Andrew Nickson

The limitations of water regulation: the failure of the Cochabamba concession in Bolivia

This article examines the limitations of governmental capacity to regulate private sector participation in urban water supply in developing countries through an analysis of the most dramatic failure to date of a major franchise contract for supplying water and sanitation services to a large city ‐ the 40-year concession awarded in September 1999 to Aguas del Tunari (AdT) in Cochabamba, Bolivia. Five months later, the population rioted against water tariff increases and the contract was cancelled. The paper analyses the background, context and factors that explain the failure of the concession and seeks to draw lessons for the regulation of future concessions.

The role of decentralisation in post-conflict reconstruction in Sierra Leone

Abstract Sierra Leone is widely cited as a positive example of the contribution that decentralisation can play in post-conflict reconstruction. This article critically examines this viewpoint from a political economy perspective as applied to an understanding of donor-driven institutional reform as well as the nature of hybridity and its impact on the sustainability of decentralisation processes. It examines the devolution of functions, finance, political and administrative powers, as well as its impact on three aspects of human development – primary health, basic education and rural water supply. The article concludes that external pressure can indeed ‘lock-in’ reforms but that a more nuanced, iterative and locally contextualised approach based on sound political economy analysis is needed in order to foster and sustain reform gains.

The Structure and Performance of Urban Water Utilities

There are growing differences between countries and within countries with regard to the organisational structure of urban water supply systems, the role played by governments within these systems, and the resulting systems performance. This chapter begins by providing an overview of the basic organisational arrangements for delivering urban water, including the respective roles of the public and private sectors, and then explores the different features of sector performance. It then seeks to offer readers an understanding of how the urban water supply systems have operated in the case study countries and what these systems have achieved. Monitoring performance was not a principal aim of the study. Consequently no primary data on performance were collected. Instead researchers relied upon existing data sources. Occasionally this created problems in terms of the reliability or comparability of data. Both the performance of the sector as a whole and the performance of government within the sector are discussed here.

The Challenge of the Concession Model

The objective of a public private partnership (PPP) is to transfer responsibility for the direct provision of urban water supply to the private sector, recognising that it is usually not necessary to have civil servants operating pumps and reading meters. From the range of PPPs described in Chapter 4, the presumed ideal has been the comprehensive concession model, which achieves the benefits of divestiture without incurring the social cost of transferring state-owned assets to private ownership. The term ‘concession’ in the urban water sector therefore is generally used to describe a city-wide contract with a private operator for the commercial management of abstraction, treatment, distribution and sale of water, including the financing and construction of new assets where required. Many variations are possible (for example, where government agencies continue to supply bulk water or where water supply is combined with sewerage responsibilities). In some cities, the geographical area is split between two concessionaires to promote comparative competition or to provide security in case of contract failure.

Addressing the Water Needs of the Urban Poor

The historical justification for public sector involvement in the ‘private good’ supply of water has been to ensure public health benefits, particularly for the poorest. This was based on the assumption that the private sector would be uninterested in serving those who are less able to pay. However, the public water and sanitation sector in low and middle-income countries is failing to meet the needs of the urban poor. The figures for service coverage, the main indicator of reasonable access to this basic need, show an increase of 50 per cent over the past decade in those not served with urban water supply (WHO 2000). Very often, the public sector has failed to achieve the goal of public health provision for the poor and has ended up subsidising the convenience interests of the rich.

Taking Account of Capacity

The New Public Management (NPM), by focusing upon the separation of the direct provider role from that of the indirect provider, is making a difference to service provision around the world. Both pre-existing consumers and the urban poor, many of whom were previously unserved, are benefiting from this change in the urban water sector. However, the introduction of these reforms in low-income countries is still extremely limited. There is therefore concern over the capacity of government to extend NPM to the vast majority of the urban population who are still not receiving these benefits (namely whether the direct providers — public or private, national or foreign — will expand effectively beyond the major metropolitan areas). There is also concern over the capacity of government to maintain this separation of powers and its effectiveness in the long term. There is concern over the capacity of operators to finance the large-scale investment programmes that are required. There is concern over the capacity of governments to deliver the macro-economic conditions that will facilitate the financing of those programmes under conditions of manageable risk.

Reform of the Urban Water Sector and the Role of Government

One of the most glaring failures in government attempts at service provision around the world is the shortage of water faced every day by the urban poor. According to WHO/UNICEF data (2000), 171 million people have no access to affordable clean water in urban areas of Africa, Asia and Latin America. Millions have to buy water from private water vendors (PWVs), almost always at a price many times higher than that paid by people with higher incomes whose households are connected to the pipe network of state water utilities (Figure 1.1). Rapid urbanisation throughout the developing world has substantially increased the demand for water as poorer migrants move to the cities. But in most of these countries, urban water supply (UWS) has not kept pace with this increasing demand. As a result, in many large cities in Africa, Asia and Latin America a significant percentage of the population does not have access to piped water.

Explanations of Performance and Reform Responses

In Chapter 2 we identified the many failings in the performance of urban water utilities in the country cases, as measured by indicators of efficiency, effectiveness and equity. Here we attempt to explain the reasons for this poor performance. We address this core question by examining the capacity or otherwise of government in the respective countries to implement the arrangements for provision. In so doing, we seek to identify the factors that influence government capacity to undertake its roles, particularly the ‘indirect provider’ roles of regulation and enabling. We follow the contemporary approach to capacity-building that views it not merely in terms of staff training and organisational reform but widens the remit to include the range of institutional factors outside the organisation that impact on the mobilisation of internal capacity (Hilderbrand and Grindle 1995). Hence, within the broad framework of capacity-building, we make a basic distinction here between organisational capacity and institutional capacity. In the light of these capacity constraints, we then critically evaluate the reform efforts towards corporatisation in the four country cases.

Regulating and Enabling the Direct Providers

Government has the responsibility to ensure that citizens, particularly the poor, can access potable water in order to ensure that the merit good benefits of this vital service are available to all. This is known as the Universal Service Obligation (USO) or Community Service Obligation, whereby monopoly suppliers have a specified duty to deliver equitable access to services. However, for the reasons described in earlier chapters, many governments have not been able to deliver this USO through their own direct providers. The New Public Management (NPM) approach of splitting the indirect provider responsibilities — that is, ‘ensuring access’ — from that of the direct provider — ‘delivering access’ — provides government with the opportunity to take a longer-term view. Government can then focus upon overall objectives in a way that has the potential to limit short-term political and producer interests.

Reforming Urban Water Sector Reform

Earlier chapters have addressed both the capacity problems faced by the case study countries that are considering the introduction of specific reforms and how that capacity may be best increased. However they did not address the crucial question of the extent to which the reforms themselves are relevant to particular countries. This is an important question because these reforms usually form part of a package that is widely perceived as an agenda for the international water sector based on the principles of the New Public Management (NPM). Although the evidence that capacity constraints are a major barrier to the implementation of reforms provides a strong case for questioning those reforms, it is also necessary to directly address the relevance of the reforms themselves.