ipc-undp.org

Poverty International Policy Centre for Inclusive Growth Number 18

Documents

Transcript of Poverty International Policy Centre for Inclusive Growth Number 18