80096 Jean Pierre Mahe Building water utilities with local private entrepreneurs The example of the Mirep program in Cambodia 2000-2010 Acknowledgments This document was originally produced in French by Jean Pierre Mahe. In 2008, GRET and WSP agreed to work jointly on the production of an English version of the original MIREP report. Following the translation, a foreword was then added based on an interview with His Excellency Ek Sonn Chan , General Director of the Phnom Penh Water Supply Authority. Philippe Lavigne Delville of GRET added an "Afterword", while Clement Frenoux of GRET and Jan Willem Rosenboom of the Water and Sanitation Program added an update of the MIREP program and an overview of private water suppliers in Cambodia respectively. The authors of the various sections benefited from and are grateful for the substantial contributions of colleagues in reviewing, finalizing and editing this document, particularly Yoann Laurent (GRET) , Frederic Naulet (GRET) and Jemima Sy (WSP-EAP). We realize that the fact that this report is translated from the French is noticeable to the attentive reader; however, we agreed that publication and dissemination was more important than editorial perfection , and we hope you will enjoy the read . Disclaimers The findings , interpretations, and conclusions expressed herein are entirely those of the author and should not be attributed to the World Bank or its affiliated organizations , or to members of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted . Requests for permission to reproduce portions of it should be sent to wsp@worldbank .org. WSP encourages the dissemination of its work and will normally grant permission promptly. For more information , please visit www.wsp .org . Contact information To order additional copies, please contact WSP : WSPEAP@worldbank.org This paper is available online at www.wsp .org/ Building water utilities with local private entrepreneurs The example of the MIREP program in Cambodia Jean Pierre Mahe, December 2006 ENGLISH TRANSLATION PUBLISHED MARCH 2010 FOREWORD: H.E. Ek Sonn Chan (PPWSA) AFTERWORD: Philippe Lavigne Delville (GRET) POSTSCRIPTS: Jan Willem Rosenboom (WSP) Clement Frenoux (GRET) ORGINAL TITLE: Construire un service public d'eau potable avec les entrepreneurs locaux - L'exemple du programme Mirep au Cambodge. TRANSLATION INTO ENGLISH: Ms. Florianne Wild reviewed by Mr. Yoann Laurent (GRET) and Mr. Frederic Naulet (GRET). CREDITS: French language editing by Ms. Daniel Ribier (GRET) - English language editing by Mr. Frazer Henderson -Layout by Clement Frenoux (GRET). Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 3 AFD French Development Agency AMP Arsenic Mitigation Project BDR Rural Development Bank cc Commune Council D&D Deconcentration and Decentralization DWS Department of Water Supply Gret Research and Technical Exchanges Group MAE Ministry of French Foreign Affairs MDG Millennium Development Goals MIME Ministry of Industry Mines and Energy MIREP Mini Reseaux d'Eau Potable (Small Scale Piped Water Supply System) MOW RAM Ministry of Water Resources and Meteorology MRD Ministry of Rural Development PBC Planning and Budgeting Committee PDRD Provincial Department of Rural Development PPI Private Participation in Infrastructure PPWSA Phnom Penh Water Supply Authority PRDC Provincial Rural Development Committee PRDC Excom Provincial Rural Development Committee, Executive Committee PSP Private Sector Participation RGC Royal Government of Cambodia SEDIF Syndicat des Eaux d'iles de France (French Public Water Utility) SEllA National Decentralization program VDC Village Development Committee WSP Water and Sanitation Program of the World Bank Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 5 Acronyms ........................................................................................................................... 3 Contents .............................................................................................................................5 list of tables ...................................................................................................................... 7 list of figures ..................................................................................................................... 8 Foreword .......................................................................................................................... 11 lntroduction ...................................................................................................................... 13 Chapter 1 -Access to drinking water in small towns ................................................... 15 The question of access to water in a recovering country ........................................... 15 National background .................................................................................................................................... 15 The emergence of private rural infrastructures in Cambodia ....................................................................... 15 Water in Cambodia's small towns .................................................................................. 17 Spatial organization of small towns .............................................................................................................. 17 Water supply in small towns ......................................................................................................................... 19 Private water utilities in the small towns ....................................................................... 23 The local private sector in the water sector .................................................................................................. 23 An institutional environment under construction ........................................................................................... 25 Chapter 2- The MIREP program: choices and modalities of intervention ................ 31 The framework for intervention ...................................................................................... 31 Historical landmarks ..................................................................................................................................... 31 Our ambition: towards a basic service of drinking water supply .................................................................. 32 Toward the normalization of the private-public relationship ...................................... 34 Supporting national reforms ......................................................................................................................... 34 Making the local public-private relationship evolve ...................................................................................... 34 Supporting the sense of ownership at commune level ................................................................................. 35 Provide a wide range of contractual arrangements ...................................................................................... 36 A focus on the fees and tariff setting ............................................................................................................ 39 Main steps in the setting-up of systems ....................................................................................................... 39 The assistance and support scheme ............................................................................. 43 Support for credit through commercial banks ............................................................................................... 44 6 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Subsidies ..................................................................................................................................................... 45 The design logic ........................................................................................................................................... 47 Chapter 3 - Transformations: the first project outcomes on the main stakeh,olders .........................................................,................................................................................. 51 Participation of the local private sector ........................................................................ 51 Local entrepreneurs ..................................................................................................................................... 51 Competition has opened up access to local investment... ............................................................................ 54 Local private investment .............................................................................................................................. 54 Learning-by-doing professionalization process ............................................................................................ 58 Financial management. ................................................................................................................................ 61 local public-private relationship ................................................................................... 65 What is at stake in the contractualization of the local private sector ............................................................ 65 The importance of roles in the regulation of the local private sector ............................................................ 66 Users and the water utility .............................................................................................. 69 Access to service ......................................................................................................................................... 69 People excluded from connection ................................................................................................................ 71 Consumption and behavior .......................................................................................................................... 72 Initial conclusions ........................................................................................................... 77 Afterword .......................................................................................................................... 79 Setting-up a piped water supply service in small towns: a brief analysis of the MIREP project ..................................................................................................................79 The emergence of a private, paying service in Cambodian small towns ...................................................... 79 Quality piped water systems, responding to intermediate standards ........................................................... 80 Mobilize local entrepreneurs within a sound contractual framework ............................................................ 80 A public and more decentralized institutional framework, within a water supply policy in process ............... 81 A public water supply service in progress .................................................................................................... 81 Postscripts ....................................................................................................................... 85 Update and road map of the MIREP experience? ......................................................... 85 What has happened since the end of the MIREP program? ........................................................................ 85 What are the main constraints and opportunities for developing the sector? ............................................... 86 How to scale-up the MIREP approach in Cambodia? .................................................................................. 87 Domestic Private Water Suppliers in Cambodia .......................... ,................................ 91 Introduction .................................................................................................................................................. 91 Water Supply Needs: Coverage and Financing ........................................................................................... 91 Opportunities and Issues ............................................................................................................................. 94 Improving and Expanding Domestic Private Water Supply .......................................................................... 96 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 7 Table 1 - Definition of the Millennium Development Goals (MDG) in Cambodia .............................................. 16 Table 2- General indicators for water and sanitation infrastructure (2003) ...................................................... 16 Table 3- Cost to families for access to services ............................................................................................. 16 Table 4- Distribution of settlements of the Cambodian population .................................................................. 18 Table 5- Real and perceived quality of water used in Cambodia .................................................................... 20 Table 6 -A comparison of water supply in villages, towns, and cities ............................................................. 21 Table 7 -Willingness to pay in small towns ..................................................................................................... 23 Table 8- The actual levels of decentralization in Cambodia ............................................................................ 27 Table 9 : Summary of functions of the water sector in small towns .................................................................. 29 Table 10- A chronology of the MIREP program .............................................................................................. 32 Table 11 - From informal service to basic service ............................................................................................ 33 Table 12- Public-private contracts experimented within the MIREP framework .............................................. 38 Table 13- Tasks of the operational aspects of MIREP .................................................................................... 43 Table 14- Modalities of the disbursement of subsidies .................................................................................... 46 Table 15- Technical and financial information about the MIREP systems ....................................................... 49 Table 16- Main characteristics of local private sector in the MIREP framework ............................................. 52 Table 17- Technical assistance to the existing entrepreneurs and new entrepreneurs .................................... 54 Table 18- Financial information about the MIREP systems .............................................................................. 54 Table 19- Differences in levels of competence of system managers .............................................................. 60 Table 20- Financial Data for the First 6 Years of the MIREP Systems ............................................................ 62 Table 21 - Classification of systems in relation to their rates of connection for May, 2006 .............................. 70 Table 22: Summary of performance indicators ................................................................................................ 89 Table 23: Overview of financial data of MIREP water utilities ......................................................................... 90 Table 24: Water supply coverage figures and targets, 2000-2015 ................................................................... 92 Table 25: Private supplier footprint (all data 2007) ........................................................................................... 93 Table 26: DPSP Operating Characteristics ...................................................................................................... 93 8 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Figure 1: Spatial patterns of small rural Cambodian towns-crossroads and market ....................... 18 Figure 2- A sample of water supply in three MIREP towns before creation of the water system ... 20 Figure 3 - Water consumption by socio-economic level (in liters per day per person) .................... 22 Figure 4 - Knowledge of water-borne diseases ................................................................................ 22 Figure 5 - Level of investment and average fees of private water service systems ........................ 25 Figure 6- A synopsis of the MIREP Intervention ............................................................................. 33 Figure 7- The institutional arrangement scheme of MIREP ........................................................... 36 Figure 8- Process for setting up a system ....................................................................................... 40 Figure 9 - Work construction and supervision process ................................................................... 41 Figure 10- Revolving funds and warranty schemes ....................................................................... 44 Figure 11 -The Evolution of Knowledge and Capacity among the MIREP Entrepreneurs ............. 53 Figure 12 -Investment breakdown of MIREP water utilities ............................................................. 55 Figure 13 - The level of private investment mobilized by local entrepreneurs ................................. 55 Figure 14 - The nature of system financing for the tram knar system .............................................. 56 Figure 15- Investment and length of the start-up of operations for MIREP systems ....................... 57 Figure 16- Total investment curve for the Smau Kney system ........................................................ 58 Figure 17- The water-electricity duality ............................................................................................ 59 Figure 18 - Results of water quality tests ......................................................................................... 59 Figure 19- Variability of water sales throughout the year (Pech Changva 2004) ........................... 61 Figure 20 - The Evolution of Sales and Profits at the Tram Knar System ....................................... 62 Figure 21 -The evolution of costs before and after the formalization of the Tram Knar system ..... 63 Figure 22 - The evolution of water fees in relation to the price of fuel ............................................. 63 Figure 23- Gross margin by service zones in Smau Kney ............................................................... 64 Figure 24- The evolution of connections to MIREP supply systems (not including Prey Pkhoam) 71 Figure 25 - Fee for water service in the household .......................................................................... 71 Figure 26- Average consumption in households for the first two MIREP systems ......................... 73 Figure 27- Evolution of groups of consumers in Pech Changva from 2001 to 2004 ....................... 73 Figure 28- Abandonment of water systems after their installation ................................................... 74 Figure 29 -The seasonal evolution of sales in Pech Changva ......................................................... 74 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 9 Figure 30: Number of rural villages exceeding a given number of households ............................... 95 Figure 31: Percentage selecting indicated obstacle as first or second most pressing problem for business ........................................................................................................................................... 95 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 11 mentioned told me he is worried about the licensing term. The ministry issues licenses only for a short time (one to three years), which makes it easy to not renew it when the licensee does not Edited by Jan Willem Rosenboom and Pierre respect the terms of the contract. But I think that is Thevenot not really the way. The contract already states February 2009 very clearly that if you violate the conditions, the government has the right to stop your business- We spoke with H.E. Ek Sonn Chan -the General there is no reason to enforce that through a short Director of the Phnom Penh Water Supply licensing period. Authority- on January 14 2009 to ask about his vision for improving water supply in small towns in If you look at PPWSA, we use high quality pipes Cambodia. Ek Sonn Chan informed us that this and materials, and we depreciate our materials subject is truly the responsibility of the Department over a period of 50 years; in some countries they of Water Supply at the Ministry of Industry, Mines use up to 70 years. Even if you take a small and Energy, and that our discussion would just be operator who uses low-quality, low-cost local based on his personal opinion. The foreword materials, his system will still function for about 15 below is based on this discussion. years. So giving a license for up to three years only makes no sense; investing in this business is "There are a number of donors and organizations for the long term. You need to provide an operator in Cambodia that try to help Cambodia to improve with a license long enough to give him the access to water supply for people, and I confidence he can recover his investment. And in appreciate that very much. At the same time, if we this context, even ten years is still short; better tall< about improving the situation further or faster, would be fifteen years or longer. Once you do that, we need to ask how we can do that. you get two advantages: First, there will be many There are many secondary towns in all provinces more investors ready to come forward, and that do not have a water supply, and the strategy second, prices come down as the risk is less. of the ministry (MIME) is to encourage private Step two is that the authority to issue licenses for suppliers to set up systems at the commune level. these small systems needs to be decentralized. I A number of private suppliers exist already, and believe that the Minister is supportive of having let me give you an example of what is possible: licensing authority at different levels, depending One former PPWSA meter-reader who retired set on the size of the system. Decentralizing authority up a small water supply business not so far from in this way will bring a further two advantages. In here. Only about 300 connections, and he is the first place, it will bring forward local investors running it together with his son. He told me that willing to set up small water supplies. Obviously the technology of his business is not so difficult the small towns will never attract big international and also not so important; the most important investors, and the small supplies will bring aspect is how to manage the business- how to opportunities for local people. In the second place, control leaks, how to set up a billing and it will lead to more people taking responsibility for collections system that keeps his customers improving water supply. Having a very centralized happy, how to keep good records. Those are all licensing system is like you only have one head things he learned while working for us; he is quite thinking about the problem of access to water. successful and makes a reasonable profit from his Once you give licensing authority to the commune business. level, commune chiefs will see it as their In my vision, it is really possible to bring many responsibility to improve service provision, and more people like that into this business as private suddenly you have many heads thinking about providers. But to make that happen, we have to access to water. We'll have a boom in water have improved regulation. The operator I just supply provision. 12 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Once you have opened the door to more and at the end of the day, an investor may have investment in the water business, of course there money left over that he thinks is a profit, while are further steps that need to be taken. First of all, actually it represents only depreciation and in the it will be necessary to put in place clear and long run, he gets back less than he invested. I transparent procedures for the selection and think we need to help them to know how to bidding process to choose a provider in an area. calculate their costs in a very simple way. This is Provincial and local authorities will need to where PPWSA can help as well, as our staff can develop an overall plan, to decide where to focus, assist in determining the cost to produce water. what to do first and so on. The actual process for Tariff regulation should then leave room for tariffs obtaining a license should be simple, and the to be set at full cost recovery level, with an contracting conditions should be appropriate to the acceptable level of performance, plus a local situation. Issuing a license should not take reasonable profit margin. Some people say that in five or ten stamps from different departments; this case tariffs will become very high, but I don't better to have one larger meeting with the person think so. In some places, water tariffs are very authorized to issue the license and the local high because of their bad performance: hi!Jh water department heads and community loss, low collection, too high profit margin etc. This representatives. Once the meeting agrees to reflects lack of experience, know-how and control. move forward, just one person signs and stamps And the alternative is very risky; if investors the agreement. Being realistic about conditions is cannot make a profit; this is dangerous for the also important. Take water quality for example. future of the water business. So this another area We have very comprehensive national drinking for good regulation. water quality standards, but I would say they are unrealistic for small suppliers to meet. If you make For the small investors, it is hard to pay for a it a condition that the provider meets the national consultant to design a system for them, but I like standards, this represents a huge risk to the the countryside ... if there is a promising commune investor. Better to agree on a number of high that wants to work on a water supply, with a sound priority water quality parameters (such as local investor, our staff can help with design and technical questions. bacteriological quality and presence of arsenic) that can be controlled and measured by the simple These small systems are of course very different instruments of the operator. Likewise, intermittent from the sort of operation we run, but that does service should be acceptable; no need to specify not mean we cannot help; as I said we just have to 24 hours coverage. In this kind of regulation you focus on what the actual problem is, and be clever cannot go too high, it needs to respond to the about finding appropriate solutions, and we have needs at each stage. In terms of the form of the the experience to do that. Copying our approach contract, better not to talk about concessions, to using block tariffs to support poor households BOT or whatever, it will be for life. Let us for example is not a good idea for small providers; acknowledge that the supply will stay private; the administering a block tariff is difficult without a government will not get involved at the commune computerized billing system, and if you have a level. large proportion of low income customers it may In an environment like this, there are all kinds of be difficult to make a profit (because the lowest things PPWSA is willing and able to do to support tariff does not make a profit, but is cross- water supply development. The easiest starting subsidized by the tariffs in the higher blocks). point is to talk about training. We can set up However, subsidizing the connection for poor training courses -and even have our own facilities consumers -which is the other component of our to do so- especially when there are well defined social strategy- rather than subsidizing the problems like leak detection or chemical dosing. consumption is the right way. We can even help We know those are common issues for the small operators access funds that are available from operators, and for example in leak detection and AIMF, World Bank and others to do this. repair we have a few clever solutions that are low When we started the rehabilitation of the PPWSA cost, and can be easily applied by them. water works, there was a lot of pressure to only Then there is the water tariff, which is a sensitive consider private sector solutions, because there issue for many people. To start with, the tariff was a lot of negative experience globally with bad should of course be based on a sound performance by public utilities. Now things are understanding of the costs of producing the water. changing, people don't say public is bad anymore. However, many operators don't know how to Public or private, it is black cats or white ones. determine their costs, and instead look at the What is important is to catch the mouse. I think we prices charged by other utilities even if this is the can make something happen and show it. If the incorrect way to go about things. There is a joke in board allows us, we could even be co-investors in Cambodia that goes something like this: "The a small private system, and this would give some money I get after I sell something is 100% profit, valuable pilot experience about supporting local sector investment." because everything I was going to spend, I spent already". Costs and profit are hard to understand, Phnom Penh, 14 January, 2009 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 13 capacities and knowledge of local stakeholders The involvement of the rural private sector in including the users); water supply in Cambodia is unique to the country. The presence of this private sector allows other analyze the potential for the entities to respond to new demands from people professionalization of water supply entrepreneurs living in the larger villages for household water in the small towns; supply, which the State is not yet able to address. develop and make available technical These entrepreneurs operate on a merchant basis, lacking an institutional structure which is still and methodological references that were validated being created. Their business is most often based through project implementation and that could on pushcart delivering water barrels at the house contribute to the reflection on a policy for water of villagers or more recently on small piped supply in Cambodian small towns. networks usually distributing raw surface water. The emphasis of the project was to promote, as Service is rough; the water quality is uncertain, but much as possible, the participation of the local the users are satisfied with this service, because private sector, (understood in the widest sense of for them, it constitutes another alternative to the the term), with the constant aim of attaining a already considerable choice of water supplies service which will meet national and international available-ponds, wells, boreholes, and rivers. standards of water supply and quality. Their demands focus more on a practical objective (a supply in the household) than on a sanitary In order to move forward, the MIREP program one, even if surveys show that villagers have a made a choice, in particular linked to its proximity good understanding of health risks associated with to the Ministry of Rural Development, to assist the water. nascent involvement of communes in 1 decentralization, to strengthen provincial power The MIREP program, launched in 2001 to through the process of decentralization, and to transform these very basic initiatives into basic respect the cultural heritage of those who devised services, began as a pilot project supporting one and financed the project (the Syndicat des Eaux entrepreneur in the implementation of a small d'lle de France), greatly influenced by the French piped water system. Through the implementation model of contracting of water supply services by of "14 small scale water supply systems, the goal the communes. In this process, MIREP focused was to enhance a qualitative improvement of the continuously on innovation and technology water service in some Cambodian small towns transfer, specifically regarding the creation of through the transformation of rough and informal innovative treatment stations and the training of merchant services to a basic water service local builders and entrepreneurs. supplying drinking water to an extended population under a formal institutional It is this course of action which this document arrangement. seeks to describe: The MIREP program was designed as a pilot firstly, the existing situation consisting of project, aiming simultaneously to: private initiatives offering rough services; develop the main components of such a the MIREP system of supervision based basic water service (designing technical options on the progressive support to the different adapted to small piped water systems, proposing stakeholders involved: the provinces, the institutional arrangements to formalize the local communes, the private sector, the users; public/private relationship, reinforcing the the technological and institutional options that were selected; and lastly, the reactions and 1 Mini Reseaux d'Eau Potable (Small Scale Piped Water transformations of these stakeholders to the Supply System) program implementation. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 15 Chapter 1 -Access to drinking water in small towns The question of access to water in a recovering country water systems in both large and small rural towns, National background represents a potential which the country is trying to encourage. (See Table 1 next page). Cambodia is a small country, 181 ,000 square kilometers and 13 million inhabitants, mostly rural The emergence of private rural (80%) that is recovering from 30 years of war, infrastructures in Cambodia during which its infrastructure was neglected or destroyed. The rate of access to potable water, The Cambodian background cannot be estimated at 41% in rural areas and at 76% in understood without considering the thirty years of urban areas, remains one of the lowest in Asia . strife that the country underwent, beginning in The Millennium Development Goals (MDG), which 1970, notably the Khmer Rouge regime (1975- aim to reduce by half the number of inhabitants 1979) which lead to the death of about 25% of the having no access to potable water and to population. From 1979 to 1989, the country was improved sanitation , present a challenge for the occupied by Vietnam, and subjected to an country. Cambodia will have to invest between embargo by the international community. It was 23 300 and 600 million US$ ' between 2005 and only in 1993 that hundreds of thousands of 2015 in order to reach this goal. In a country Cambodian refugees returned to the country. The where public investment capacity is limited to the war ended definitively only in 1998 with the death meager resources of the RGC and the good will of of Pol Pot and the end of the last pockets of international donors, the presence of a dynamic Khmer Rouge resistance. During these many local private sector, involved in a spontaneous years, the country's infrastructures were destroyed way in the financing of the installation of informal or abandoned . The return of 500,000 refugees from border zones was accompanied by an effort at emergency 2 Draft Urban Water Supply Strategic Framework, reconstruction in rural areas with the digging of MIME, November, 2004 boreholes and wells managed by the 3 Infrastructure Constraints to Growth and Poverty communities . Reduction, Oxford Policy Management, Jeremy Ockelford, August, 2005. This wide span is due to the lack of trustworthy statistics on the current state of water infrastructure and the difficulty in defining 'access to potable water. ' 16 Building water utilities with local private entrepreneurs: Th e example of th e Mirep program in Cambodia Table 1 - Definition of the Millennium Development Goals (MDG) in Cambodia Global targets Cambodian targets In rural areas: increase the rate of people with access to drinking water from 24% in 1998 to 50% in Access to Drinking Water: 2015. Halve the proportion of people without sustainable In urban areas: increase the rate of people with access to safe drinking water by 2015 access to drinking water from 60% in 1998 to 80% in 2015. Sanitation: In rural areas: increase the rate of people with access to improved sanitation from 8.6% in 1998 to Halve the proportion of people without access to 30% in 2015. improved sanitation by 2015. In urban areas: increase the rate of people with access to improved sanitation from 49% in 1998 to 74% in 2015. The network systems fo r electricity and drinking existing techniques helped developing capacities water supply were considered of secondary in this field . Two neighboring countries , Vietnam importance by international donors and public and Thailand are providers of cheap man ufactu red authorities, and thus became an opportunity for products which allowed the Cambodian the local private sector, which , with the entrepreneurs to offer solutions that were benevolence of local public authorities, began to affordable for the local populations. At the present provide these essential services to the population . time , numerous Cambodian villages present The participation of the private sector in several domestic private service providers in the infrastructure came about in a spontaneous and field of water (small piped water systems) and unregulated way, given the absence of standards, energy (small electricity grids and battery institutional constraints and regulatory framework. chargers) . The local demand prompted private entrepreneurs to invest in these services, and the replication of Table 2 - General indicators for water and sanitation infrastructure (2003) 4 Access to potable water in rural areas 30% Access to water supply systems in rural areas 0.7% Hours devoted to water collection each day 0.83 hours Access to sanitation in rural areas 10% Families having a septic pit available 5.6% Table 3 - Cost to families for access to services 5 Latrines : investment cost per family 40 US$ to 60 US$ Investment cost per family for access to drinkable 30 US$ to 50 US$ community well water (groups of 25 I 30 families) Investment cost for potable water supply per family (based 150 US$ on the MIREP system) 4 World Bank report on infrastructure in Laos, Cambodia, and Mongolia, 2003 5 MIREP Informations Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 17 Water in Cambodia's small towns A center of trade and barter for the sale of handicrafts and for small commercial services, the Spatial organization of small borough has been a component of rural towns Cambodian life for a long time. Indeed , this phenomenon of concentration in the rural Between rural areas , characterized by scattered population has been noted for more than a century houses across rice fields and the provincial or in the Cambodian countryside 6 . These villages district capitals , Cambodian small towns lay out for have always shown a strong commercial a few hundred meters around a market or along character, and were formerly known as "Chinese the road. They are composed of houses side by towns 7 " . It is estimated that today, after several side with rice fields behind them , sometimes cross-checks, Cambodia includes from 200 to 400 beginning less than 50 meters from the market. of these small towns . The population varies from 1,000 to 10,000 inhabitants, and the area of these centers is small , Though they are areas of concentrated housing , ranging from 0.2 to 1 square kilometer. Density they cannot be described as urban, since they are varies from 2,000 to 8,000 inhabitants per square small in size , the housing is mainly traditional , kilometer9 according to the type of small town , often grouped by family settlements, and their pre-urban or agrarian . The pre-urban small town craft items and commerce are focused on is characterized by a relatively high proportion of products responding to the basic needs of rural merchants and shows signs of urbanization such life. These areas have grown since the 1980's, as concrete houses or small service with the gradual cessation of fighting , the growth infrastructures {electricity, clinics, and petrol of income, the restoration of government services , stations). The agrarian village is mostly and the presence of a dynamic local private sector composed of peasants, who live grouped together, has allowed the setting up of services : water, each family in its traditional housing (wooden electricity, health , education. house). Social and economic life is centered essentially on private or family initiatives. The pooling of the means of production or services in a cooperative or associative form is infrequent. It is not clear whether this is a traditional behavior or the consequence of the years of war and population displacement that Cambodia has undergone. The current rural exodus does not seem to benefit the development of these small towns . As the studies implemented by GRET or within the framework of 8 a recent study by the AFD show, their demographic growth is only slightly higher than the rural rate, on the order of 2% per year. This can be explained in particular by the fact that, with few exceptions, these small rural boroughs have no industrial activity, which is located almost entirely in the capital , Phnom Penh, or in provincial cities . 6 J. De/vert, 1961, Le paysan cambodgien, Mouton, Paris. 7 The Chinese community in involved in commerce all Photo: Angkor Borey, Takeo Province over Asia. In Cambodia, to be Chinese is to be a merchant. Thus, "Chinese" villages are often synonymous with villages whose main activity is 9 commerce. Information gathered in the villages of the MIREP 8 Agence Francaise de Deve/oppement program 18 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Phnom Penh: 1.5 million inhabitants. Phnom Penh has a high quality of The capital water utility provided by a public company, and electricity supply provided by a national company, Electricity of Cambodia. Provincial or district capitals of 10,000 to 400,000 inhabitants with urban characteristics, electricity grid, piped water supply systems and Small and medium-sized cities. asphalt roads. Public infrastructures, in place since the pre-war years, are for the most part in the process of renovation . Private solutions exist on the sidelines, or complement official services. From 1,000 to 10,000 inhabitants, with rural and pre-urban characteristics. These boroughs, for the most part, have no public Small towns infrastructure, streets, or systems. In these villages we find a large private participation in water and electricity supply systems. Rural populations, along the roads and bordering on the rice fields . Rural areas Private supply systems of little investment cost such as water deliverymen and battery charging stations are frequent. The spatial organization of the small towns is generally one of two types: a "crossroads" A semi-dense area , located along the structure, which presents an urbanized part along roads on the way out from the center; houses a main road which crosses another, usually there are average standard, made of wood, about secondary, road or a block shape located around 10 to 20 meters apart. These zones are the market and adjacent roads . The boroughs populated by craftsmen and peasants; generally have three areas of settlement: A rural area, almost entirely populated by A dense area , near the market or along peasants, composed of traditional dwellings the road ; the habitat is concentrated, made of arranged in small groups in the middle of the rice cement houses set at less than 10 meters fields. apart1 0. It is mainly populated by merchants or artisans. rural Cambodian towns-crossroads and market Scatered area _ _ _ Rice fields and rural housing 10 What best characterizes the real population density of a village is the number of houses (or inhabitants) per km. along its inhabited zones. Thus, the empty space on the edges of the villages is not taken into account. Buildin g water utilities with local private entrepreneurs: Th e example of the Mirep program in Cambod ia 19 Unlike non-commercial essential services (schools, public health centers) linked to the administrative status of the small town, , the presence of public service merchants (water, electricity, phone) is linked exclusively to the economic status of the borough , which depends mainly on its geographical location in relation to commercial axis. 11 The population may be classified according to three socio-economic levels : the poorest, whose family income is less than $75 US per month , make up 10% to 20% of the population and survive in precarious conditions (small houses of wood or foliage) . The intermediate level, which constitutes 60% to 70% of the population , has a family income of $75 to $150 US per month and lives in traditional dwellings of wood , on stilts , sometimes divided into rooms at ground level. The wealthiest, mainly merchants, have an income over $150/ month; make up 20% - 30% of the population . Concrete houses in the center of a relatively well-off small town Market street in one small town Cambodians attach great importance to the taste Water supply in small towns of water for drinking and rice cooking, and this criterion takes precedence over the real quality of the water. Thus , pond water, usually turbid and Water resources and -use in small polluted by the proximity of animals , is more often towns used than well water [pumped water] which is full of mineral elements such as carbonates or iron. The Cambodian climate is two-phased , with one Besides the seasonal irregularity of water, the dry season and one wet, both approximately six variability of resources and cultural factors months in length . The water supply during the dry motivate families to adopt multiple supply season is problematic, as it is mainly based on the practices , depending upon use: catchments of groundwater (wells , boreholes), a number of which are defective because of lack of In the dry season : surface water is used appropriate maintenance or cannot be used due to for drinking and preparation of meals; groundwater natural contamination , such as the presence of is used for all other domestic needs. arsenic, excessive salinity, or an overabundance of iron. The traditional systems (wells , rivers , In the rainy season : rainwater is used for household ponds) are still used by the population all domestic needs-drinking, preparation of even when this water is unhealthy. meals, laundry, and personal cleanliness . If there are shortages , water is kept for drinking . The 2005 During the rainy, the situation is less drastic, since Demographic and Health Survey indicates that Cambodia benefits from a rainfall which is badly rain water constitutes 32% of rural domestic water distributed but abundant on the whole (from 1,500 use in the wet season ; in the dry season this goes to 4000 mm according to the areas). Thus, almost down to around 2%. all households depend directly on water which is collected during rainstorms from the roofs of houses. This water is stored in cement jars made locally, whose capacity varies from 200 to 800 liters. 11 Data from MIREP socio-economic surveys 20 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Just as the ongms of water vary, so do the Community systems involve modest collective modalities of supply. Private systems require investment contributions but the time for collecting payment relating to the volume, from US$ 0.5 to water is often long 12 , whereas family systems US$ 3 per cubic meter according to the site and involve large purchases, from US$ 50 to 3000 for the type of supply. a well or a deep private pump, as opposed to US$ 8 - US$ 10 for a jar of 400L. Rain water Excellent, no bad taste, Risk of contamination from All uses, depending natural, healthy, and rooftop drainage and manual upon availability traditional handling in the water jars. Pond water Good: often perceived as High turbidity, strong presence Drinking identical in quality to rain of pathogens from animal water. feces, contamination from human use Groundwater Variable : the hardness of the Low pathogen presence, but Household cleaning water, the presence of excessive amounts of iron and manganese and soluble salts manganese, or even arsenic in are factors discouraging the certain areas; contamination by use of well water. human use. Cambodians are very sensitive to taste . Figure 2 - A sample of water supply in three MIREP towns before creation of the water system Water hom e Gro undwat er delivery -.......__ (po nd, rive r 1idcrs :> ro• --......._ la ke) 17% 18% Vlini pr vate _ piped wa ter system 3'X Sha ll ow w ell s 20% Dril led w ell s 42% 12 The policy of the Ministry of Rural Development allows for a maximum distance of 150 meters for community water access points. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 21 A growing demand for domestic water Thus, since the increasing density of housing access; a decrease in water quality prevents the installation of new traditional water sources and threatens the quality of existing ones, The supply of potable water is becoming more and and since government services are not able to more precarious in the small towns, because, offer systems that would respond to the demand following to the increase in population density, of the population, private initiatives have both the availability and the quality of the water burgeoned, in the form of water sales from small are worsening 13 : trailers (pushcarts) or from mini networks, both mediocre quality services owing to bad water The traditional ponds in the village quality and intermittent service . These centers are filled in to make way for houses, or are arrangements currently fulfill the needs of the local polluted by human waste, garbage, seepage and population seeking at home water services . plastic bags. Boreholes suffer contamination due to A low volume of water consumption the proximity of latrines through the seepage of but stable throughout the year contaminated effluent in the groundwater The rainwater collection systems become According to the surveys conducted by the rare because of lack of space for their installation. MIREP program, the average domestic consumption from all water sources and at all The increase of the living standard and the economic levels combined is 44 liters per day per decrease in availability for low-value added person. This figure corresponds more or less to activities are generating a growing demand for the national level of minimal coverage of water services at home, which are incompatible with needs (40 liters), but with variations according to traditional rural solutions (community water economic status. The wealthiest consume more points). However the low demand (between 50 than 50 liters a day per person, while the most and 300 m3 per day, varying with the villages) disadvantaged consume about 25 liters a day per cannot justify the setting-up of complex supply person. systems of cities . Table 6 -A comparison of water supply in villages, towns, and cities Characteristics of a rural Characteristics of a town Characteristics of a city village service service service A mix of merchants, Civil servants, merchants, Population Essentially peasant farmers peasants, and artisans. craftsmen and workers. Free water, family and A diminishing number of Exclusively relying on community systems, wells, traditional models; the piped water supply system, Water supply tube wells, ponds. Seasonal presence of paying private no effect from seasonal variations effect greatly on services; offsetting-up of variations. the use of water resources. piped water system. at home service At home service Enough water in close Demand proximity to household. Low volumes High volumes 13 The analyses show a substantial presence of coliform bacteria, in the larger towns, even in wells as deep as 30 meters. 22 Building water utilities with local private entrepreneurs: Th e example of th e Mirep program in Cambodia Surprisingly, the season and the type of resource offset by uses outside the house such as bathing used have little influence on the total volume in ponds or streams. Professional use, notably the consumed. Even where water is paid for during washing of vehicles or slaughterhouses, is more the dry season , there is no notable decrease in difficult to quantify, because these users have consumption , because , on one hand, the use of their own private water sources, and do not keep water seems relatively codified , and the track of their consumption. abundance of water during the monsoon season is 14 Figure 3- Water consumption by socio-economic level (in liters per day per person) Dry season Rainy season 0 10 20 30 40 so 60 Rainy season Dry season • W ell -off 52 .2 51.4 • M edium 41.4 40 • Poor 26 .7 24 Hygiene: sound knowledge but bad without precautions , used water stagnates around practices the laundry areas , and the preparation of food is often done on the bare floor. According to 2008 census data, more than 25% of the population has no school education at all and only 27% have finished primary school. Although Figure 4 - Knowledge of water-borne diseases heads of families have little education , they are generally well informed on basic notions of water quality. Indeed , the percentage of heads of families who can name the common water borne diseases is around 90%. Such a high rate is due to the presence , in towns , of health center and its staff. Moreover, 75% of households have access Skin disease + to television, which transmits educational diarrhea information on hygiene. The knowledge level of 27% users is quite similar in the various social levels of the village . In theory, the rate of people who boil their water is high, nearly 70%, wh ich also corresponds to traditional practices (the Diarrhea Cambodians drink a lot of tea), but the water 60% boiling practice is conditional on the necessary means to do so: access to energy, or the possibility of buying charcoal. On the other hand , hygienic practices are weak, the use of soap is rare , the storing and handling of water are done 14 Data from MIREP socio-economic surveys Building water utilities with loca l private entrepreneurs: The example of the Mirep program in Cambodia 23 A willingness to pay for water supply at home Contrarily, community wells, whose use is limited Public opinion surveys conducted in the small by the bad taste of groundwater from both wells towns show a willingness to pay and a market for and boreholes, along with the difficulty of pumping water based on the dual factors of (1) proximity it, attract only a small proportion of the population and (2) the taste of the water. Thus , the and are essentially financed by international aid harvesting of rainwater and the distribution of with a small contribution from the population (3% pond water to the household are the options for in the case of the national program of communal which a spontaneous response is found in the investment, Seila). As solutions for household local private sector, in the form of water storage delivery continue to grow, we witness a makers Uars), and of distribution to households, progressive decline of community wells in the whether by water porters or mini-supply systems. small towns . Water taste Average willingness to pay Greater willingness to pay Community ponds Water collected in jars Good-tasting water Pond, lake, or river water brought by deliverymen or small supply systems Low willingness to pay Average willingness to Bad-tasting pay Shallow wells or tube wells for water the community. Shallow wells or tube wells at the domicile. Service within the Service outside the dwelling Proximity of service household Private water utilities in the small towns The large rural towns are areas where water supplying alternatives exist, with a variable degree The local private sector in the of proximity, quality, and cost. Even if water sector urbanization is steadily weakening the traditional solutions for access to potable water, the The strong presence of the local private sector in inhabitants rarely find themselves deprived of Cambodian towns finds its origin in the local access to water, and the piped water systems services furnished by Chinese merchants, who , for often seem to be fairly evolv~d , even "luxurious." generations, have offered goods and credits with Thus piped water systems appear very payments adapted to the seasonal variations , infrequently in commune development plans, specifically variations of incomes from agriculture. where schools and hospitals are given priority-for Investment in water and electricity supply is example, the Seila program , a commune however a recent phenomenon , coming after the investment planning scheme , lists only a few stabilization of the country following a long period demands for piped water systems. For the local of war, and after the rise in rural incomes at the authorities, delivery of water to the household is end of the 1990's, and because of the difficulties generally considered a private family business, experienced by the public authorities to finance and for them , it is logical that such an investment infrastructures for piped water systems. be financed by entrepreneurs. Water services offered by the private sector cover a wide range of services , of varying price and quality, but in general responding to a basic demand on the part of the population: delivery to 24 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia the household . The criterion of quality (drinking These systems almost never have water treatment water) is not foremost in the choice of water facilities, because, on one hand , such an service, and thus does not enter into the infrastructure constitutes additional costs that consideration of private services, which are neither the users nor the entrepreneurs are composed mainly of water porters who deliver capable of assuming, and on the other hand it drums by mota-trailers, small suppliers whose requires technical know-how and engineering water is sold by jar or metered, all of whom competencies which are unavailable in rural distribute untreated water. The fees are areas. Moreover, since the use of a coagulant essentially linked to the scale factor (number of (aluminum sulfate) is widespread in Cambodia , it customers served) and are inversely proportional is not rare for villagers to treat the water they to the investment required, with the mini-system collect or buy themselves , without knowing the offering the best prices (around 0.5 US$ per cubic exact amount of the dose, which may, in the long meter), while the porters may charge relatively term , be harmful to their health 15 . high prices ($2 to $3 US per cubic meter). Small piped water systems coverage is generally limited to areas with denser populations (around Small piped water systems the markets). The relatively high investment required (a few thousand US dollars) for setting-up According to various estimates, there are about a small piped water supply system makes it an 300 small private piped water systems in activity often unique in a given geographical area, Cambodia . They consist usually of a diesel pump but it is not rare to find that two or three systems on the bank of a pond or a river, a slightly elevated are necessary to cover the area of a town, and reservoir (2 to 4 meters) and a piped distribution that sometimes several piped water systems are network; buried PVC for metered systems or a supplying the same area. The technology of these hose for distribution in jars. The customers pay spontaneous systems is often primitive ; they are according to the volume of water in a jar, 400 liters constructed from second-hand materials and about every other day, depending upon their cheap equipment, which allows them to serve a needs and resources . population at a relatively low cost. Profiling entrepreneurs Investment in a "at home water supply system" is generally done by micro-entrepreneurs or merchants who are responding to a demand , and to other local opportunities. They then progressively build distribution systems from family savings and self-financing . These entrepreneurs have little financial and technical capacities, and invest only in the places where they live and have contact with the population , whose usages and capacities are well known by the entrepreneur. In general, their systems are managed by the family, and in addition, they Traditional water tower manage other activities connected to service or to water, such as a small ice factory, a small electric system, a vehicle-washing service, etc. Their self- interest in investing in a local water system is partially explained by the logic of profit. Given the low consumption features and the economy of scale, return on investment is quite long in arriving, around 7 to 10 years . The mobilization of funding is difficult and costly-interest rates are high , on the order of 20% per year, and institutional risks are not negligible. The certainty of a constant and increasing income, the creation of work opportunities for the whole fam ily, and the assurance of a retirement income are the motivating factors for these private entrepreneurs. Private water push cart providers 15 Aluminum in large amounts is neuro-toxic, and may be the source of bone and blood diseases. Aluminum allegedly has a role in the development ofAlzheimer's disease. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 25 Figure 5 - Level of investment and average fees of private water service systems 2.5 2 1.5 1 - Tariff (US$/rn3) Investment (US$) 0.5 0 Jerrican delivery Push cart Mini piped water Mini piped water delivery systems (jar) systems (metered) A risky informal sector for investors Box 1 - How a water entrepreneur started Most entrepreneurs work on an informal basis, paying for commercial licenses, and obtaining The former village chief, M. Sokhom decided at the exploitation agreements from the local end of the 1990's to respond to the needs of his authorities-the head of the commune or of the fellow citizens by launching the small water and district. Some of them operate simply by means electricity system. His installation was more or of collective agreement consisting of a list of less jerry-built; his water tower was a cistern signatures-or fingerprints-of the local collected from a old truck. population . Such a service, limited to its most basic operation , does not conform to the The source of the pond was in a embankment area standards of water quality as recently defined by (marsh) and the system was made up of second- the Cambodian government (in 2004 ), and the risk hand pipes. M. Srey Sokhom served his clients of eviction without compensation is not negligible, with the help of a watering pipe (hose) at 0.25 US$ sometimes even by projects financed by per 400 liter jar, or 0.625 US$/m3. international aid 16 . Sometimes subject to the arbitrary decisions of unscrupulous government officials, to the uncertainty of centrally-planned projects, the entrepreneurs voluntarily limit their investment and pass off to their customers the An institutional environment price of this uncertainty. under construction The relative liberty and spontaneity that characterize private initiatives in the water sector can be explained by the absence of a clear legal framework for the water sector and by the evolution of institutions since the opening up of the country in 1991. Administrative structure of Cambodia The administrative structure of Cambodia is divided into 5 strata: national, provincial, district, commune and village, the latter being an informal division of the commune . The country counts 1,417 communes, whose commune councils were elected for the first time in February, 2002. There 16 are 23 provinces, whose officials, the governors, In the electricity sector, recent projects financed by are appointed by the government. The law on lenders from international funds led to the eviction decentralization and deconcentration was passed, without compensation of local private but the implementation has not yet started, and entrepreneurs. 26 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia many of the practical implications of the law remain unclear. In the meantime, the provincial Box 2 - Responsibilities of the communes departments operate by delegation from their ministry, with the exception of the provincial rural According to the administrative law of the development committee, an interdisciplinary communes of January 12, 2001, art. 43, the structure responsible for the establishment of communes shall improve the state of sanitation decentralization, which enjoys a relative autonomy and the well-being of their populations, organize of decision and operation. and manage public services and assure the good functioning of these services. Excluded from this The ongoing process of decentralization will hand communal field (art. 45) are the post and over increasing responsibility to the provinces. communications, forests, the national aspects of Indeed, recent laws are intended to authorize the defense, of security, of taxation, of currency, and delegation of power over productive investments foreign policy. (unofficial translation) {less than $2 million US) and the modalities of delegation of service to the private sector will Any autonomy of decision for the communal supposedly be allocated by the promulgation of a council members is limited by the stranglehold on law on concessions. Provincial development the communes by the administrative and political 17 committees , that will include commune systems. The councils' weak technical financial representatives, will be responsible for assisting and legal means cannot bring changes 'which ar~ the governors with provincial decisions. eagerly awaited by the population. Since they are Meanwhile the national ministries are being asked condemned in advance to disappoint, they take to withdraw themselves from operational functions only relatively limited risks , sometimes even in order to devote themselves to the supervision assuming being a spectator by playing a passive and orientation of their sectors. role in local development. Communes: recent decentralization without sufficient means Box 3- Communes: a very politicized mode of election Cambodia , like numerous developing countries, has undertaken a decentralization process. This effort, which led to the election of commune The election of commune councils by villagers was councils by the population in 2002, is slow in brought about by the decentralization law of showing any effectiveness . If the law on 2002.The commune councils are designated and communes gives the commune councils elected from a party list. If the party dominating in responsibility for public services, the sector legal the commune is not that of the government, it has framework for applying them has not been set-up; little chance of obtaining support from superior the electoral system has not allowed the authorities for development and even for the village replacement of commune chiefs who were to be considered {that is, no chance for funding). formerly civil servants-1 ,610 out of 1,621 were Indeed, we notice that non-membership in the CPP re-elected-and are finding it difficult to change {the Cambodian People Party), which is the most their paternalistic or directive methods; the widespread in Cambodia, brings about difficulties for commune councils have only meager means to elected official from the opposition in being taken justify their competence to their citizens , since into consideration . The leeway for these elected their responsibil ity and investment capacity is officials is limited . 1,610 commune heads out of limited to $6,000 to $10,000 USD per year granted 1621 communes in Cambodia are CPP members by the government 18 , no system of taxation or of and almost all these commune heads are those wh~ local credit has as yet been given to the exercised the same functions in the past. The communes. Proposals are currently being mechanism has therefore not created the renewal prepared which would grant the communes the and the opening up which was expected , but has right to tax only locally. confirmed the strong hand of the party in power (which includes the majority of administration top executives who were in place during the Vietnamese occupation) on election campaigns. The population knows this very well, and they elect a political party-usually the government party-that will give them as little trouble as possible. Even bringing up this subject bothers the villagers. They tend to whisper, never mentioning the names of the parties, for fear of being overheard, or of their words 17 T/.. "'ese . comm1ttees will certainly replace the being repeated to their disfavor. The ideologies and provincial committees on rural development. programs of a party do not enter into the choice of a 18 The State gives, through the framework of a party list, and neither therefore of an elected person. program entitled Seila, an investment grant {Excerpt from the internship report by Janie Boursin and Caroline intended to finance public service infrastructure. Billard, IFU/GRET 2006) Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 27 The governance of piped waters systems Table 8 -The actual levels of decentralization becomes the object of power struggles between in Cambodia the supporters of centralized solutions (management by means of licensing) and The laws regulating decentralized solutions (management by means of administration in the communes local contracts). Currently, the regulation of this Legality of sector is limited to a quarterly inspection of the have been passed, but their decentralized water quality of a small number of water systems enforcement and the transfer of levels. (about thirty). The establishment of a regulatory sectoral responsibilities are slow in coming . authority for the water sector is under study, but is coming up against the lack of precision concerning Mechanisms of decision-making responsibilities for this sector and the antagonism are still too often "top-down", an between the central and decentralized levels. inheritance from the period when heads of communes were civil servants. Decisions made go down to the local level Autonomy of Box 4- Institutional framework of the water through the administrative decision- sector structure or through the making authorities of the political party in power (upon whom the Three ministries are involved within the majority of village heads framework of the water sector: depend). All local partnerships The Ministry of Water Resources must be approved by the Agriculture and Meteorology (MoWRAM), Ministry of the Interior. which has responsibility for water resources, but Financial autonomy is limited to its role is limited to the supervision of irrigation. a budget investment of $6,000 The Ministry of Rural Development to $10,000 per year, and the (MRD), responsible for water and sanitation in expenditure is closely rural areas. Its role until now has centered on supervised by the provincial the development of community works (drilled Financial authorities. The communes do wells), managed collectiv:ely and without profit. autonomy not have the right to open bank accounts or to request for loan . The Ministry of Industry, Mines and Studies aiming to authorize Energy (MIME}, responsible for water supply in communes to raise taxes for urban areas outside of Phnom Penh. Within services are ongoing. small towns, MIME has essentially taken charge of granting licenses to private entrepreneurs. The MIME claims the responsibility, in large The water sector: a lack of legal rural towns, for all the systems managed by uniformity private individuals, without consultation with village or communal authorities which The institutional context in which the water sector nonetheless have, according to laws on the has evolved lacks a uniform legal basis at the administration of communes, the responsibility national level, and has been the subject of various for public water services on their territory. legislations, sometimes contradictory, coming from The distribution of tasks between MRD and various ministries. On the other hand, water MIME comes out of an agreement made in supply policy produced in 2003 clearly established March, 2005; almost at the end of MIREP, which the withdrawal of the State from the construction had started up under MRDs responsibility. The and management of water supply utilities, and tardy clarification of responsibilities and fields of expressed the necessity of appealing to the intervention between these different ministries, private sector, and the right of users to choose the conflict between the partisans of their services, thus covering the costs of their decentralization (essentially, the provinces), and operation. centralization .(the ministries based in the Because it is difficult to distinguish between what capital) has an influence on the granting of are rural and what are urban services, the small responsibilities in the sector. piped water supply systems end up in a vague 19 institutional situation between two ministries . 19 Ministry of Rural Development (MRD) and Ministry of Industry Mines and Energy (MIME). A march 2005 Memorandum of Understanding put private sector managed water network under MIME responsibility and community ones under MRD. 28 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia The National Water Supply Policy: allocating responsibilities and setting-up a regulatory authority The national politics of water supply, then, is divided into two domains: the urban, under the administrative supervision of MIME, and the rural area under that of MRD. Whether the urban or the rural sector is concerned, the proposed water supply law, drafted with assistance from the World Bank, has brought forward four main points: • The informed choice of populations ("Demand responsive approach"), which consists of intervening according to the expression of local needs; The participation of the private sector, in the investment and management of water supply; Fees reflecting the real costs (in rural areas this only includes operational costs, whereas in urban areas the fees should cover operation, amortization and return on investment); Creation of a national independent regulatory authority, for the supervision of piped water systems. As for this regulatory authority, whose role it would be to protect access to service for all, its greater functions are the following: contribute to the extension and improvement of the quality of water and sanitation utilities; improve public health related to water use; • strengthen the financial viability of public utilities; protect the interests of the consumers; favor competition for the supply of services and warn of abuses on the issue of monopoly or of cornering of the market; • deliver authorizations for the implementation water and sanitation utilities; respect the policy of the government on these implementations. The regulator will have available to it the following extended competencies: To propose required regulations to the effective operation of its above-mentioned authorities and powers; To hold hearings or public consultations with the users, the managers, and any other persons with a prior concern about the introduction of new regulations or the revision of existing regulations. The regulations promulgated will take effect two weeks after the date of publication in the official Gazette or in a national daily newspaper of the Kingdom of Cambodia . To define the principles for the approval of fees on the basis of a certain number of criteria such as the recovery of investment costs and of renovations , the encouragement of performance, etc; and to approve or modify the service fees. To deliver, modify, suspend and revoke the authorization of the supply of service on the basis of the technical and financial capacity of the managers or in the public interest; The oversight of the service providers; To describe and publicize the comparative performances among these service providers ; To set-up specifications and standards for service delivery, particularly regarding water pressure, the treatment and quality of the water, minimum flow, objectives for connections, and procedures for billing and metering, etc. To set up a set of procedures for solving complaints and litigation between the service providers and the consumers; Communicate, inform and providing support to national and local authorities; To impose fines in the case of breaches , and to decide on measures to be taken in this respect. This authority has still not been formally establ ished. Therefore , there currently exists no regulatory authority for water services in Cambodia. (extract from the internship report of Caroline Billard and Janie Boursin , IFU/GRET 2006) Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 29 Table 9 : Summary of functions of the water sector in small towns Funct1ons The legal context concernmg small water supply serv1ces 1n Cambodia The operation of water supply services in small rural villages is essentially Service delivery run by the local private sector. The equipment and the property of the small town facilities are mainly The equipment and private, but the communes, thanks to the improvement of local public property of the facilities resources and the establishment of a local system of taxation, will soon be able to invest in the water supply systems. Local demand was the basis for the arrival of private water supply services, but its formalization is being driven particularly through the example of Selecting and competition outside projects, and through the setting up of procurement procedures at local level. Service and fees are determined on a market basis between the entrepreneur and his clients. The MIREP program, among others, has Defining service and encouraged the local decision-makers to reflect upon the notion of public contracting service. Meanwhile, the Ministry of Industry, Mines and Energy has been working on the regulation of fees and levels of service. Observation and The control of services is currently limited to quarterly water analyses from supervision of services some 30 supply systems. Respecting and enforcing These responsibilities are still not well defined in Cambodia. In practice, the decisions made these powers rest with the governor of the province. Supervision; public This role does not yet exist; it should be assigned to a future water information regulation authority. The two ministries involved, the Ministry of Rural Development (rural water Definition of policies supply) and the Ministry of Industry, Mines and Energy (urban water supply),are responsible, depending on the domain of their responsibilities. delegated management to the private sector at the 21 PPI 20 : Building an operating local level, beneath a certain financial threshold , on the basis of decisions and project ownership by procedure the provincial authorities , with the participation of the communes concerned. Until now, the only legal document for drawing up public-private contracts is summed up in a decree concerning the BOT of 1997, whose complex and Box 5- Conclusion of the chapter strongly centralized functioning is applicable only to large contracts. In reality, public-private Cambodia boasts a rather remarkable private contracts are done on an ad hoc basis by the sector dynamism, which is also found in other ministries of that sector, and at the local and countries of Southeast Asia . The services provincial level, delegated management of delivered are the response to a basic demand services to the private sector are made by from the population of the small towns. However administrative authorization, with no legal basis. the institutional framework in which these In both cases, there is an absence of businesses operate is almost non-existent, and systematized process for competitive bidding. the supervision of quality is weak. As well, there Since 2004, an institutional workspace has been are "unknowns" with respect to the ability of open , with the preparation of a law on entrepreneurs to professionalize themselves. It concessions (broadly understood to include all is on this basis that the MIREP program started forms of delegated service management to the up. It aimed to set up a framework for private sector) and laws relating to the improvement, professionalization , and regulation participation of the private sector in infrastructure. of these water systems. This is the subject of the The first steps of this process show the willingness next chapter. of the authorities to open up and to simplify 21 At the time this document is written the expected 20 Private sector Participation in Infrastructure amount is 2 millions US$. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 31 Chapter 2- The MIREP program: choices and modalities of intervention The framework for intervention agency, launched a pilot project a1mmg at Historical landmarks supporting one dynamic informal private water supplier in order to improve the quality of his Since 1989 GRET has been present in Cambodia service by setting up a treatment facility. and active in various development sectors, This pilot helped gain experience and build including water supply. Involved in rural water references in order to serve as a basis to define supply operations until 1999, GRET then procedures, guidelines and specific progressively got interested in a growing methodologies, which then led to the design of the phenomenon in this country: the spontaneous MIREP program. From 2001 to 2005 MIREP then emergence of private small-scale piped water supported the setting up of 13 additional piped supply systems. water supply systems, all managed by private entrepreneurs within the framework of local private-public contracts . Box 6- A brief report on MIREP I • Years: 2000- 2005. • Zones of activity: Cambodia, provinces of Kampot, Takeo, and Kandal. • 14 water systems set up in small towns consisting of 250 - 900 households. • Direct beneficiaries: 25,000 people. Setting up a treatment facility • Total budget: about 820,000 Euros. After conducting a study on this matter, and • Implementer: Established by GRET (Groupe following the orientation of the water policy reform de Recherches et d'Echanges in favor of the participation of the private sector Technologiques) and Kosan Engineering. toward water supply service delivery, GRET and KOSAN Engineering, a Cambodian consulting 32 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Table 10- A chronology of the MIREP program Genesis of the MIREP program Cambodian context GRET is involved in rural water supply Conflicts end; the reconstruction of the projects, such as the construction of country begins. 1989 -1999 circular and tubular dug wells in the south of the country. GRET conducts a survey on small-scale The Ministry of Rural Development prepares 1999-2001 private piped water supply systems. a policy on water supply. GRET and KOSAN Engineering initiate a The beginnings of the preparation of the pilot project to support one private water water policy. Three major axes are promoted: 2000 -2001 supply system in Pech Changva. informed choice, the cessation of operational involvement by the Ministry, and the participation of the private sector. GRET launches the MIREP program with The Ministry of Rural Development launches financing from SEDIF and the French the project for support of the 2001 Ministry of Foreign Affairs. professionalization of the water sector (APSER), in which GRET participates (support for the training of well water enterprises). Setting up of the operational framework for Decentralization reform : first commune the MIREP program. elections in Cambodia, programs to support 2002 communes and the decentralization process are launched . Setting up of the piped water supply system Cambodia adopts a new policy on water and in Takeo province, and its extension into water quality standards. 2003-2004 Kampot and Kanda! provinces with the support of GTZ and UNICEF, respectively. End of the MIREP program , start of The government elaborates its strategy on 2005 dissemination activities to make the results devolution of centralized power to the and the lessons learned available to all provinces. actors involved in the water supply sector. Our ambition: towards a basic service of drinking water supply of a regulatory framework, by which service The MIREP program was born from the idea of conditions and delivery modalities would be transforming informal local private initiatives into defined by common agreement between the proper basic services of drinking water supply. customers, the public authorities, and the local Such services would meet internationally private suppliers (See table 11 ). recognized quality standards, including a coverage corresponding to the population of those The MIREP program was designed to generate towns affected by the scarcity and pollution of efforts toward additional private investments and traditional water supplies, and individual to encourage professionalization of the private connections to the water service for the greatest suppliers as a response to the setting up of a number of households, but with adapted sound local regulatory framework involving the alternatives for the poorest, and the establishment public sector (See figure 2). Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 33 Features of the water Informal service "Essential" service service Water quality Good tasting water at home Water of international quality standards. Small area around the service provider. The denser population zone of the towns, likely to be affected by scarcity Service Coverage and by the pollution found in traditional sources. A variety of modalities, with no Maximizing the rate of individual Access to service guarantee of availability of supply or of connections and availability of service. quality. Tariff and fees Based on supply and demand. Regulated fees. Pro-poor Non-existent. Alternatives for the poorest. considerations Almost non-existent. Framework regulated by local contract, Regulatory by participation of local authorities in the framework definition and control of service. Figure 6 -A synopsis of the MIREP Intervention Private sector: Investment and management capacity, willingness to professionalise Public sector : Legitimacy, contractual security, monitoring, support to local development initiatives, mediation 34 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Toward the normalization of the private-public relationship public authorities, whether at the local level or the Supporting national reforms national level, had very limited influence over the service provided by the private entrepreneurs. Technical departments from ministries or other The MIREP program evolved, from 2000 to 2005, state administrators are even continuing to drill within an institutional framework, which was wells without taking into account the private rapidly changing. In 2001, when the program was 22 initiatives, which are growing rapidly and having starting up, a reform of the water supply and some success among the local population, sanitation sector was undertaken which particularly in small towns . encouraged the participation of the private sector in the financing, construction and management of The preparation of a water policy in 2001 put the water supply services. Also, in 2002, the country spotlight on the growing presence of these private launched a process of decentralization , whose systems, as well as on the crucial need for primary accomplishment was the election of the professionalization. This realization of the commune councils by direct voting. In 2004 came importance of the private sector coincided with the the renovation of the institutional tools of the PPI withdrawal process of the State in its role of including new rules on concessions and bidding supplier of basic services, and the progressive processes, together with the delegation of delegation to the communes of the responsibility 23 decision-making power at the provincial level In and the ownership of the works related to 2005, the preparation of an organic law foresaw community wells and other water systems. the decentralization of additional national power in favor of the provinces. Even though these laws By being based on this communal responsibility, and policy reforms set the general framework for the subordination of private systems to the intervention, the modalities of enforcement and of communes (and its corollary, the delegation of the decentralization of these sectors are still water supply service to the private sector) , lacking . Since it was designed basically as a pilot becomes an option that is institutionally possible program for the reform of rural water suppl/ , 4 and realistic, since private operators generally MIREP's aim was to support and inspire the have informal arrangements with heads of evolution of the institutional context of the water communes. sector in relation to decentralization-to set up In the absence of a clear legal and regulatory models capable of bringing about texts and framework, local contract development becomes a legislation in these domains. learning process through which the public and the private stakeholders progressively build a Making the local public-private common understanding of their respective roles relationship evolve and responsibilities. In this respect, the role of MIREP program consisted of promoting the Before the MIREP program started , an existing relationships between these two parties, entrepreneur investing in a water supply system and formalizing the roles of each th rough the was operating in the absence of regulation . contractualization process, the promotion of Although water belongs to the public domain, participation (attracting users, clarifying and keeping track of their demand), and finally the mediation (creating a space of mutual confidence among elected officials , users, and private sellers , 22 Through the National Policy on Water Supply and facilitating dialogue). Sanitation adopted in 2003. 23 The provinces were allowed to delegate projects costing Jess than US$2 million. 24 In the context of the establishment of the new water policy, the MIREP program had to validate the possibility of professionalizing and formalizing private water systems. The MIREP program supported the work of the PSCU (Policy Support and Coordination Unit - Ministry of Rural Development) in order to achieve the support of the new water policy. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 35 26 Supporting the sense of legal validation and support for regulation . In certain cases 27 a committee of local management, ownership at commune level composed of elected officials and representatives 25 of the users, and presided over by the leader(s) of Following Cambodia's evolution toward 'D&D' the commune, was put in place in order to help the the institutional set-up of MIREP was based on a commune council in the preparation and the preponderant role for the provincial and communal overseeing of the contract. public authorities. The project's ownership was therefore divided between the provinces, via the Provincial Rural Development Committees (PRDC) (see the text box), and the communes . During MIREP implementation the provincial Box 8 - Roles and responsibilities of PRDC councils gave assistance to the commune councils, in order to : a) identify the communes that needed to be targeted as a priority, b) elaborate the public-private contracts , c) select the The main roles of the decentralized public entrepreneurs/supplier, d) manage the subsidies institutions. and e) support to the communes in the supervision of the contracts . Under the overall supervision of these The Provincial Rural Development committees, the provincial departments of rural Committees (PRDC) are in charge of: development, finances, and planning have The selection of the target sites. provided technical support and have monitored the various stages of the start-up of the systems. • The management of subsidies for the The commune councils have been involved at all construction of the treatment facilities . stages of the project's preparation and the The procedures for granting and contracting process , with various degrees of managing provincial funding . technical and financial participation. For certain systems, several communes have even grouped Technical and institutional support to together ih order to contract with a private communes involved in the project, across entrepreneur. The users participated in the sectoral departments grouped together with the definition of the water services through PRDC framework (particularly finances, rural consu ltation meetings, through the intermediary development and planning). representatives previously elected or appointed according to their status in the community. Support to communes with respect to contractual regulation . Box 7 - The PRDC Excom in brief The commune as the local project owner is the immediate interlocutor for private entrepreneurs The Provincial Rural Development Committees and the users for: are the inter-ministerial structures (Interior, Planning, Rural Development, Women, Health, The investors' choice . Agriculture, Finance), which are responsible, at The conditions of service. the provincial level, for supporting the communes in the starting up of infrastructure and public The management of the contract. services (schools, road , water sources). The provincial committees, which have their own budgets, foresee a future provincial investment scheme, as planned by the new organic law on decentralization expected in 2006. 26 The decision to delegate the management of the According to the legal provisions of communal water services to the private sector is jointly taken administration the contracts between a commune by the commune and the province. While the and a private business must be approved by an decision at commune level is essential due to its entity of the Ministry of the Interior (district or close proximity to the private provider, the province). 27 decision at provincial level aims to provide the If financial or funding participation on the part of the communes is involved (concession contracts, rental or leasing), in the case of the pooling or consolidation of communes or in the case of local 25 Decentralisation and Deconcentration. management ofsubsidies. 36 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Figure 7 -The institutional arrangement scheme of MIREP delegation and regulatior\ procedures unknown . process 1 -·-·•t-- ·-··-·-·- ·-·-· -·-·- ·-·-·-·-·-·-·-·-·- ·-·-·-·-·- ·-·-·-·-·-·-·-· -·-·-·- ·-·-· -·- ·-·-·-·- ·-·-·- ·-·"f'-·-·-·-·- ·-· Provinces Provincial technical Departments Provincial committee Planning Support Validation technical support and monitoring Private Entrepreneurs ~- . --------1 : Serv1ce : : Co-delegation : L----------------J MIREP Institutional scheme . ' '-·- · - ·-·-·-· -·-·-·-·-·- · - ·--- --- - --· - · -·- · - · - ·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-· tenure opportunities of three communes . All together these different types of contractual arrangements represent a wide range of Provide a wide range of ·institutional choices, which are now available to Cambodian communes and provinces, and contractual arrangements constitute a component of the informed choice of a population 29 . MIREP has sought to formalize some contracts, tailored to meet the local demand and respond to the local constraints and opportunities, with at the end the aim of providing an informed choice within a range of the contractual possibilities, which would be available for all Cambodian communes. Models of the MIREP contract Four types of contractual arrangements were implemented within the MIREP framework- several BOO-type contracts (Build Operate and Own) , one concession/BOT contract (Build Operate and Transfer), one affermage-type contract and finally one leasing-type contract. The most widespread , the BOO contract is the most 28 similar to the situation of the informal systems . Signature of a contract,Takeo. The other contractual arrangements have gone along with the investment capacities and land 28 The informal systems correspond to infrastructure which are wholly private, and which in the case of 29 transfer of activity, are sold on a market basis, and A brochure on the participation models of the local are re-sold to entirely private entities, with no private sector has been created for the attention of intervention from the public sector. the local powers. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 37 BOO-type contracts: introducing Affermage and leasing contracts: the public responsibility without issue of public resources discouraging private investment Affermage and leasing contracts, which are both In BOO-type arrangements, the public authorities based on public investment, usually with minor disengage themselves from all responsibility participation by the leaser or the farmer, differ associated with the service delivery, with the from one another with respect to the modality of exception of regulation of the service. It leaves to rental fees in the commune. These fees are fixed the private sector the ownership of the in the case of affermage contracts and indexed investments, the responsibility to finance the according to the amount of sales in the case of investments and to operate and manage the leasing contract. Affermage arrangements, then, service. The installations must therefore be involve a greater commercial risk than leasing supplied for sale when the contract expires. This arrangements for the private party, who must be model is similar to the spontaneous investment in well supported if no precise information on the Cambodia 's private sector, as it does not require local water supply market exists. any financial or funding contribution from the These two types of contract illustrate the public authorities. Due to the private ownership difficulties for local public authorities in accessing status of the investments, this model is relatively public finances , since (as long as they cannot levy safe for private entrepreneurs, especially funds from local taxation or count on widespread considering the quite loose legal framework that community participation) they are dependent upon exists in Cambodia. In contrast, this contract is the central powers or on international aid . The the most difficult to regulate for the local absence of financial capacity for extensions or authorities: as the private supplier owns the renewals often lets the contracts slide into de facto installations, there are few ways to hold them to a concessions. good level of service, except through expropriation, which is a long procedure and The MIREJ? affermage contract in Phnom Den beyond the reach of local power. works in step with a commune owning a pond that it did not want to put into concession . The commune and the communities (see below) have Concessions/BOT: the issue of financed the rehabilitation of the pond; the investment as the project goes province has financed the water tower; the water forward treatment facility was subsidized by the project; and the private party took charge of the water A concession model means making available to a network system. private party some 'space of service' (a place and a length of time) for which the party must guarantee financing, construction and Box 9 - Difficulties with community management of the infrastructure while finding participation in private systems remuneration from the service. From a legal point of view, infrastructure ownership remains public, In Phnom Den, direct participation by the and it is the contract, which guarantees the communities in the form of a contribution entrepreneur the legal right to use the property of generated resistance on the part of local the infrastructure. For the private party, this populations, who did not understand the reasons contract offers the advantage of providing "free" for financing an installation which was intended to land but implies an investment risk if the contract generate a profit by a private person. This is thrown into question, particularly in the event of attitude is reinforced in Cambodia by the fact that change or political unrest. The restitution of unscrupulous private persons have sometimes installations when the contract expires involves collected contributions from villagers without the depreciation of the investments over the completing the promised infrastructure. period of the contract, which may increase the tariff of water, compared to the privatized contract, in which the infrastructures are offered for re-sale . The leasing contract for Prey Pkhoam was piloted Also, it is a reason for under-investing in service in the poorest of the small towns targeted by the extensions, which may be reduced through a MIREP program. In this settlement no local private process of compensation for the non-depreciated entrepreneur was willing to invest. The commune investments when the contract expires. therefore decided to allocate its annual investment 30 fund in order to dig a pond . The province on its Within the framework of the MIREP program, a side financed a water tower, and the water concession contract was drawn up in Angkor Borey, where private land was unaffordable, and where the district authorities could provide a piece 30 In Cambodia each commune receives on a yearly of land in a good location which was made basis a communal fund to make public investments available to the commune . (from US$~000 to US$10,000, according to communal needs}. 38 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia treatment facility was subsidized by MIREP turned over to the commune (with an 80% level of program . The private sector paid only for the participation) at the expiry of the contract. pumping system. The water supply system will be Table 12- Public-private contracts experimented within the MIREP framework Contract Num Investment Owner Operation, Commercial Contract ship risk duration Maintenance Leasing Public Public Private Shared 5 years Public (with Public Private Private 10 years minority Affermage participation of the private sector) Concession Private Public Private Private 30 years Divestiture 11 Private Private Private Private 10 years Box 10- Describing the MIREP contract Contracts are tripartite contracts, involving: The delegating authority (public or community) : the one which entrusts the service (in most cases, the commune with support from the Province); The private operator; Users, through users' representatives . Contracting the water service allows formalizing responsibilities of all parties: Protecting the investor in the long term by: o the official commitment of official authority representatives (provincial governor) who validates and acknowledges the delegated service; o a monopoly within the coverage area defined in the contract. Protecting the users by: o Setting-up rules and procedures for rising water tariff and connection cost; o Setting-up credit schemes for connection; o Tax schemes collected from the operator by the communes in order to maintain public water points, notably stand pipes. Formalizing the control by public authorities: o On water quality; o On service quality. Commitments from the operator depend on the type of contract. For "full private" (BOO) contracts, investors have several responsibilities and commit themselves to maintain a continuous and good quality service delivery to the users (continuous supply, drinking water, respect of water tariffs set-up in the contracts signed between investors and users). Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 39 The investor is particularly obliged to : Finance and build the main components of the piped water system , supply it with raw water and to distribute treated water; Ensure the water quality with respect to the criterion promulgated by the Cambodian government and undertake, at his own expense, at least two water analyses per year; Cover all operation and maintenance costs at his own expense; Keep an updated accounting book that is accessible to users' representatives; Pay a yearly tax to the commune authorities; Hold a meeting with the three contract parties every 6 months and provide a progress report; Request the license from the national authority in charge. (Extract from the internship report of Caroline Billard and Janie Boursin , IFU/GRET 2006) regulation . The MIREP contracts foresee a A focus on the fees and tariff revision of the water tariff, based on the variation of the energy costs, the labor costs, and the setting currency exchange rates-the three main factors, which most heavily influence the tariff . For all MIREP projects, the water tariffs are set up within the range of US$0.45 to US$0.55 per cubic meter. Either set at will or by bids, they are Main steps in the setting-up of calculated according to the water policy in order to systems cover expenses of maintenance, operations and capital; as well as financing charges, taxes , and a return on investment. The subsidy allocated by Selecting the sites and designing the MIREP to finance the treatment facilities also systems appear in the water tariff under the form of a fee that is paid annually to the commune and set up at The starting point for setting up a water supply 2% of the subsidized amount. system was relying on a local expression of These water tariffs allow families with average interest, either by private entrepreneurs willing to means (earning US$75 - US$150 per month) to extend or upgrade their existing system, or by have access to about 40 liters per person per day communes eager to install a new water supply 31 for about 4.5% of their monthly income during system. There was an information-gathering the dry season (during the rainy season , this stage prior to launching of expressions of interest, budget is cut in half). The principle of flat rate through the intermediary of various administrative tariff was preferred to the Increasing Block Tariff echelons and through announcements in the local (IBT) 32 . Indeed the low level and the limited media (newspaper, radio, etc.). variation of water consumptions (40 liters per day) After a technical and socio-economic pre- does not justify a cross-subsidy mechanism assessment of the small town (implemented jointly between small and large consumers . by the members of the provincial committee and In addition, with the IBT, the poorest, who the MIREP engineers) , the definitive choice of generally get their water supply from their targeted sites was decided , project by project, neighbors who are connected, end up paying for essentially taking into consideration the suitability water at a higher rate . Encouragement of of the choice of piped water supply system as a entrepreneurs to connect poorer zones and technical solution, and the presence of an existing households is weak, and would not be or a potential market for water. compensated in any systematic way by local The households' willingness and ability to pay for improved water service were determined by 31 surveying a significant part of the population (from The costs for access to sufficient water (40 liters per 35% to 50%) on the analysis of their water day in Cambodia) should ideally be set so as not to consumption, their water budget, and their exceed 5% of income, and ideally should be perception of the conditions of the future service situated at around 3%. (water tariffs and connection cost in particular). 32 The 'Increasing Block Tariff' plans that the 'top slice' of consumption (the first m3) should be billed at a Following this socio-economic study and an fee below the cost price, and that subsequent analysis of local water resource conditions, the consumption (the m3 following) should be billed at MIREP engineers, together with the employees of a greater rate to cover the difference. In reality, the provincial committee, designed the technical increasing rates are difficult to administer without a solutions most appropriate to the site and the computerized billing system, as neter reading may volume desired . be irregular, and the average consumption over a fixed period may need to be computed. 40 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Figure 8 - Process for setting up a system Commune s System desi gning Cxpresaion of interest ~IIP. !:t f1 rP.hm~n~ry ~ ll fVAY. MilrkAI ::lflrtrRI"~t1, r CurMrul.1iun ~~sessment IP.chnic:al diagnosis P ll¥' ate entrepreneurs SerYite Contract orinf.-- Expression of Interest discussion and setting < 2 to 3 mont hs > r < 3 IO 6 months> r < 3 IO 6 months > Contract Signature Service start S.te :selec-tion private businesses. Thus, the contracts were Selecting the entrepreneurs drawn up with the private business people, in their own names, to avoid reluctance linked to the The selection process of the entrepreneurs , the costly legal registration of businesses (about future supplier of the water service, was organized US$1,000). in various ways, depending upon whether a private system already existed , or if it was The contracts drawn up within the MIREP necessary to start from scratch . When the framework are short and written in the common existing entrepreneur seemed to possess a solid local language so that they can be discussed level of legitimacy among the local population , and easily by the entrepreneurs and the locally elected had sufficient technical and financial abilities and representatives. Their duration is adapted to no potential competitor, the choice was made by ensure investment security according to the mutual agreement {this was the case in 4 out of 14 contractual arrangement. projects). In the other cases, the selection went The contract specifies both the obligations of through a bidding process. Either the bidding means and resources (minimal infrastructure level, awarded the existing entrepreneur or contributed definition of the geographical coverage of the to identifying other local or regional entrepreneurs system , necessity of expansion of the installations able to invest. If the selection process put several according to demand) and the results {the number existing entrepreneurs into competition, a of families to connect based on their desire to be negotiation procedure was defined together with connected, and the level of service expected). compensation among the commune, the existing entrepreneur and the potential investors. This To ensure contractual legitimacy, considering the took place before the bidding process. Thus, in the immature state of the legal context in this area in three cases where existing entrepreneurs had to Cambodia, the contracts were validated by all the cede their place, they were given an indemnity of local public agents involved, particularly the between US$1 ,000 and US$2,500 33 . It should be provincial governor, whose signature was the noted that, although this measure had varying essential guarantee of security for private degrees of acceptance, the three entrepreneurs entrepreneurs. nonetheless did give up their business activity 34 . The process for the formalization of the public- private relationship also included different licenses Formalizing the public-private and authorizations provided by the central relationship ministries, even though these are often considered as impediments by the local entrepreneurs because they are of short duration (2 to 3 years) Formalizing the public-private relationship came and require large expenditures both for travel and about gradually as each project went forward . transaction costs. The succeed ing water service was conducted on the basis of discussions among the three principal actors; the commune (supported by the provincial The implementation process committee), the users and the potential entrepreneurs. The infrastructure facilities were all designed by the engineers from the MIREP program. In places The process of formalization was limited to the where the existing water facilities were in relationship between the public and private acceptable working condition, they were sectors and did not include the formalization of integrated into the new system so as to avoid extra investment on the part of private 33 entrepreneurs. These amounts were based on the residual value of the installations and the lack ofprofit for 6 months. 34 These three outgoing entrepreneurs have gone back to their bases as nurse, restaurant owner and farme0 respective/~ in Ang Roca, Koh Thum Ka and Kba!Po. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 41 The construction process, which was relatively The technical teams from MIREP provided 35 short (from 3 to 6 months) , was conducted in two support, supervision, and validated the two parallel stages: the facilities subsidized by MIREP processes. program (in this case , the treatment facilities) and the facilities funded by the provincial committee or the commune were the subject of bidding for a local contractor, while the rest of the facilities were built at the direct expense and responsibilities of the private entrepreneurs who recruited their own construction teams . construction and SURervisi : eon-FW!d4'"111'f) i Contractor seh?cted through formal bodmg Build the subsidised pall (treatmerrtplant)- th provooal and/or commune co-linanong (of any) This background information was followed up by Commissioning and monitoring of regular site visits and prompt support when water utilities requested during the first year of the establishment of service. The outcome of this The start-up of the water service included the training program was quite limited because of the training of the staff in charge of the technical and turnover of personnel employed by the investors the managerial works . This means essentially the who do not manage the system by themselves . private investor himself and some of his workers . As far as follow-up on water quality is concerned , Cambodia has had , since 2004, drinking water • Training on treatment process for quality standards that are close to the drinking water, the use of chemical products, system operation , recommendations of the WHO . The exception is maintenance, etc. arsenic, whose level for the next 10 years was set at 50 ppb 36 compared to a provisional guideline of • Training on management issues based 10 ppb set by the WHO . on the use of formatted documents: bills , forms and client contracts, amounts of Each entrepreneur has a contractual obligation to individual consumption, follow-up of check the water quality and to have physico- inputs, and costs . chemical and bacteriological tests carried out every 3 months at a minimum, with the results posted so as to be accessible to the commune and the users. To this end , a completely equipped laboratory with trained staff was established in 35 According to the case, and especially for small existing 36 entrepreneurs, 2-year investment plan has been parts per billion which in water is equivalent to negotiated. micrograms per liter. 42 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Takeo province in the Department of Health in Therefore, MIREP has sought to increase and order to carry out these types of tests. maximize the use of the water supply service as The regulation of the water service at the local opposed to other water sources through a level is the dual responsibility of the commune marketing strategy. Information meetings about councils, supported by representatives from the the water supply system (see picture above) and users, and the provincial authorities. The various promotional techniques such as T-shirts, contracts call for biennial meetings between the lotteries and brochures have accompanied communes , the private supplier, and traditional hygiene education campaign on water representatives from the users in order to quality. MIREP's techniques have also reinforced exchange data relative to following the terms of the marketing abilities of entrepreneurs to promote the contract and the service, eventual changes in their service, speed up the connection process, tariff, or to discuss certain issues related to the and above all , try to overcome the reluctance of contract. customers to use water because of the chlorine odor. The provinces often provide some support to the communes in their relations with private entrepreneurs, particularly when water tariffs are to be reviewed , or when decisions are made that must be enforced in order to ensure respect for the contract, for example, respect for a monopoly. Training among the people In spite of its regulated nature, the water supply "system" is not exclusive and often overlaps with other water service offers also present within the towns . Even in places where connection rates to the water supply service are high , our experience shows that water supply systems only partially cover the water needs of the population, and that the bad quality services, such as those coming from pond water, do find a clientele, particularly because of their low price or the taste of the water. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 43 The assistance and support scheme The originality of the assistance mechanism provided by the MIREP program resides in its Box 11 -The MIREP team duality of support: on the one hand, assistance was granted to the public sector (the communes and provinces), and on the other, support was The MIREP program was implemented through a given to the private sector (assistance to the partnership between GRET (an NGO) and Kosan contractors and to the private suppliers of engineering, a Cambodian consulting firm. GRET services), which guarantees a balance between was in charge of project management and the two parties in the public-private relationship. brought in its institutional experience and MIREP has ensured constant dialog and if competence while Kosan Engineering allocated a necessary, has been there to smooth out any team of local technicians. Two French engineers difficulties. and three Cambodian engineers were involved in the project management. In addition to the MIREP's intervention rests on three components: project ownership, the Provincial Rural Development Committees have also allocated institutional support for the selection , the provincial staff to the project implementation. preparation and the enforcement of the local contracts; technical assistance for the design, the construction , and the operations of the water systems, and ; financial aid in the form of available credit and subsidy schemes. Assistance to the public sector Support to the private sector • Assistance for the preparation of the • Assistance to the preparation of Institutional contracts, the selection of the public-private contracts. assistance entrepreneurs, and the enforcement of the contracts. • The setting up of subsidy scheme for • Subsidies. Financial assistance the water supply systems. • Credit refinancing and guarantee scheme. • Technical and hydraulic assessment. • The contribution of technology, particularly in water treatment. • Assistance in the bidding process for Technical support construction. • Conception of the systems, support for their construction, and support for • Technical validation of the systems. start-up. 44 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Support for credit through MIREP's assistance consisted of proposing to a commercial banks commercial bank a refinancing fund {The Rural Infrastructure Fund, RIF) of 3 to 5 years 38 , and a guarantee of 30% in the case of a default of Rural infrastructure funds payment by the investors 39 . These funds were placed in a public bank, the ROB (Rural The absence or the inappropriate uses of credit Development Bank). At the time of each request are factors in the difficulty of investing in the rural for investment loans, on the good faith of the private sector in Cambodia. The use of credit for water contract, the commercial bank borrowed 37 investment is not widespread; Debt financing is from RIF at the rate of 7% per year (of which 3% expensive-interest varies from 18% to 36% per applied to ROB expenses and 4% to increase RIF year; of short duration-1 to 2 years; and bound to provisions). These funds were used to provide strong guarantees-at a minimum, 3 times the loans to MIREP investors at 14% per year (the amount of the loan requested. Banks are often bank's profit was then 7%). The MIREP teams unable to evaluate the investment projects facilitated this relationship by helping the submitted to them , and lack experience about entrepreneurs realize their business plans. service infrastructure projects. At the time, the absence of a bankruptcy law increased the risks of lending for the banks. Thus, MIREP has voluntarily chosen to not create a means of outright credit but to encourage a local commercial bank to finance the entrepreneurs involved in the water business, and to create links with the entrepreneurs. Figure 10- Revolving funds and warranty schemes Rural Infrastructure Fund Settled 10 Rural Development Public Bank I I o Re-financing (3 to 5 years) Guaran tee 30% MIREP Com mercial Bank Programme Informati on Lower Interest rate (14% in stead of 20%) Technical and management Longer duration support (3 to 5 years) 38 Commercial banks have difficulty in getting access to 31 medium- or long-term financing. They work mainly Binding credit, such as that practiced by micro- finance institutions, is not compatible with with private capital on a short-term basis. 39 investment in water supply systems because of the This system ofguarantees has been kept secret so as small amounts, the short span of time and the high not to cause hedging effects on the part of the rates. borrowers. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 45 A limited commitment from the limited willingness of providers to address water banking sector quality issues and the absence of legal means of enforcement, in order to pressure entrepreneurs to 40 provide acceptable quality water. The commercial bank that agreed to partner with the MIREP program (this bank was created at the The project has completely assured the financing , time of the launching of MIREP with a strategy to design and construction of treatment facilities , in promote small and medium-sized businesses) , exchange for a contractual obligation from the accepted conditions that were quite exceptional at entrepreneur to use these facilities for public that time -an extension of credit term from 1 to 5 interest and to provide potable water treated in a years, and the lowering of rates from 20% to 14% well-defined coverage zone to an agreed-upon per year-essentially on the criterion of number of families who have expressed a refinancing and the involvement of MIREP to willingness to be connected . These families were provide the entrepreneurs some support with the determined through prior surveys . management and exploitation of the water Taking charge of the treatment facilities was done systems. in a deliberate attempt to support local private When the bank got the evidence that all the entrepreneurs, by keeping them out of debt or entrepreneurs had repaid their loans-the bank from financing themselves entirely (the treatment had never needed to take recourse to the financial facility represents between 20% and 30% of the guarantee- it increasingly limited its recourse to total cost of the system), and to better enable the RIF and began to finance loans from its own them to finance further facilities (systems, water funds , either wholly, for confirmed entrepreneurs, towers, ponds). or by limiting its refinancing to the agreed-upon The amount of the subsidy, which represents financial guarantee, 30% of the amount of the about 30% of the total financing of the water loan . system , was based on the cost of the treatment While the confidence increased progressively facilities, but the amount was capped at US$40 between the water entrepreneurs and the bank, US per household connection (this amount the duration of the loans were nonetheless represents the average level of subsidy for rural reduced to a maximum of 3 years by the end of systems , wells or community boreholes) and the the program , in anticipation of the end of technical entrepreneurs were asked to make up the assistance provided by MIREP. difference if this amount was exceeded (which in fact never happened). The MIREP credit scheme , involving financial guarantees, made it possible to officially lower the The subsidies were administered by the provincial amount of the collateral real estate or land rural development committees (PRDC), which requested of the investors in relation to the asked for bids for the construction of treatment amount of the loan , but the under-valuing of the facilities and disbursed the amounts, using the real estate put up as collateral has often wiped out national procedures of the Seila program (the this advantage. national system for communal investment). Since at that time it was impossible for the communes to In addition, the learning process of the bank in manage bank accounts, the subsidies did not relation to the financing of water service usually pass through the communes, with the entrepreneurs has been limited due to the great exception of the last site (Tany, in Kampot), where turnover of its personnel. the subsidy funds were managed by an 41 intercommunal committee for water Subsidies management created to assist two commune councils in their relationship with the private sector. Water quality and the participation of local private entrepreneurs Promote access to the poorest The two major social issues of the water systems Under the MIREP contracts, the communes must launched by MIREP concerned the potability of ensure, by using the entrepreneurs' annual fees, the water sold, and to a lesser extent, the the upkeep of the traditional water sources for the accessibility of the service, since in the great poorest, who cannot afford to connect to the water majority of zones there already existed other service. Depending on the site , the figures show alternatives to the water supply system , in the that the poorest 10% have no access to a service, form of ponds , boreholes or wells . because of both the cost of connection and the The MIREP program thus prioritized the choice to subsidize water quality, taking into account the 41 In order to get around the impossibility of communes to open bank accounts, the inter-communal committee on water management opens an 40 Peng Heng SME Bank. account. 46 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia price of the water. The difficulty of transferring to the communes the burden of taking charge of this • Stand pipes system led us to introduce extra subsidies in order to allow access to the poorest. A system of local water stand pipes (see photo) was set up in the province of Kanda!. The tariff is MIREP therefore adopted two approaches: one normally the same as with a water meter, because extra subsidy intended to pay for water stand the stand pipe owner buys water at a preferential pipes in the poor areas of Kanda!; and free price to the manager of the water supply system, individual connections for the poorest households and the owner's profit is set by the contract made in Tany in Kampot Province. with the commune. This formula was relatively successful, with an average of 60 customers a day • Subsidy for Individual Connections during the dry season, but the regulation of water tariff at the stand pipes poses a problem- In order to supply connections at no cost for the regulated prices, even when posted near the poorest families in the zone of Tany, a list of these fountain, were not systematically respected. Also, families was prepared and approved by persons of the standpipe does not allow the poorest their free social importance in the village-village heads, amount of water. Therefore, they are spared only religious representatives , and the head of the the cost of connection . development committee-verified by on-site visits, and then validated publicly during village meetings. This rather long process was intended to diminish controversy and jealousy, and to avoid damaging the social cohesion of the local population (this process was set up by teams from 42 GTZ that followed the project in collaboration with the MIREP teams). It is interesting to note that in this town , the local authorities who were in charge of the selection preferred to limit to 5% the number of those initially identified (10%) rather than having to put up with possible lawsuits. To allow poor families access to a minimum amount of water, a free supply during the dry season was given to them. The cost of this free supply is then recouped from the annual fee that the entrepreneur must pay to the commune. Treatment stations Access to service for the poorest Subsidy for all systems (amount Extra subsidy for only three systems varies between US$10,000 and (amount varies from US$1 ,200 to Grants and amounts US$23,000 depending on the US$1 ,500 depending on the system. system . Good quality water according to the Access to service for the greatest Service objective norms. number. Financing the treatment station. Financing of connections I fire Purpose of the subsidy hydrants (fountains) intended for the poorest zones. To the builder of the station , To the service provider according to Modalities of disbursement according to the progress of the the access to service of the poorest work households. 42 A German international cooperative public enterprise. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 47 proves that the selection of poor families is a The effectiveness of the subsidies delicate exercise indeed , and that incorrect methods of selection of poor families-a lack of transparency or of participation, preferential Evaluating the effectiveness of subsidies comes treatment and nepotism-can have a lasting and down to analyzing their importance in attaining nefarious effect on the social cohesion of social goals (potability and accessibility) and populations. measuring them against the requirements of financing (participation of the local private sector and the optimizing of subsidies). • Financial involvement The provision of subsidized input has a positive • An immediate impact on water quality impact on the financing situation. By reducing the need for capital , it in fact authorizes the presence The subsidy of the treatment facilities brought of entrepreneurs with weaker financial capacity. about an automatic impact to the quality of water However, it does not guarantee optimal provided by the entrepreneurs, because all of effectiveness for the amount of the subsidy, since them used it. Had these facilities not been made this amount is not subject to competition . available, it is doubtful that the local entrepreneurs could have acquired both the technical ability and In the OBA model , optimization through bidding is the finances necessary for water treatment. the rule. If it allows for-in a theoretical way-an Indeed , prior surveys showed that the population adjustment for subsidies to the market, its in general assigned little a priori importance to effectiveness can be limited by the technical water quality, and that water quality did not figure capacity of the private sector to offer a bid (related as a form of extra value for the entrepreneurs. It to its ability to risk an amount corresponding to the should be noted that the systematization of expected subsidies). This means a de facto treatment facilities in the MIREP systems was a elimination of small entrepreneurs. factor in the adoption of water treatment in rural systems even outside the MIREP framework, The design logic because this facility is replicated more and more often. A true estimate of the needs • Improved access The MIREP water systems are designed with Without these subsidies, and given the strong estimated consumption in mind . A prior study, institutional constraints, some entrepreneurs might conducted among 33% to 50% of the population have been able to set up treatment facilities (that depending on the size of the site , makes it would perhaps be less effective), but to the possible to determine the number of households detriment of three service factors: the fees, which who are willing and able to pay for the water would have been about 10% higher (up-front costs service. This last factor is calculated by and return on investment); the coverage zone , averaging equally the total amount of water since the investment put into the facility would consumed per season , the budgets allocated to have reduced its extension capacity; and the rate water expenses per season , and the volume of of connection , since the rise in fees would have water purchased. The willingness to connect and eliminated access for some families. Furthermore, to pay for water was estimated based on a the profitability of the treatment facility would descending scale of affordability. The coverage demand a greater scale of use in order to increase area is defined considering the level of density of coverage rates. households44 . When the houses are too far apart, the viability of the system is not certain , and it is • The situation of the indigent better to adopt a community system. The standard for water pressure is based on local Even when bound to a contractual process, the topography and on the type of dwelling {the subsidizing of an input (in MIREP's case, the absence of two-storey houses), and on the treatment facility) requires a high level of modalities of use. Almost all households use a regulation in order to guarantee a good social tap in the yard, but the water quality is never outcome for the entire population. To ensure a compromised , since it is determined by national 43 positive social goal , the OBA , which consists of standards. paying out subsidies on the basis of an imposed social outcome, such as a certain number of families connected, is becoming more and more important. All the same, this way of subsidizing calls for precautions in the definition and implementation of social objectives. Experience 44 A distance of less than 15 meters from the entrance 43 Output-Based Aid. of one house to another. 48 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia A system of gradual investment maintenance, that also meet international quality standards. The initial facilities to be built by the entrepreneurs The treatment facilities were designed in this spirit, are designed on the basis of the existing market and they have been replicated in numerous and considering an increase in the demand for the Cambodian towns because of the simplicity of 45 following 10 years . A short-term extension their construction and their low cost. The program calendar, as well as middle-term modalities for has also designed water towers, floating pumping adapting the resources and the system accord ing systems and PVC distribution networks, adapted to need , allow us to 'custom-design' an to each small town , while always trying to provide infrastructure, and thus also the investment needs the most affordable solution for local and the costs of operation , according to demand , entrepreneurs. Likewise , MIREP has designed and to authorize the enlargement of a system maintenance and testing tools (a jar test) that through self-financing . These modalities are have spread around Cambodia on a commercial made easier within the framework of BOO 46 basis . scheme, which allows for the resale of infrastructure at the end of the contractual period . Box 12 - Water treatment stations This system differs from public financing schemes and from international aid, both of which are designed according to standards or of sizing for The MIREP treatment stations are of the rapid long-term operation , which generates inaccessible aeration-flocculation-sedimentation type . The investment costs for the local private sector and standard models developed (10m 3 , 15m 3 , 30m 3) also generates additional costs which these small per hour cost around US$10,000, US$14,000, entrepreneurs find difficult to deal with . and US$25,000, respectively. A model of batch stations was also developed for Intermediary technical materials very small volumes . Slow filtration system was not used because of maintenance difficulties. Cambodia is located near some countries-China , Vietnam and Thailand-known for their industrial dynamism, especially in the production of manufactured goods. It is possible to have access to water meters made in China at US$4 per unit, and from Thailand for US$8 per unit. These products have a relatively short life span (about 3 years) but are available at all local markets because the need for their rapid renewal assures the retailers a viable and constant market. The same is true for PVC valves , cement, etc. Conversely, more expensive products like western water meters, which last much longer (10 years) , are not accessible because of their initial cost. They do not need to be replaced as often , and therefore are not viable for the local retail market. MIREP Low-cost technologies have permitted affordable investment costs (about $150 per household) and a very low connection cost (about US$15 to US$18), allowing access to the water service for the townspeople . Technologies specific to towns Because of the small volume treated (between 50 3 and 300 m per day, depending on the site) , and the characteristics of local private investment, MIREP has had to develop technical solutions based on the lowest cost, ease of use and 45 An increase of 2% per year in the population and an increase of 2% per year in consumption. 46 Experience shows that the latter figure is 4% for the All technologies developed within the MIREP first systems installed. The percentage is based on framework are available on CD, in French, English three years ofservice. and Khmer from GRET, or from www.gret.org. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 49 Box 13 -Two methods of system design Chambak and Smau Kney are two small towns 4 kilometers apart that have the same characteristics of urbanization, with a dense area consisting of about 300 houses. The investment by the private sector in order to cover the demand in Smau Kney is in the order of US$35,000, while the amount calculated for a project financed by international aid is US$220,000 for Chambak. The difference in cost is largely explained by the criteria selected for designing the piped water supply system: System Chambak Smau Kney Investment in the US$220,000 US$35,000 system Financing Public (through international aid) 90%, Private entrepreneur 70%, MIREP private entrepreneur 10% . subsidy 30%. Investment logic Basis for sizing : 15 years Basis for sizing : 10 years Sizing A standard of 60 led for production, 100 Based on average demand (about 35 led for the distribution system led) Coverage Zone extending outside the center, for a Only for the village (280 houses) total of 1,000 connections, minimal base of investment. Level of service Pressure of 4 meters of water height, Pressure of 4 meters of water height at over the entire coverage zone the center (area of about 1 km) (surrounding area of about 3 km Materials Pumps, pipes and high quality imported Materials of middling quality, purchased meters locally. Water quality National standards (close to WHO National standards (close to WHO guidelines) guidelines) entrepreneurs, and the improvement of performance techniques ; 2) the drawing up of Table 15 -Technical and financial information about the MIREP systems Technical information Data Average investment cost per household connected US$150 (US$1HH) Cost of connection US$15- US$18 Average pipe network size (km of the system) 4.65 km Average water production capacity (in m3 I day) 150-300 Hours of service 12 I 24 hours Pressure (height of water at the threshold of houses) 4 meters regulations for local service, an acceptance of The key to the MIREP program lies in the responsibility on the part of local authorities to continuous support given to local transform a marketing relationship between stakeholders toward institutional, technical, customers and the private sector into a regulated and financial improvements. These local service ; and 3) access for the population to the stakeholders, inexperienced for the most part, had service with the correlating social benefits. to learn the methods and techniques in order to progress towards the creation of a public service utility. The following chapter explains the changing process about the setting up of a water service , which assumed 1) growing participation by the local private sector, intensification of local investment in the form of a mobilization of fund son the part of existing entrepreneurs or outside Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 51 Chapter 3- Transformations: the first project outcomes on the main stakeholders Participation of the local private sector MIREP program's main ambition was to enhance and formalize the participation of local Local entrepreneurs entrepreneurs in the water supply sector through an increase of their own financial investment capacity, and an improvement of their technical Existing entrepreneurs competence. This process naturally started by involving the existing entrepreneurs, the ones who The existing entrepreneurs were usually local were already engaged in the construction and the traders and small businesspeople with a modest management of small-scale informal water supply amount of capital available to them , but enough to systems. Nevertheless, the MIREP program finance the construction of a pond or a water progressively started attracting outside investors, tower. As they were responding to the local whose motives were essentially financial. demand, they invested little by little, with family savings and self-financing, in order to respond in The financial and technical involvement of local priority to the needs of their families and their entrepreneurs was verified: micro-entrepreneurs neighbors, and then to a fraction of the and local investors with no relevant background in community, or in some cases to the whole the water business became good practitioners, population of the small town . certainly with limited theoretical knowledge , but hard-working enough to supply drinking water These existing entrepreneurs usually have some service to the population . One noteworthy knowledge of the place where they perform the motivating factor for these local investors is their water activity, and experienced a proximity to it belief in the social dimension of the water service. which gave them a natural legitimacy as a service For example, this can be illustrated by their provider to the population 47 . Spontaneous reluctance to raise fees , which was nonetheless a entrepreneurs manage the water system by possibility under their contractual arrangements. themselves, often with help from some members of their family. In average, the investment costs per project reached US$50,000, for sites of between 300 and 500 households, with an average cost of investment in the order of US$150/per household . 47 This proximity can sometimes cause the This has restricted the local private sector to entrepreneurs to exclude people or zones from systems of modest size. their service, either for personal reasons or out of a fear of insolvency. 52 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Table 16- Main characteristics of local private sector in the MIREP framework Criteria Potential Typology Existing entrepreneurs, involved in informal systems or local investors Investment costs Between US$25,000 and US$100,000 Service Coverage Between 250 and 750 households Geographical mobilization Systems located in geographical proximity Technical capacities Low cost technology and practical learning. Their financial capacities , including their own assured them the benevolence of local authorities funds and their ability to mobilize family savings, and the population. Their absence of prejudice or bank loans, are generally low, in the order of a towards the population allowed them to serve the few thousand US dollars. whole population without discrimination. On the other hand , in the majority of cases , these new Two key factors have enhanced the potential of entrepreneurs delegated the technical existing entrepreneurs to transform their informal management to employees , which caused water supply service in a proper basic service : problems in passing on information and continuity, Their investment capacity, which can be owing to a large turnover among the employees , estimated by their level of commercial who were often badly paid . and craft activities before the modernization of their systems. Box 14- Behavior of the entrepreneurs Their level of education and skill in the management of a local service or business (water or anything else). The demonstrator, who, starting from a pragmatic base, sets out on the path to modernization by The MIREP experience shows that only the investing and by accepting formalization of the existing entrepreneurs with a solid prior financial service. The MIREP entrepreneurs fall into this ability have managed to extend and upgrade their category. service in a satisfactory manner, and are now providing a good quality water supply service. The opportunist, who takes benefit from favorable situation, such as easy access to a water source, Existing entrepreneurs with limited investment and his competences, in order to serve the local capacity, even those with an acceptable level of population. The opportunist's system is generally competence, did not make it through the stages of integrated into other activities linked to water, selection. such as vehicle washing or an ice factory . The profiteer, relatively rare, who essentially New entrepreneurs seeks rapid income from a population dependent on his/her services because of a lack of any other In some cases, the water supply system was existing solutions. Heedless of the service and implemented by new entrepreneurs. This was the its duration, profiteers' fees are generally high, as case for "green-field projects" (where there was no are their profits, and support from politicians pre-existing water system)and for some already guarantees their immunity from pressure. They equipped sites , whenever the technical or financial are often found in the families of former military capacities of the existing entrepreneur seemed members. incompatible with the requirements associated with a functional and reliable system. (Extract from the AFD study "Small Towns' Water Supply'', 2005) These new entrepreneurs had more financial resources available to them than existing entrepreneurs, and were interested in the prospect Their investment decisions were usually made of a long-term activity. They operated by buying with three strategies in mind: up existing systems or by responding to bids organized by the MIREP program. These A strategy of long-term business investors usually brought in larger amounts of diversification: water supply delivery is funds than the spontaneous entrepreneurs, and considered as a safe business and a mobilized their funds in a more formal way relying growing industry in the small towns , sometimes on credit. For the most part they were compared to short term activities like natives of the target area , and their close ties to trading . the region, as well as their family ties in the zone, A strategy to secure personal wealth: infrastructure such as water facilities are con~idered better value compared to Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 53 Box 15- Bidding process in Koh Thurn Kah: savings accounts, which are poorly privileging the outgoing provider. perceived48. The simplicity of system operation : water In this commune, the local authorities wanted to supply is seen as an activity that is organize a competitive bidding process, but one relatively simple to start up in comparison that granted an "advantage" to the existing with other more complex activities like entrepreneur, as well as giving some weight to food processing , and for which local experience in the bidding criteria. In spite of competition is rare in Cambodia. this, the existing entrepreneur lost the bid, but this method, which seems fair and transparent while at the same time privileging the existing actors, is now in favor in the communes . Box 16 -The case of Kbal Po's system, an entirely private contract, Mr Sok Touch, "local" investor In Kbal Po, the investor works jointly with his wife, who manages the accounts. He has a good local reputation (management of a crafts business), and has been involved in village life for several years because of an irrigation system which he also manages. Mr. Sok Touch was in this particular case, selected because he was the only one able to invest in the system. He was therefore approached by the commune and asked to invest. Mr. Sok Touch used his local influence to organize the setting up of his water system. He approached the wealthiest families in order to assure his investment. These families (who are sometimes working for the investor) re-sell almost all the water to the poorest families. Mr. Sok Touch is easily identified by the families, and maintains friendly relations with some. He is always present on the site. He speaks with interest of his work, claiming he hopes the setting up of the water supply system will contribute to raising the economy for the village and will favor its development. He is ready, at harvest time, to grant some leeway to the families that cannot pay immediately. (Excerpt from the internship report of Boursin/Billard , IFU/GRET 2006) Figure 11 -The Evolution of Knowledge and Capacity among the MIREP Entrepreneurs Tecnnlcal knovJieoge 4 existing entrepreneurs with good investment capacity 8 new comers: Local or regional investors. attr3cted by the water sector 1nvestrnent Capa::ity 48 In Cambodia, between 1996 and 2002, before and during the restructuring of the banking sector, three banks closed their doors after liquidating all the savings of their clients. 54 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Competition has opened up Local private investment access to local investment The program strategy, consisting of promoting While the MIREP program was in first instance appropriate and affordable technologies has intended to give technical and financial assistance resulted in a reduction of average investment 49 to existing entrepreneurs, the introduction of costs to US$150 US per household . Sixty-six competition (through procurement based on water percent of these investment costs of were tariff and technical skill) allowed it to overcome financed by the entrepreneurs, either with their both the lack of competence and investment own funds or by relying on credit. The financial capacity, as well as the unequal geographical contribution of the public sector has been limited, distribution of investment from the informal local which is due to the lack of public funds 50 and land . private sector: indeed some small towns could Subsidies account for 31% of the investments have three informal water supply systems, costs, which at the end yields a "leverage effect" whereas there were none in neighboring villages. ratio of about 2/1 (twice as much money mobilized Competition introduced entrepreneurs with a than from the subsidies). limited local basis who were willing and able to invest, but could not have gained access to the sector because of a lack of organization. Table 18- Financial information about the 51 MIREP systems Thus, two thirds of MIREP entrepreneurs are in fact new entrepreneurs. Financial Data Values MIREP has therefore adapted its policies to the Total investments costs US$ 620,000 two different profiles encountered : (1) providing existing entrepreneurs with technical and financial Average investments costs US$ 44,000 assistance, intended to upgrade the existing per system system; and (2) providing "ready to build" projects for new entrepreneurs. Investments financed 57% through private equity Table 17- Technical assistance to the existing Investments financed entrepreneurs and new entrepreneurs 9% through credit Investments financed by New public funds (province, 3% entrepreneurs Existing local commune) {local or entrepreneurs regional Subsidy 31% investors) Bidding to Adaptation of an replace an The conditions for building-up existing system incompetent Involvement to the local confidence requirement of entrepreneur or formalizing . to construct a The total amount of private investment mobilized new system . during the MIREP program, both for new systems and for existing systems, is very revealing. Indeed, Progressive the investment supplied by local entrepreneurs evolution in the represents ten times the amount existing before Mobilization of Process of level of MIREP program started. In the four existing investment and improvement investment and systems, the investment was quadrupled. competencies. technical expertise. The amount invested in systems installed by new entrepreneurs makes up almost two-th irds of the Technical total investment mobilized. This performance A "ready to assistance for indicates that the technical assistance and the build" project MIREP transforming the along with technical existing system, adequate assistance as well as 49 In comparison, the amount paid for projects financed technical financial by the World Bank in the provinces of Bantey assistance. support. Meanchey, Svay Rieng and Prey Veng comes to US$360 on average for each household connected. 50 MIREP includes only two projects where the commune and the province made an investment, within the framework of a rental contract (Phnom Den) and leasing (Prey Pkhoam) . 51 Beyond the connection cost for consumers. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 55 continuous support allow building-up confidence among local investors in the water sector, since Confidence in the financial procedure. they invested relatively high amounts while they The entrepreneurs have perceived the had no prior experience in this type of service. subsidy as a way to share risk, and at the same time, as a reduction of their financial burden. Figure 12 -Investment breakdown of MIREP Confidence in the technical assistance, water utilities with the certainty of obtaining technical answers about the design, construction and operation of the system . Confidence in the institutional guarantees (medium to long term contracts and monopoly). local Pf•vate mv estm en t. 57% Confidence in the process of public- private mediation supported by the MIREP team . Less tangible , but not unrelated to this mobilization is the official recognition of the role played by the private sector toward the delivery of the water service. Formerly on the margins, criticized for high fees and subject to The analysis of the incentive factors that may administrative red tape, the entrepreneurs explain this mobilization of funds is complex, but managed to find recognition for their activities, what comes out from discussions with the became aware of their social role and reacted with entrepreneurs is that their confidence is based on increasing participation. four factors: Figure 13- The level of private investment mobilized by local entrepreneurs Invested before MIREP Invested du ring MIREP 0 100 200 300 400 500 600 Thousands US$ • Upg radin g exis ting PWS Con stru c tion of new PWS 56 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Sources of financing that are largely projects {due to a lack of experience, qualified personnel and predecessors in the domain of informal water services), and the weakness of legal means of recovery in the case of failure of investors, Capital utilized by local entrepreneurs came which obliges the banks to seek recourse in the essentially from personal sources (savings and local judicial system, whose procedures are long self-financing), from family money or from close and well known for their lack of transparency. The friends who were often assimilated into the family. phenomenon of real estate guarantees is even Family money does not have remuneration as its more excessive in rural areas, where there is no objective. Co-financing agreements were made formal property market , which drives the banks to essentially on the basis of mutual trust. Indeed , underestimate the value of property offered as a with the framework of MIREP, only one guarantee (see text box). entrepreneur set up a financing structure on a formal entrepreneurial basis (SARL), while all the The improvement of the guarantee system for others worked on an informal basis. loan, training of bankers, the improvement of legal procedures for recovering money in case of The graph below shows the financing structure of failure, and the possibility of pledging support for the US$107,000 invested by Mr. Kol Boal of Tram the water delivery systems are all means _ by which Knar in Takeo Province. In addition to his access to credit would be enhanced. personal savings, he mobilized funding from his wife's family (which came from an ice factory belonging to his mother-in-law), a loan from an Box 16- The problem of guarantees adopted brother, and also obtained credit-with this latter being the only money for which he paid interest-from the commercial bank involved in To cover a bank loan, Mr. K. owned a house the MIREP project. whose value he estimated at US$40,000, since it was located at the roadside, and offered the possibility of setting up several boutiques. However, the bank he asked for a loan of Figure 14- The nature of system financing for US$10,000 estimated his house at a value of the tram knar system US$5,000, taking into account only the construction value of the house. To assure the bank of his good faith, Mr. K. put his house up for sale and found a buyer at US$40,000 who signed a sale commitment which Mr. K. presented to his bank. The bank finally agreed to Credit, 18% give him the loan of US$10,000, which is nonetheless four times less than the value of the real estate offered as a guarantee. The bank argues that real estate in rural zones is not a sure investment, or a clear market, and that property titles in rural zones are not always genuine. Moderate investment but with rapid mobilization The average investment cost of the MIREP water The use of credit limited by systems is very moderate (US$33,000 on the guarantees average for existing entrepreneurs and US$45,000 for new entrepreneurs), but the The use of MIREP credit scheme to finance the mobilization of the funding is quick, in 9 months on investments has remained relatively limited , average from signing the contract to the beginning reaching only 9% of the total funding of the MIREP of operations. While the investments are systems. This can be explained by the fact that performed progressively among the existing the credit conditions are not yet optimal , entrepreneurs, since they use the cash flow considering the average internal rate of return on generated by their systems, it is generally faster a water business (7% to 10% per year maximum). for the new entrepreneurs, who invest when they However, the greatest impediment to accessing have sufficient savings. The table below shows credit comes from the guarantees required by the the duration and levels of investment per system . banks as security for loans. These guarantees The faster start-up of operations can be explained essentially compensate for the inability of banks to by the fact that part of the investment mobilization correctly evaluate the financial feasibility of the has been conducted before signing the contract. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 57 Figure 15- Investment and length of the start-up of operations for MIREP systems 120000 100000 80000 Vi> VI :::l 60000 40000 20000 0 0 5 10 15 20 25 30 35 months + New Existi ~ ~ 0 " 9 9 0 0 9 0 9 9 0 ~ ~ 9 0 9 u Q) c m .n Q) ro Q. ;,... Cll c: :;:; ..... t..o :;:; 6. QJ u > 0 u Q) c .n QJ ro Q. ;.. ro c ...., :;:; 0 -, ..L. 2 <( ~ <( Vl 0 z. 0 .!!! l.L 2 <( ~ -, ~ turhitiit y - rH Chlorinf> 60 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia The levels of service continuity are good, even if numerous systems close at night in order to avoid Wives are usually in charge of the commercial and pirating on the meters (see text box below). financial management, carrying out the collection Technical losses are held in check (less than 10% of water bills at the end of the month, not only on the totality of the sites) and leaks are, in because this is an unpleasant task, but also general, rapidly located and repaired. because women generally take care of household financial management, which can cause difficulties Entrepreneurs who manage their systems related to formalizing the management of the themselves show, in general, a higher level of water systems, since the domestic and performance than the local employees or staff to professional budgets are mixed together. whom this task is delegated. Indeed, in the great majority of cases, employees are hired within the wider family circle 54 , without consideration of Box 19- High starting flows in meters qualifications and competency. These employees are often ill-paid, unmotivated and frequently The volumetric meters made in Thailand and replaced . Rural employees often return home China are known to start metering at higher flow during busy periods for agricultural work, rates than better quality meters The meter can temporarily leaving management to an allow a small flow to pass through without it being inexperienced person . The idea that the entrepreneurs would impart their knowledge to accounted for. Thus, certain customers let their tap leak slowly into a receptacle overnight in their employees is erroneous, for some prefer to order to collect a few dozen liters for free. leave their employees in a state of ignorance in order to keep the control of the system , especially over financial matters. Conversely, the competence of close family members, especially children , who have often gone farther in school than their parents , can sometimes be beneficial , particularly regarding the theoretical aspects of the basics of water treatment technologies . Table 19- Differences in levels of competence of system managers System managed Advantages Disadvantages by: The entrepreneurs are in direct contact They are often busy with other tasks, and The entrepreneurs with their clientele; they are quick to set up the water system, for them, is of themselves techniques that will improve service. secondary importance, something they do in their free time. Professionalizing these salary workers, Badly-paid salary workers or those Employees who are dedicated to their jobs, could recruited from the agricultural sector definitely be an advantage. account for a considerable turnover. 54 A common practice in Asia, especially because of concerns over trust and confidence. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 61 Yearly turnovers vary between US$5,000 US and Generally, the improvement of technical US$20,000, depending upon the site. These knowledge among the entrepreneurs has sales progress according to connection curves remained limited. Rare are those who can and average consumption (about 4% per year), understand the theoretical aspects of the water but are strongly affected by the season . In the treatment process or the design of the facilities. In monsoon season , the level of sales is at its lowest, a situation where new technologies are being because people prefer to use rainwater collected used , and without alternatives for education , the in jars. In the dry season there is a peak in sales local entrepreneurs have had to rely on the during the month of April , the driest month of the MIREP engineers. Nevertheless, with experience , year Oust before the start of the rainy season), and some of them have brought about sensible also the month of traditional festivities , when changes to their systems, or have invented simple people generally consume more water. To reduce techniques for maintenance. this seasonal effect, entrepreneurs in some sites In addition , the low level of income brought by the have begun to introduce payment of a minimal 3 water business does not allow the entrepreneurs billing for 1 or 2 m of water, which allows them to 56 to hire sufficiently qualified personnel , such as assure a minimum income during this period . technicians graduated from the Institute of 55 Technology of Cambodia . Therefore , placing in Lower margins, lengthening returns common the financial means intended for the on investment payment of outside experts , is the only way for these entrepreneurs to have access to continuous technical support. The MIREP entrepreneurs are The MIREP systems are generally profitable , their in the process of creating an association for this revenues covering all costs, including capital costs purpose, which will allow them to continue (depreciation of the facilities financed through meetings to exchange information among subsidies to the commune is done through an themselves . annual tax of 2% on the subsidized amount). Staff is limited to one or two full-time employees Financial management per system (on average one employee for every 200 connections) . Consumables and depreciation are the entrepreneurs' main expenses. The rate The variability of income of water bill collection is excellent, in the order of 99%. Figure 19- Variability of water sales throughout the year (Pech Changva 2004) J 20m3/month m3/month rr3/month 74 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia The economic reasons for recombination of water consumption The adjoining example shows that in the village of Tram Knar, it is the "push carts" (motorcycles After the installation of the system , households towing water barrels) which have be_ en continue to use their traditional, free water abandoned 68 along with the public ponds, wh1ch sources . Indeed, rain water remains the major are often polluted. Free solutions (boreholes, source used during the rainy season , and wells, rainwater) have been kept. This observation households continue to use their wells in the dry is confirmed by the fact that the quantity of water season, except when they deliver bad quality that is consumed during the rainy season-from water. It is essentially purchased water (delivery May to November-does not seem to vary much to the household of potable water in large from the first estimates made in Pech Changva , containers or by barrel) that is replaced by the where the system was installed in 2001. These arrival of a water supply system . Pond water data show that the use of water from the piped continues to be used , but less frequently, and only water system tends to decrease during the ra!ny when there is not enough money to buy water season , and that the increase in consumpt1on from the supply system. Because of its taste , happens only during the dry season. This. gives chlorinated water is not used primarily for drinking credibility to the hypothesis that increase 1n the purpose (although this attitude is changing), and is use of water from the systems will happen only if reserved for other domestic uses (60% to 70% of there is an improvement in income, rathe r than an people use it for personal hygiene and for washing increase in the habit of using the tap. kitchen equipment. Figure 28- Abandonment of water systems after their installation rain water shn low wel l dnll0d well pu~h cJ rl pcn:l 0% 10% 20 ~ 30% 1()"1. SJ% 60% % of ho use holds Figure 29 -The seasonal evolution of sales in Pech Changva 70.0% 60.0% 50.0% 40.0% Dry Season 30.0% Rainy Season 20.0% 10.0% 0.0% 2001 2002 2003 2004 68 The pushcarts have switched to other intervention zones, or they continue to provide a 'niche' service for dedicated users of pond water. Some of them have exchanged their towed water cans for vehicles for transporting people. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 75 Adapting to chlorine: from marketing water use by avoiding storage and the mixing of water from different sources. to public health As mentioned above , the presence of chlorine in Box 26 -The installation of the water supply the water is an obstacle to the consumption of system does not necessarily result in supply system water for drinking: Cambodian acquisition of households sanitary households do not like the taste of chlorine in the equipments water and fear the use of chemicals (Cambodia recently experienced a number of cases of (Excerpt from the internship report of poisoning by products laced with battery acid). Boursin/Billard, IFU/GRET 2006) However, since the program started we have In Kbal Po, very few families have latrines or a observed a significant increase in the consumption method of disposing of waste water. We have of water from the piped water system for human noticed that the rare families with latrines built use. This analysis is based upon the results of them well before the hook-up with the system; in four surveys conducted after the installation of the other words, it was not the setting up of the water supply system. A survey taken in the first system that motivated investment in sanitation MIREP village, known as Pech Changva , shows equipment. Only three families in all had planned that the proportion of the population drinking water latrines before the hook-up. For others, no extra from the new system has increased from only 21% equipment such as kitchen sinks, showers, or in 2001 to 67%. In the village of Smau Kney, the latrines, was considered potentially available. proportion of people drinking water from the new system in 2001 (after only two years of service) In Prey Phkoam and Koa Thum Kah, conversely, was 21%, and by 2005, it had almost doubled to households are mostly equipped with latrines and nearly 39%. In the same village, the proportion of bathrooms. These are installations that pre-date people drinking water from the supply system the water systems, sometimes by 10 years, which during the dry season has reached 40%, which is emphasize the need to take into account sanitary 10% more than two years ago. In Tram Knar, measures installed well before the MIREP project after only two years of service, the percentage of systems were put in place. drinking water consumed from the new system in the dry season stood at 67%. The increase in the consumption of chlorinated Hygiene I water budget: the kitchen water from the system can be attributed to customers' awareness of the role of chlorine sink program (entrepreneurs convey this message to their customers in various ways, especially through a A survey that was conducted in 2003 to evaluate note written on their bills), and also because of the customer satisfaction with the Pech Changva diminution of other traditional water sources used water supply system, makes it obvious that the for drinking purpose (especially the ponds which switch to piped water has little impact on hygiene get polluted because of population density). practices. Women continue to wash food in basins on the floor, waste water stagnates near the jars or in the kitchen, food is prepared on Impact on health diminished by the wicker racks that are rarely washed , and the mixing and storage of water kitchens' earthen floors are impossible to clean. As an attempt to tackle this problem, kitchen sink Interviews carried out among customers reveal promotion pilot, was initiated (kitchen sinks were that for most of them, the water system has had unknown in the village before the pilot). The cost no perceived impact on their health. This can be of 100 sinks and water drainage systems was explained by the fact that the majority of subsidized by 50%. households connected to the water supply system continue using untreated water, especially pond water. Also, small jars are still used for the temporary storage of chlorinated water, mainly in order to control consumption and to avoid losses linked to the direct use of the tap. This means that, even though the water from the piped water system is of good quality and disinfected with chlorine, once the chlorine has dissipated (chlorine is volatile) it becomes contaminated by the environment, since few jars have covers , and also by the practice of extracting the water (pots plunged into the water). Although systems of running water (taps, sinks, showers) are not widespread, they would bring about more hygienic 76 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Besides reducing stagnant water and microbes, hygiene practices have vastly improved since the The need for sanitation installation of the sinks. People started using them for washing dishes, cleaning their kitchens , preparing food , washing their hands, and draining In the villages that already enjoy a water supply waste water. Many families benefiting from the system, very often sanitation is the main problem sinks promotion project took this opportunity to brought up by the population. "Many people improve the general condition of their kitchens would now like a sanitation system."69 The ground some of them building a concrete slab after th~ 1s often soggy during the rainy season , and dra!n pipes were installed, and started hanging up draining wastewater by infiltration into sumps no the1r pots and pans. The first analyses show that longer works . Some surveys show that the the use of sinks, while improving hygiene households are often willing to pay rather large conditions , has not increased the water sums, between US$50 and US$100 to get access consumption of these families, and has to a sewer system. As it happens in some consequently improved the ratio domestic villages , like Tram Khnar [see photo] a small-scale hygiene/water budgets. sewage system is being built by the head of the town market. 69 Mrs Hun Vichet, 35 years old, connected in Tram Khnar. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 77 MIREP's logic has not been that of systematically 14 systems were installed in 4 years within the defending the local private sector, and the limits of MIREP framework, 4 more than had been planned this participation have been clearly set out in this at the beginning of the project. Out of these 14 document, but defining a space where the local systems, 4 are existing ones that were enlarged in and national private sector can, with the help of order to serve a whole town, and the others are local resources, provide a service to the completely new systems, set up by local or population without the country falling into debt in regional investors. In overall, 12 local the long term. This participation presents an entrepreneurs were supported and trained to set alternative to the high-end technical and financial up and are now managing the piped water solutions that often ignore the experience acquired systems. by local private parties, their investments, their relationships with the population, and their ability At the end of 2005, a few months after the start-up to evolve toward professionalization. of the last water systems, the number of households connected to MIREP systems stood at The specifications have a great impact with 3,673, or about 21,000 people, or 61% of the respect to the participation of the local private households in the areas to be served. The sector. The desire for "modernity" often hidden average levels of consumption from the system is under objectives of sustainability or public health, currently on the order of 40 liters per person per impose "deluxe" standards having no basis in day, with strong seasonal variations, since the reality, and which may be a barrier to local users have other sources available to them-wells initiatives. The example of Smau Kney and and boreholes-especially in the monsoon season Chambak described in this report show that, for a when rain water is abundant. The price of the similar population, the difference of standards and water averages around 0.50 US$/m3, and the specifications may bring about a relation of connection costs for customers are on the order of investment costs from 1 to 7. 15 to 18 $US per household. In order to flourish, local private participation will All told, nearly $620,000 US in investment was therefore need a space, well-defined and even mobilized to complete these water systems, of limited by existing standards, by attractive which 66% came from the local private sector, investment models, by flexibility in the designing 31% in the form of subsidies, and the rest from standards, but obviously with no compromise on public participation. The regulation of the piped the quality of the water. water systems was assured by the development of local public-private contracts between the local entrepreneurs and the communes, in the form of divestiture, concession, rental or leasing. These figures show that the private investors are In spite of itself, MIREP has been a point of well attracted by the water sector, are willing to tension between the supporters of centralized professionalize themselves and welcome the versus decentralized governance. MIREP's option formalization in a common framework, meanwhile was to choose a local contracting process, one they are able to match with the population's that provided continuity of relations between the expectations. local private parties and their environment. This model of legal framework attracted private entrepreneurs as much by its logic of construction, 78 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia of consultation, and of transparency (quite different from the unilateral licensing system, which is often arbitrary in its decisions, of short duration, and onerous in terms of its transactions) as by its legal basis, which is uncertain in the hazy Even if, in the best of cases, the connection rate institutional framework of the Cambodian water approaches 100% in the dry season, the use of sector. water from the system in the villages is not exclusive. The practice of combining piped water The validity of the decentralized model in the from the system with other water sources, mainly regulation of the private sector has yet to be built- rainwater and pond water, reduces the potential up. The commune councils do not yet constitute a for positive impact on health. The water fees, sufficient counter-force to regulate local systems. which are high when measured against income in They are not encouraged by a population unused the population, plus a relative ease of access to to making demands or expressing opinions free water sources explains this situation. publicly, badly served by an institutional arrangement that does not precisely define their Universal service, which would mean the whole of role with respect to services, and ill-convinced the population having access and using the piped themselves of the worth of elective offices when water system in a systematic and exclusive way, compared to the social success of the is a matter of reducing scaled costs which is not entrepreneurs. It is possible that, for lack of possible in the case of the management of means, the program did not emphasize this systems in the small towns, and also supposes component enough, but it is appropriate to factors of adjustment with the urban zones, recognize that the commune project ownership in especially through cross-subsidizations. this domain is premature as long as the conditions The objective of public health in the villages of minimal competence in the communes are not cannot be considered apart from a holistic met. approach to the problem of water, with support Yet, giving up on involving the communes in water and regulation covering not only the piped water service would be an error, because the signs of system but also the other sources of water involvement are encouraging: the attracting of available to the population. While MIREP, like local entrepreneurs, the mobilization of funding, numerous sectoral projects has focused its the replication of private-public contracts at the attention on setting up the systems, it would be local level, and the good level of transparency are necessary to integrate all elements of potable all important bases for the participation of the local water conveyance in the small towns concerned. private sector. Supported by decentralized Jean Pierre Mahe (2005) authorities, such as the provincial rural development committees, one could expect sufficient middle-term involvement by the local elected officials, if the national regulation system leaves them some room for exercising their competence. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 79 water and supplying water through small Written by the former project manager of MIREP, distribution network to households, with local this document describes the story, the approach authorities backing and the results of the MIREP project. This afterword aims at providing some hindsight from These private initiatives illustrate the operational aspects, focusing on the essential emergence of a paying water supply service; choices that founded this project, and to adopt a households show more and more interest in more institutional viewpoint on this experience. direct at home water supply service; the concept of piped water supply exists, involving local investment ranging from 2,000 to 1O,OOOUS$. However water supply by pushcarts is expensive and small piped water systems are limited to relatively dense and well-off areas while the problems of pollution The MIREP project aimed at setting up piped are emerging and the legal status of water systems in small towns of Cambodia, and entrepreneurs remains precarious. anchoring an operational and institutional scheme in the prospect of scaling up the approach. This Consistent with the new water supply policy in option responded to several observations: Cambodia, in 2000 Gret and Kosan Engineering supported one of these local entrepreneurs for the As intermediary grey area between villages - construction of a water treatment plant. Based on supplied by domestic systems or community this experience and knowledge of private- and wells - and cities - already equipped with water sector dynamics, the MIREP project started, public piped water systems - small towns with the objective to set up 14 good-quality piped have been left behind by water supply policies water systems involving local entrepreneurs, within a clear contractual framework established In these small towns domestic access to with the Government and the communes water is reduced, because of water scarcity (Cambodian local authorities). and little time dedicated by local people to go and fetch natural water. A spontaneous MIREP project consisted in a qualitative private, water supply service has emerged in transformation of the water service: from an these areas: water cart vendors ("push-carts" informal and unregulated service to an essential filling up domestic jars for water storage), but service, operated by the local private sector within also local entrepreneurs pumping surface a contractual framework. Main changes brought in 70 By Philippe Lavigne De/ville, Director of the Scientific department 80 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia by the project are: extension of the distribution involvement of multinationals. In the case of networks beyond town centers, accessibility to the MIREP, the will to involve local entrepreneurs for poor (at least, decrease of the costs), ensuring the the management or even the investment in piped production of treated drinking water, contracting water systems results from the observation of with provincial and commune authorities. existing, local dynamics and the orientations of the national policy towards water supply. It is also inferred that the local private sector is efficient for this kind of responsibility. Cambodia has been characterized by entrepreneurial dynamics, notably in the electricity and water sectors, responding to public interest and therefore MIREP's objective was to promote small-scale satisfying the users. Moreover the commune piped water systems improving existing facilities: authorities were only recently elected and have underground pipes, water meters for payment been unable to manage such a service, even to according to consumption, water tower for greater contribute to the initial investment. area of supply, and, above all, water treatment plants to guarantee safe drinking water. Indeed, Then the PPP (public-private partnership) concept even though at first the taste of chlorinated water made its way. But this term includes a broad was not appreciated by the people (who prefer choice of realities, according to the institutional rainwater), it was considered essential for public frameworks, the responsibilities of involved health to develop microbiologically safe water. stakeholders, the relationship established between them, and the regulation capacity. In fact this term Besides the necessity of providing drinking water, does not say much about the interactions these small piped water systems are justified by emerging between the public and the private their low cost for users. It is now well recognized sphere. Indeed the local entrepreneurs - already that poor people are excluded from piped water involved in small water services or mobilized systems and pay high cost for water when through MIREP - have nothing in common with 71 traditional supply schemes get impossible . In the multinationals collaborating with large cities in these small towns one cubic meter of water sold developing countries. Even though most piped by push-cart is twice as expensive as informal water systems under MIREP have consisted in pumping networks. Despite the high investment divestiture, several contractual solutions were cost, MIREP piped water systems set up cheaper offered, from leasing to concession, allowing cubic meter tariffs than the latter, thanks to the adequate negotiation on institutional choices, coverage area and the contractual management of according to the responsibilities that the commune tariffs. felt able to handle. Furthermore, MIREP's objective was not to The content of the contracts was carefully reproduce international standards for piped water elaborated and discussed, even though all system design, which would have raised all costs, stakeholders did not have the same capacity to and bred pernicious effects like dependency on fully understand such a recent scheme, and external funding, higher cost for users, and rooting a contractual framework requires obstacles for poor households' access. Technical experience over a longer timeframe. PPP and design options were decided according to principles relied on interests convergence: while different needs: ensure water quality and system private entrepreneurs committed to invest and quality, anticipate future water demand without connect a certain number of households to a oversizing the system, and limit investment and good-quality, affordable and continuous water operational costs in order to maximize access to service, local authorities guaranteed a safe the service. Thus in comparison with other piped investment recovery through the contract, formal water systems in Cambodia, MIREP investment negotiations, legal recognition and access to cost is 5 to 8 times lower, and the household credit. For local authorities, the advanta~Je was to connection fee is half the usual cost. extend a water service coverage at a low cost (only the treatment plant required subsidy, to say 30% of the total cost), to ensure good water quality and acquire a control and regulation role. Thus entrepreneurs invested much more than they used to do for informal networks, as they trusted Local private sector participation in essential the proposed framework or their capacity to assert services has been debated often, focusing on their own interests. It is too early to draw capital cities' water concessions and the conclusions, but several elements can be highlighted: the connection of poor households follows a slow process in some of the small towns, 71 UNDP 2006 report on human development, Beyond but so far the water service has been delivered Scarcity. Power, poverty and the Global Water Crisis, without breakdowns or interruption; the water tariff confirms on a large sample of countries this empirical has been respected and the entrepreneurs have observation made by Gret for several years. not systematically taken the opportunity of Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 81 renegotiating the tariffs after oil price increase; though discussed, do not get rooted in institutional entrepreneurs show some will of terms. This situation was a big issue, as the status professionalization that is differing between of small towns and the responsibility of water investors living in the served area and operators supply were not officially stated, between the living outside the service area. Even though higher Ministry of Rural Development (MRD), responsible 72 than before , the investment cost remains quite for rural areas, and the Ministry of Industry, Mines low (around 30-40,000 US$ in total, 60% financed and Energy (MIME), responsible for urban network by the entrepreneur) and represents a source of systems. The MIREP project started under the income for business people or retired managers supervision of the MRD and the sharing of looking for a regular, sustainable income rather responsibility between MRD and MIME was than optimal profit. formalized only in 2005. This did not facilitate political dialogue on institutional options at the central level. Ideally such a project should have been part of a wider process of water supply law preparation, under the ownership of MIME and through reinforced technical and political dialogue with the Government. The time frame of all on- In 2000 the main orientations of the water supply going processes made this ideal not possible, 73 policy, including the mobilization of private even though many dialogues were held . This investment, were fixed, but the methods of perspective is more conceivable within the new implementation were not. The legal and PACEPAC project, carrying on the same institutional framework was under construction objectives. (the water supply policy was signed in 2003) and the process is still ongoing today. The framework defining the PPPs was made for big investments and was centralized. Besides the decentralization process and the creation of communes were latent - the elections were held in 2002. This situation As Jean-Pierre Mahe explains, the "MIREP was an advantage as well as a constraint. The programme was born from the idea of advantage was the opportunity to pilot an transforming local private sector initiatives into a institutional scheme, and then contribute to the basic water service: discussions on the different political choices to Water matching international water make. MIREP suggested a more decentralized quality standards; system than the piped water systems of big cities run under the responsibility of central authorities. Geographical coverage matching the Thus, even though they were recent and quite small towns population affected by the weak, the communes were at the heart of the PPP lack of water and the pollution of contract. The provinces were given the role of traditionally used water sources; coordination and supervision. The provincial rural Individual access (connection) to the development committees gathering the technical highest number of inhabitants, with agencies supporting the communes have a alternative services for the poorest; confirmed technical expertise and ensure local proximity. The provinces highly committed The setting up of a regulation framework, themselves, showing a strong interest in the on- defining the service conditions through a going dynamic and the powers conferred on them common agreement between users, local compared to the central level. Such a pattern authorities and the private sector" seems to work, and could possibly be integrated in the water supply policy if the Government finds it relevant (the same prevails for contractual and Beyond the evolution of the water system (piped technical specifications issued from MIREP). network, treatment, house connections), the Beyond the competition between national and nature of the service is concerned. The situation provincial level authorities, it seems that the new PPP framework widens the contractual options and plans some delegation at the provincial level. 73 About the articulations between experimental projects Simultaneously this situation of anticipation also is and elaboration of the sector policy, cf. Kibler, J.F. et difficult, as it forces us to act and decide within an Perroud C., 2003. Vers une cogestion des unclear framework, to suggest choices that, even infrastructures hydro-agricoles. Construction associative et rehabilitation de polders : !'experience du projet Prey Nup au Cambodge. Paris: Editions du GRET; Matthieussent S., Carlier R. et Lavigne 72 This also made evolve the general profile of De/ville Ph., 2005, Un projet d'electrification rurale en entrepreneurs, as a certain number of owners of Mauritanie (1995-2000): Alizes Electrique: histoire et information piped networks were not selected and enjeux d'une tentative de construction d'un service were compensated for the loss of their water durable, Etudes et travaux en ligne n°6, Paris. Ed. business. Gret, 154 p. 82 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia switches from an informal private service not due to the cost of water, as it is cheaper than delivering raw water to a hard core of customers other solutions. Yet lower connection rate is with no guarantee of supply, to an extended noticed in remote areas than in dense and central service, of which the quality is guaranteed, and areas. Poor households sometimes do not dare implemented within a contractual framework requesting connection; the obstacle of the negotiated with the communes and the provincial connection fee is not an argument according to authorities. some studies: in MIREP sites the connection fee is 15-18US$, which is a very low amount The qualification of "basic service" or "public compared to rates in Africa, where connection is a service" depends on two major issues: real issue. But is has also been observed that Access for the poorest: is the service entrepreneurs never applied the credit for large enough to be qualified as "public"? connection defined in the contracts; moreover entrepreneurs also invest gradually and usually Regulation: are the share of prefer ensuring a stable coverage area in the responsibilities and the capacity of central part before extending the network. It is regulation of public authorities effective? anyway too early to conclude on this issue, as the Can the users influence the strategies of entrepreneurs and users keep implementation of the service? evolving. Access to the service also relies on the regulation capacity of the public authorities, in case of reluctance to respect all commitments. It seems that the MIREP approach did not sufficiently tackle the issue of water resale in The first piped water systems now have been some of the small towns. Indeed MIREP focused operating for 3-4 years and the most recent for on individual connections, so to say the major one year. It is therefore too early to measure demand for access to water. Reselling water effects that can be assessed only over a long extends the service, but resale tariffs are much period. However it is worth noting a connection higher and not regulated, bringing supplementary rate close to the objectives after two years of income to the resellers. So far no clear rule has service (differing a lot according to the sites), and been set up for this matter, and neither the the absence of any problem in the service and the entrepreneurs nor the public authorities have tried bill recovery. On average 61% of houses located to deal with this. Information to the users about in the central part of the small town are connected. water tariff, comparison between all water costs, The connection concerns more central locations, alternative solutions like community stand pipes business and handicraft activities and well-off and network extension are probably the most households, even though the latter prefer suitable solutions to limit this resale rainwater and have important water storage phenomenon 75 . capacity. Isolated or/and poor households do not connect so easily, depending on their distance Some stand pipes are currently managed by one from the service central area and the willingness household and cover poor parts of the town in the of the entrepreneur to connect these households service coverage area. This temporary solution in the short term (as the entrepreneur has a presents the disadvantage to make tariff contractual deadline for connecting this regulation difficult, as the operator loses the population). Some people remain excluded from responsibility for these points. It would be more the service, at least for some time, despite the consistent to insert this management in the public- setting up of community stand pipes and the private contract, in which the private operator development of water sale by connected decides to manage by him/herself or to contract households. out. The geographical exclusion (isolated areas or Before the new piped water system was houses, depending on the village organization) is established, households relied on different water linked to this technique of water supply, and sources (rainwater storage, private wells, ponds, progressively disappears, through public water carts, etc.). Connected households also investment. Socioeconomic exclusion is partly combine several water sources, usually rainwater, related to the geographical exclusion, according to pond and piped water, according to the sources the socio-spatial organization of the village. Apart available, the season and their living standard. from remote or dispersed areas, this exclusion is The arrival of the piped water system reduces the use of water cart vendors (push-carts) a lot, making them "victims" of the new water service; 74 Apart from this document, this paragraph relies on a study conducted by Clement Frenoux, 2005, Analyse 75 de Ia consommation de l'eau dans les zones semi- We could also imagine that some households would rurales du Cambodge apn3s Ia mise en place du be official resel/ers, benefiting from wholesale tariff programme MIREP, GRET, and on an impact study under regulation. Negotiations with micro-finance on recently connected villages (Billard C. et Boursin organizations for a credit for connection could also be J., 2006, IFU/GRET). envisaged. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 83 other water sources are still preferred by people, personality of the head of the commune, as well like boiled rainwater for drinking. Piped water is as his/her commitment in regard with the piped used for all other uses, especially in the dry water service is variable, but is usually more season. Consumption levels vary between both important in the context of leasing contracts than seasons, and a slight quantitative increase is private contracts. An example of the limited observed. The acceptance of chlorine taste also regulatory role of local authorities is the absence develops. of reaction over the issue of water reselling by some households. This issue is all about a The perception of piped water as a supplementary learning process, but the socio-political situation solution, combined with other water sources is and the nature of the contract should not be normal. This confirms the necessity of realistic neglected. system sizing, based on effective consumption levels and mid-term prospects rather than In reality, during this first phase of implementation theoretical standards tending to oversize all the technical team Gret!Kosan played a crucial installations and overestimate water volumes to be role. PRDCs have developed know-how for project sold, periling the infrastructure profitability. implementation methods, Governors have been committed to the projects; communes on the The evolution of these two aspects of access to contrary are weaker and the commitment of poor households and users in general will be political representatives differs from one to interesting to follow in the long term. another. Regulation capacity probably has the highest potential at the provincial level. During the project implementation MIREP team played an important MIREP's contractual framework involves three role of mediation and regulation. Now that the contracting parties: the province, the commune institutional and legal framework is built and and the entrepreneur. Provinces bring technical defines responsibilities, the stakeholders can support via rural development committees develop an assimilation of these responsibilities. (PRDC). The commune councils were created as Time for learning process again is necessary to the project was starting and were quickly make these functions stable at the provincial and integrated in the contract, despite their recent commune level. First conflicts shall be considered appearance. as a test to analyze the way stakeholders react The local management is handled by the users' and manage these situations, especially regarding representatives, initially members of the Village the importance that local authorities attach to the Development Committees (VDC) 76 , or being the service quality standards. heads of village or volunteers. They are given the Basically, learning by doing shall remain the rule: task of monitoring the service quality and transfer the willingness and capacity to respect the the grievances to the entrepreneur or the contract and to ensure regulation by the public commune. authorities will be assessed by observing the daily The content of the contracts always breeds long management. Trials, errors and adjustments discussions. Yet so far the culture of written obviously are to be expected and shall lead to contract has not been assimilated in the local some adaptations. All stakeholders will feel able to culture. The respect of commitments is more play their role if they enjoy a necessary verbal and depends on power relations. Several institutional recognition within the public policy terms and articles of the contract have not been framework and if they receive some support respected {differed payment for connection, during this learning process. accounts transparency, regular meetings) but the contract remains useful to secure the entrepreneurs' investment and some major articles (tariff and service quality) have never been breached. The issue of regulation is more problematic. Users remain quite passive, even when rules are not respected, like a unilateral review of the connection fee. Users' committees, with no contractual obligations, do not work. Only heads of village as users' representatives are quite active, but more on behalf on their elective function. The 76 This participatory agency was created under SElLA programme and does not exist anymore. Its role was to mobilize local people in a committee and submit projects related to the development of the commune. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 85 Implemented from 2001 to 2005, the MIREP program was drawn-up to address water supply issues in Cambodian small towns. Based on Public Private Partnership (PPP) approaches through delegated management, the MIREP According to the latest figures available from program aimed to pilot public-private participation GRET, in December 2009 there were between for financing and operation of water utilities, to 175 to 1,200 households in the water supply promote low-cost water treatment and supply service area of the 14 towns supported by the technologies, and to test financial mechanisms for program. It is estimated that the water utilities supporting local Small-Scale Private Service served more than 28,000 inhabitants. Six Providers (SPSPs). additional systems have been developed without external technical assistance, financed directly by In its four years of operation, the MIREP the private water operators. Unfortunately, the experience resulted in: the implementation of contractual model has not been replicated; only fourteen water utilities; the creation of a suitable the technical and economical components were environment for private investment, and the copied. Others SPSPs have diversified their piloting of several contractual arrangements activities toward bottled drinking water production between private sector and public authorities. or other services such as electricity supply. Only Written in 2006 by Mr. Jean Pierre Mahe, this one water utility was sold to an existing private publication highlights several outcomes, outputs investor. Since 2006, GRET has also been and lessons learned that can be spread and implementing another program named PACEPAC. considered in other countries. However, four years Based on a similar approach to MIREP, it still after its publication in French, the present English promotes PPP at commune level but also includes version has been updated and reviewed, a sanitation component. Four more piped water incorporating current data as well as changes systems have been installed. Thus, the results observed from past years. presented here include all sites that were For that purpose, the first part of this implemented with the support of GRET in postscript will show the evolution that took place Cambodia. following the end of the MIREP program and the current performance of the water utilities. The second part will identify and analyze the main constraints and opportunities regarding the development of water utilities based on public- private participation. Finally, the third part intends to lay out a road map for a suitable scaling-up of PPP approaches in Cambodia. 77 By Clement Frenoux, Cambodian Watsan Program Manager, frenoux@gret.org. 86 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Currently, all commissioned piped water systems from the users. The average total investment cost are operational, but their performance is mixed. per household is estimated at 128 US$. 78 Indeed, as can be seen from Table , a number of them have largely exceeded their previous water This table also shows that the average investment coverage objectives while others have been cost of systems is increasing (see: Svay Prateal unable to do so. The current situation of water commune and Traey Sla commune). However, in utilities depends directly on the water market in the same period, the average number of place. Indeed, most of sites that have exceeded households connected per system increased too, their coverage objectives present a mature water from almost 500 to close to 1000. market. The average production and consumption values are 41 led and 34 led respectively. This is quite low but it is in accordance with the design criteria chosen during the MIREP program. Non- revenue water averages 13% but varies from 8% to 29%. This shows that perhaps have the operators manage their operations well. However, Since 2006, Cambodia has made some progress most of them do not have a head meter in order to in enhancing access to water and promoting private investment in the water supply sector. After monitor the performance of their utility. The water treatment process is known and applied but water the MIREP program, several studies were quality measurements are rarely done. conducted by bilateral (AFD) and multilateral (WB) donors on the potential for the development of During the last 3 years, Cambodia's water supply private water operators. These studies confirmed sector experienced several events. Most of them that private suppliers played an important role in are external, linked to the economic crisis in 2008. the development of the Cambodian water supply Indeed, the escalation of prices for oil and sector and could continue to do so. However, construction materials dramatically raised figures also show that there are si,gnificant investment, operation and maintenance costs of differences among them. Their potential for water utilities. In 2009, water tariffs were quite expansion is quite large, service standards and homogeneous, close to USD 0.60 per cubic meter. water coverage vary widely, and financial Monitoring of tariff changes showed that the capacities are uncertain. Most of them are increase over a three year period is on average vendors or resellers but few have developed piped close to 15% or about 5% per year. Looking at water networks supplying from 500 to 1200 Cambodia's inflation rate as well as the fluctuation households with a technical and business of energy prices (which played such a strong role schemes similar to the ones used by "standard" in tariff increases), We see that overall tariff water utilities. changes are lower than the inflation rate. Indeed, when energy costs grew from USD 0.80 to USD The case of Cambodia is quite unique considering 1.20 per liter of fuel, the water price increased the various typologies of private operators, the from USD 0.60 to USD 0.70 per cubic meter. After level of financial investment, their demonstrated the 2008 fuel crisis was over, the water price initiative and the financial risk taken 79 . Most returned to an average of USD 0.60 per cubic private investments are spontaneous and supply meter. water to the community from their own water sources. Unfortunately, water utilities are characterized by poor design and construction, distribution of unsafe water, and low service coverage (with coverage limited to the more profitable areas). Most private providers are The Kingdom of Cambodia and particularly urban uncontrolled, unregulated and remain informal. and peri-urban areas are undergoing a rapid Finally, in the Cambodian water supply sector a lot transition due to market development in the of uncertainty remains relating to the unclear legal Mekong sub-region and growth in the tourism and investment framework (especially focusing on sector. It appears that small towns are also the regulatory model and financing modalities); following this growth thanks to the development of uncertainty about the number of private operators transportation infrastructure, diversification of and the number of suitable potential sites; a lack economic activities and access to electricity. of access to loans; and the techni1cal and institutional support needed to scale-up. Table presents all financial schemes implemented by MIREP and PACEPAC over the past years. Disregarding contractual differences, the breakdowns of stakeholders' participation shows that: 59% of financing sources came from private investors; 26% from public subsidies; and 11% 79 MIME, 2006, Water Supply and Sanitation Project in 78 It is a simple data analysis from the Mirep water · Small Towns of Cambodia, Final Report, Volume 1- observatory. executive summary, AFD, 105p. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 87 revisable and no collateral is needed. Furthermore, discussions between private informal "loaner" are easier than with bankers. Recently, a few private funds expressed growing interest in Since 2004, the Ministry of Industry Mines and this kind of model but no experience has been Energy (MIME) has been in charge of small town achieved outside the MIREP loan scheme. water supplies that are privately managed (an MOU with the Ministry of Rural Development describes responsibility for community-managed piped supplies). Several laws and reforms are under preparation, especially on the establishment of the water supply authority of Cambodia and on Professionals working in Cambodian are tariff policy, but the timetable is not clear. As a mainly civil engineers trained in national or result, reform of the water supply sector is yet not international schools. No course is available in completed. Consequently, the license is the only country on urban water engineering; courses are official document provided to the private water mainly focused on rural engineering. As an operators at the moment. However, the process to example, no hydraulic engineering diploma exists obtain a license is not well documented and tariff in Cambodia. Finally, the knowledge and setting is not based on a clear tariff policy. The experience of Cambodian engineers depends very fact that the validity of licenses is only three years much on their professional experience and few of or less also generates risks and uncertainties for them are capable of designing a water production licensees. In addition, license conditions are not plant, or of supporting the construction and clearly defined and do not identify: technical operation process. Besides, few local companies performance standards; target coverage rate; and are able to provide professional consulting technical standards to respect, except an services on design, supervision and monitoring of obligation to provide safe water to customers. piped water systems; only (expensive) Furthermore, the proposed legal framework does international consultants provide such services not integrate taxation policy. Most of the private and skills. Private water providers cannot afford operators don't pay any taxes or fees. However, it international consulting services and very often seems that one condition for developing a suitable design their own facilities. Unfortunately, given regulatory framework is certainly linked to the the poor quality of construction, every year a lot of incorporation of taxation in the water supply money is invested for a bad result at the end. policies. Passing from a pilot experience to a large scale Some figures show that there could be from 300 to program is not easy. Indeed, the MIREP pilot 400 private piped water providers throughout the experience required significant involvement of country. However, the exact number is uncertain technical staff, and such an approach could not be and not based on an in-depth survey. Moreover, used in a large scale program. Based on its own the number of potential sites identified depends on experience, GRET would draw up a brief road the technical standards used, the type of map and key points needed to achieve this contractual models selected, and the investment transition. breakdown applied. Therefore, following the water market in place, the final number could be lower or higher than any forecast. On the other hand, the RGC has not yet developed a water and sanitation investment plan allowing them to promote this kind of project to potential donors. As we discussed, in Cambodia, the number of potential sites that can be implemented through a PPP approach is not clearly known and the total amount of investment needed is very high. For that reason, we believe that the first step would be Currently, several private water operators are to produce a comprehensive investment plan facing difficulties in accessing loans. The main showing the amount needed following the constraints are focused on the high level of contractual arrangements chosen by public collateral required by the banks in order to grant a authorities. In other sectors and in electricity loan. The high amount of interest (12% per year) supply in particular, such tools were developed is not considered a problem because private water and contributed to enhanced access to energy in operators borrow mainly from the informal sector many places throughout the country. A possible at a higher interest than banks provide (estimated benchmarking between rural electricity and water at 16% to 18% per year). However, loan would to be an interesting starting point. conditions are flexible, the grace period is 88 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia technical and financial viability of the project deposit. Moreover, for instant, few projects were totally financed by the private sector and in order to motivate them an initial subsidy is still required. While a motivate private Cambodian investors, a The question is not whether the contract or license high potential for scale-up this model, several model is the best way to develop and regulate political and financial decision should be taken private investment in water supply in Cambodia. before an eventual development of the sectors. What is sure is that the duration of the arrangement should not be too short, in order to reduce risks and uncertainty and thus to increase Clement Frenoux, March 2010 opportunities for the Cambodian private sector. Moreover, the contractual arrangements should integrate technical standards and clear, but simple, performance objectives linked to an affordable tariff that can be controlled at local level. Furthermore, the modalities for financing the regulation of the water supply sector are not defined but several experiences showed that the main constraints are concentrated on this point. Shall RGC include the cost of this task directly into the water tariff or find other administrative options? Several low-cost technologies exist in Cambodia but no local engineering firm knows them and can provide affordable service to SPSPs. The water treatment plant developed during the MIREP program and improved through the PACEPAC Program can easily be standardized and disseminated at local level. We think that it is also possible to develop standard models of all technical aspects of water production and supply. However, engineering skills are still required in order to control the designs and even more to monitor the quality of construction works. Moreover, in order to reduce the first investment costs and reduce the risk for SPSPs, a modular approach would greatly contribute to a national planning of new investment needed in relation to the increasing population and water demand. Build a network of local engineering companies that can provide technical assistance and training. Develop the water sector in Cambodia need to build a national access to loan. However, to achieve it, several remarks can be identified namely: the term of loan shall be close to 5 years as well as the amount of interests should be not higher than 6% per year. A joint credit scheme among electricity and water also could be achieve in order to reduce the risk of loans (electricity sector generate higher amount of loan and investment return than water supply sector). Without the bank expertise, a technical expertise must be available in order to promote the credit to the private investors as well as to validate the Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 89 Touk Meas MIREP Kai'JlPOt Dec-04 344 424 123% 57.51 52.79 8% 0.6 Koh Thurn Kah MIREP Kanda I Oct-05 591 1,000 169% 23.07 18.21 21% 0.6 Tram Khnar MIREP Takeo May-03 359 415 116% NA 37.99 NA 0.6 Smau Kney MIREP Takeo Jul-03 280 280 100% 51.47 45.53 12% 0.6 Pech Changva MIREP Takeo Jun-01 281 245 87% 37.98 27.05 29% 0.6 Phnom Den MIREP Takeo Dec-03 400 320 80% NA 38.85 NA 0.6 Tany MIREP Kampot Dec-05 677 800 118% 31.11 25.93 17% 0.6 KbaiPo MIREP Takeo Feb-05 286 139 49% NA 14.93 NA 0.9 Sampoun Poun MIREP Kanda I Dec-05 539 1,000 186% 73.74 70.61 4% 0.6 Romeign MIREP Takeo Jan-04 893 361 40% 29.02 28.73 1% 0.6 Lumchang MIREP Takeo Feb-03 172 70 41% NA 25.91 NA 0.6 Ang Roca MIREP Takeo Mar-06 157 112 71 % NA 39.75 NA 0.6 Angkor Borey MIREP Takeo Feb-05 1,035 502 49% NA 26.83 NA 0.6 Prey Pkhoam MIREP Takeo Nov-05 800 280 35% 18.48 17.44 6% 0.6 Prey Rumdeng Pacepac Takeo Jul-08 368 150 41 % 47 .20 39.44 16% 0.8 Svay Prateal Pacepac Kanda I Nov-09 1,367 0 0% NA NA NA 0.6 Traey Sla Pacepac Kanda I Jul-08 1,600 1,100 69% NA NA NA 0.4 Thalon Khob Pacepac Kanda I Nov-09 560 60 11% , NA NA NA 0.5 AVERAGE 595 403 77% 41 34 13% 0.6 TOTAL 10,709 7,258 90 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia Table 23: Overview of financial data of MIREP water utilities Touk Meas MIREP BOO Dec-04 $ 30,740 $ 12,250 $ 6,360 $ 49,350 Koh Thurn Kah MIREP BOO Oct-05 $ 66,700 $ 11 ,500 $ 15,000 $ 93 ,200 Tram Khnar MIREP BOO May-03 $ 61,685 $ 15,000 $ 6,225 $ 82,910 Smau Kney MIREP BOO Jul-03 $ 29,974 $ 10,000 $ 4,200 $ 44,174 Pech Changva MIREP BOO Jun-01 $ 37,621 $ 15,000 $ 3,675 $ 56,296 Phnom Den MIREP Leasing Dec-03 $ 14,100 $ 13,100 $ 4,800 $ 32 ,000 Tany MIREP BOO Dec-05 $ 74,214 $ 14,500 $ 12,000 $ 100,714 KbaiPo MIREP BOO Feb-05 $ 46,240 $ 12,800 $ 2,085 $ 61 '125 Sampoun Poun MIREP BOO Dec-05 $ 44,350 $ 11,700 $ 15,000 $ 71,050 Romeign MIREP BOO Jan-04 $ 42,050 $ 15,800 $ 5,415 $ 63,265 Lumchang MIREP BOO Feb-03 $ 9,291 $ 8,000 $ 1,050 $ 18,341 Ang Roca MIREP BOO Mar-06 $ 20,515 $ 9,200 $ 1,680 $ 31 ,395 Angkor 6orey MIREP BOT Feb-05 $ 67,900 $ 23,700 $ 7,530 $ 99,130 Prey Pkhoam MIREP Management Nov-05 $ 1,000 $ 27,090 $ 4,200 $ 32,290 Pre~ Rumdeng Pacepac BOO Jul-08 $ 22,400 $ 12,000 $ 11,040 $ 45,440 Svay Prateal Pacepac BOO Nov-09 $ 131 ,500 $ 39,300 $ 41,010 $ 211,810 Traey Sla Pacepac BOO Jul-08 $ 109,170 $ 38,800 $ 48,000 $ 195,970 Thalon Khob Pacepac Management Nov-09 $ 1,500 $ 68,200 $ 14,310 $ 84,010 AVERAGE (MIREP • PACEPAC) $ 45,053 $ 19,886 $ 11,310 TOTAL· (MIREP-PACEPAC) $ 810,950 $ 357,940 $ 203,580 $ 1,372,470 PARTICIPATION RATIO (MIREP-PACEPAC) 59% 26% 15% 100% INVESTMENT COST/HH $ 76 $ 33 $ 19 $ 128 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 91 and a recently published re-analysis of the original World Bank study [6]. We hope that presenting the detailed information The main body of this report describes in some on the MIREP operators combined with a more detail a successful approach in promoting broad-brush summary of the status and domestic investment in 14 small town piped water opportunities in the private water supply sector will supplies as used by GRET in the MIREP program. be of benefit to the RGC and other stakeholders in Given the remaining needs in the domestic water making decisions that will improve the institutional, supply sector in Cambodia, the story of MIREP is business and operational environment for DPSPs. well worth telling, for it holds many lessons and valuable insights in possible approaches to community selection and participation, system design and operation, financing and contracting, and operator training. The RGC has committed itself to reaching specific At the same time, there has been little in growth in targets for water supply in urban and rural areas private water supply investment following the by 2015, under the Cambodian Millennium program and we need to ask ourselves what can Development Goals. While the provision of piped be done to unlock investment and further leverage water supply can perhaps be described as an the lessons of MIREP. "urban type service", most of the existing piped The Water and Sanitation Program of the World suppliers service rural areas 81 . Bank (WSP) has been working with Domestic Private Service Providers (DPSPs) in Cambodia since 2006, aiming to increase financial and technical inputs from the domestic private sector to improve the scale and rate of progress towards the Water Supply and Sanitation MDGs. Activities are aimed at supporting the development of small- scale private providers through: (i) the study and reform of policy and business environments for smc:tll-scale water supply; and (ii) the development of programs to improve the conditions under which they operate, including activities such as developing a capacity development program for transferring needed technical and management skills to DPSPs and helping them to apply this knowledge; and strengthening the regulatory environment, including reforming the licensing regime (to bring it more in line with the contracts that are being issued). 81 Urban areas in Cambodia were reclassified in 2004. The DPSP data and analysis presented here are Under the new definitions (applied commune by used to take a look at some of main constraints to commune) only those communes which (i) have a growth and identify some possibilities for moving population density of at least 200 per square forward. The data are primarily summarized from kilometer, and (ii) have a population of at least 2,000, a study commissioned by the World Bank in 2007 and (iii) have a percentage of male employment in [1], supplemented by data and observations from agriculture below 50 percent are classified as urban. the WSP DPSP support program as documented In 2008, the urban population comprised 20% of the in [2]-[4], an AFD sector assessment from 2005 [5] total. 80 By Jan Willem Rosenboom, Country Team Leader of the Water and Sanitation Program of the World Bank (WSP). jrosenboom@worldbank.org 92 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia capacity. The RGC urban water supply strategy Table 24: Water supply coverage figures and estimates that approximately $100 million is t arge t s, 2000-2015 required to attain CMDG coverage targets for 2000 201082 2015 urban water supply, funds which are not currently JMP JMP Target indicated as priorities in the National Strategic Development Plan or the Priority Investment Urban Water 64% 81% 80% Plans. The estimate excludes the costs for Supply capacity building and Technical Assistance (estimated at a further $31 million by the Household 33% 55% government). connection The role of small scale private providers is not Other improved 31% 26% explicitly considered in the sector strategy or Rural Water Supply 42% 56% 50% financing plans. Yet they play a small but important role in water supply. Household 2% 5% connection Other improved 33% 51% TOTAL 46% 61% -- A 2007 survey [1] estimated that there were 280 private water supply providers active in Cambodia While the growth in overall coverage in the past (precise numbers do not exist) with a "market ten years has been impressive, the increase in share" as summarized in Table . household connections is much less pronounced. As part of the survey, 75 private piped water Nevertheless, a first impression is that suppliers were assessed. The survey concluded Cambodia's CMDG targets for water supply that private operators have been effective at coverage have been reached well ahead of providing water services in small towns in schedule. The national picture hides vast Cambodia. It also confirmed earlier conclusions differences among regions and income groups that water services are a viable business, with however. Access to an improved water source social benefits that can enhance an operator's varies from 20% in Kep to 93% in Svay Reing; the profile in society [2]. A number of donor projects richest 20% of people are 22 times more likely to (e.g. MIREP and the World Bank) have resulted in have access to a piped supply than the poorest utilities of a higher standard some of which include 20%. In spite of good progress, much remains to specific efforts to reach the poor. be done. Data from the operator assessment were used to Furthermore, national surveys and JMP data divide the DPSPs into three groupings according report on access to "improved water supply to the volume of water sold; small operators are technologies" while the 2015 CMDG target those selling less than 10,000 m3 per year (the specifies "access to safe water" and the two are largest group), medium are those selling between very different. If we were to interpret the CMDG 10,000 and 60,000 m3 per year while the rest are targets as referring to access to water that has classified as large operators (of which there were undergone treatment and disinfection and is only 4 ). Due to the lack of information about supplied through a piped connection, the annual production, 14 of the suppliers could not be conclusion drawn from the above table would categorized. Table summarizes some of the main have to be that at present rates of progress characteristics. Cambodia will miss its water supply targets by a wide margin. All providers described themselves as private commercial businesses, and all of them produced A water supply and sanitation sector financing their own water (mostly using surface water strategy developed with assistance from WSP 8 sources) for distribution. In terms of network modeled an increase in urban household length, the MIREP operators fall somewhere connections to a total of 95% and an increase in between the small and medium operators, rural water supply coverage to 100% using low- although in terms of number of connections they cost solutions. To reach those targets by 2028 fall between medium and large. In general would require a total investment of USD 9 billion however, the survey shows operators that are (in 2008 prices) or the equivalent of USD 28 per predominantly small in all respects, and relatively person per year. More than two-thirds of this is inefficient compared to the larger businesses required for investment in infrastructure; the model excludes the costs for developing the required 82 JMP figures published in 2010 are compiled from 2008 and earlier data. 83 Final results will be released in April 2010 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 93 Table 25: Private supplier footprint (all data 2007) Estimated % of population Customer base Estimated # of Served Estimated # of DPSPs people served Among population with operating Rural/small Among entire Urban(%} access to improved water town(%} population supply 280 70,000 93 7 9% 2% household metering (which in any case is high (the literature suggests that for a "well run utility" even for the smaller operators), increasing staff to connection ratios can reach 4:1000 or operating hours, increasing consumption and in below; only the large suppliers come close to this). general a more positive business outlook as With increasing size comes decreasing staffing evidenced by business growth and desire to invest numbers, increasing use of treatment and in expansion and/or water quality improvements. Table 26: DPSPO · rtcs Jperaf mg Ch aract ens Small Operator (35) Medium Operator (22) large Operator (4) Average annual production 3 3,450 22,130 184,680 volume in m (290-9600) (12,000-60,000) (96,000-300,000) (range) Average number of Full 1.6 3.9 9.1 Time Equivalent Staff (26.7) (13.3) (4.7) (per 1,000 connections) Average number of HH 85 310 1,856 connections (6-300) (100-580) (1,142-2,410) (range) Proportion with water 20% 50% 100% treatment plant Proportion with 100% 74% 95% 100% metered connections Average network length in 1,690 6,280 27,590 meters (60-6,600) (900-14,500) (1 ,900-71 ,560) (range) Average operating hours 13 17 24 per 24 hours Average percentage 22 25 27 Unaccounted For Water+ Average daily consumption 125 190 260 per connection in liters Average water price in 3 0.47 0.46 0.43 USD/ m (0.25-1.00) (0.18-0.43) (0.38-0.48) (range) Average cost of connection 16.77 18.63 40.00 fee in USD Average annual turnover in 1,635 10,220 80,212 USD (165-6,300) (2,700-25,500) (38,700-123,750) (range) Proportion with business 34% I 37% 77% I 0% 75% I 25% growing I declining Proportion wanting to invest 26% 50% 75% next year Expand network: 44% Expand network: 45% Expand network: 100% Reason to invest Water treatment: 22% Water treatment: 55% MIME: 9% MIME: 41% MIME: 75% licensing status DIME: 17% DIME: 36% DIME: 0% Other/None: 74% Other/None: 23% Other/None: 25% + Some of the data are too good to be true; particularly small and medium operators have limited ability to estimate UFW with some assessing ("guessing") in the 0-5% range. larger for the smaller operators than they are for What changes little across the categories is the the bigger ones). As mentioned already, the non- amount of non-revenue water or the price charged revenue water figures are not particularly reliable; for water (even though price fluctuations are much 94 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 84 recall that 14 of the operators could not even hundred connections . Operating at a slightly provide their annual water production figures. The larger scale and looking at rural communes as relatively constant (and high) water pricing would units, almost 1,100 out of more than 1,400 count suggest that the operators don't determine tariffs at least one thousand households, while 400 based on an understanding of the costs of communes have 2,000 families or more. Why is it production, but instead charge either what the that private suppliers are not investing in these market will bear, or what others in the area charge underserved areas on a larger scale? for their water. MIREP operator data shown earlier The urban water supply strategy indicates that in this report reveal the same trend. Anecdotal there are two main constraints to growth in the evidence from conversations with providers and sector. With a small generalization in the PPWSA suggest that indeed the knowledge of language, these constraints apply equally to public water production costs is very limited. (urban) utilities and private small town water Finally, although medium and larger operators are suppliers; first is the absence of a comprElhensive more likely to operate with a license from MIME or strategy to channel financing into the sector and to DIME, the prevalence of smaller operators means address weak incentives to raise more own- that overall only 48% of all surveyed private generated funds from user revenues and domestic operators operate with such a license (although all private investors. Second is the capacity of the operators have some form of local agreement with providers to absorb increased funding and utilize the district, commune or even the village resources efficiently towards expanded access to authorities even if those are not recognized as sustainable services. "operator licenses"). Suppliers themselves echo these constraints in slightly different words. In DPSP workshops, the three most commonly mentioned constraints to doing business were: The foregoing sections show that the need for continued investment is great, and the current coverage through private suppliers is significant, 1. No access to funds; but small at below 10% of the population covered 2. Limited technical and management skill; with piped water. 3. High costs, particularly due to hi~1h energy prices and corruption. As the responsible ministry, MIME operates public water supplies in 19 of 23 provincial capitals; the The Economisti survey among 75 private suppliers rema1nmg four are served by private utilities [1] confirmed those findings (Figure 31) with the operating under license. The reality of these exception of the observation on technical and provincial utilities is that they serve a small management skills. proportion of the population at best (estimated at 15%-30%) and most have been unable to expand their networks significantly (or at all) in the past 15 years (although a number of these public utilities were renovated with donor funds, some of them more than once). At present, MIME does not intend to expand the public water utilities beyond the current number, lacking both resources and capacity. The Ministry encourages private investment in water supplies, although there is no regulatory framework in place that offers protection to would-be investors (a water supply and sanitation law that was drafted in 2004 proposes establishing a regulator. The law has not yet been submitted to Parliament however). According to 2008 census data, there are 2000 rural villages in Cambodia with 300 or more households and almost 300 rural villages with 600 or more households (see Figure 30). Few if any of 84 Even though the MIREP experience shows that there those communities are currently served by piped is no direct relationship between profitability and water. Physically, the possibility (and need) to number of connections. It is possible to make money invest in water supply is there; the operators have with 300 connections, and to lose money with 800. shown that it is possible to turn a profit with a few The presence of economic activity and a more or less agglomerated village center appear to be better predictors of profitability, even if there is 6' boundary below which the construction of a piped supply makes no economic sense. Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 95 100,000 10,000 tJl (j) Wl 1,000 .,Sl $ ..... 0 100 :tt: 10 1 0 500 1000 1500 2000 2500 #of Households exceeded Number of viiiJges where given /.1 of households is exceeded Figure 30: Number of rural villages exceeding a given number of households (created from census 2008 data) Obstacles to doing business {%responses, N=75) Cost of fuel A.cccss to I cost of c;Jpitol Poverty Unfair liccn:,ing 0 10 20 30 40 50 60 70 80 Figure 31: Percentage selecting indicated obstacle as first or second most pressing problem for business Main concerns from the government perspective The key issues here are in the business and include a desire to regulate the operators and operational environment tariffs to ensure operators meet m1mmum technical standards, and provide good quality • Business environment water at reasonable prices. The role of the government in helping providers meet minimum Officially, operator licenses are only standards (e.g. through technical and advisory issued by MIME in Phnom Penh, and technically, services) is not very well defined and neither are the informal licenses issued at subnational levels the minimum requirements themselves. do not confer official "licensed operator" status. The MIREP operators skirted this issue, since 96 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia there was an agreement with MIME on the support is very low among providers). While subject. The local contracts signed by the provincial government departments (and even Provincial Department of Industry, Mines and MIME) have expressed some willingness to energy (PDIME) were recognized as local licenses provide technical support to suppliers, capacity in {but they were not considered equivalent to the government is also generally low (and advice national licenses). At national level, MIME only provided by government staff is not necessarily issues licenses valid for one or two years, and trusted by operators). licensing conditions and costs are poorly defined. This uncertainty can drive up tariffs (as operators Even though this iis hardly seek to recoup their investment as quickly as part of the general business environment, it is possible) and it makes the sector unattractive for undoubtedly true that the fuel crisis increased would-be investors; a better match between operating costs, and the effects of the financial license validity and asset life would lower the crisis may decrease customers' ability to pay their investment risk. bills. Managing such unpredictable impacts is realistically more part of overall business Many operators mentioned that management by the providers. they could not access finance to expand or improve their operations. Generally commercial + Operational environment loan products offered are short term {6-12 months) in the form of an overdraft facility. The guarantee fund established at a commercial bank by the The operators themselves are not shy MIREP project enabled borrowing by small in pointing out that they lack essential skills, providers, but this was an exceptional relating to both the technical aspects of being a arrangement. High interest rates, short loan tenor water supply provider, and the running of a and high collateral requirements all hamper business in general. Smaller providers tend to access to debt financing. Loans paid back over a operate without keeping business records and longer period of time would be more in tune with many do not know how much water they produce the nature of the business Uust like long term or what it costs to produce it (as evidenced by the licenses make more sense than short term ones) apparent reference pricing among operators). and would remove some pressure from water None are able to perform their own water quality tariffs (having said that, even banks willing to monitoring, and there is no credible system in provide longer term loans may not have access place for the licensing authority to monitor themselves to longer term credit). Although banks compliance with water quality standards. are extremely conservative in their attitudes to risk, given current growth in the sector, increasing At present, competition and the search for new markets, government is itself a service provider, it issues opportunities exist for the development of licenses to private service providers and it specialized lending products (if warranted by monitors compliance with licensing conditions. market size and viability). Based on current cash This is a system that creates obvious conflicts of flows, it appears that at least some of the existing interest, and is not a credible approach to sector suppliers could formulate viable projects to be management. Fortunately this is a situation that is financed through loans. Currently there is no recognized and addressed in the draft water and relationship between operator size (measured as sanitation law. Unfortunately however, this law has number of connections or annual revenue) and seen no progress since it was drafted in 2004. debt absorption capacity. This implies that it is In the presence of those constraints, and in the project planning and management that will absence of a government strategy actively determine the viability of planned investments and promoting expansion in the sector, piped water that focus on this will increase the number of supply provision is unlikely to grow si~Jnificantly bankable projects. beyond its current levels. Existing operators will continue to struggle to find the means and the Providers express the need for ways to improve and expand their operations. At technical support for a variety of situations, the same time -given the lack of alternatives- including system design, water treatment private operators will remain important service improvements (e.g. chemical dosing, providers, and it is well worth considering what measurement) and leak detection and repair. A can be done to improve existing operations and particularly strong component of the MIREP encourage new ones. program was the support provided at the system design stage, and the training of operators in system management (including water treatment and system operation and maintenance). However, outside the scope of specific support To address some of the issues summarized projects, consulting or business support services before and capitalize on the opportunities, a are not available at a cost that providers can number of immediate actions are necessary, afford (in addition, the willingness to pay for primarily aimed at addressing the uncertainty of Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 97 the business environment and lowering costs building efforts, rece1v1ng or managing funds for through improving operational management and the purpose. In the longer term, associations could record keeping by existing operators. Longer term become the providers of technical assistance to steps should aim at systematizing approaches to new operators or other associations. technical assistance and capacity development, as well as improving access to finance. • Supplier associations. The main recommendation is that the planning Further lowering of costs and strengthening of and licensing of water services should effectively operations can come from the formation of be devolved to the commune and district levels supplier associations at the commune or district with the distinction based on size of the proposed level. As mentioned before, they can become the scheme. Technical and planning support to the focus of capacity building efforts, but they can communes and districts to enable them to manage have other advantages as well, for example the local sector responsibly should be provided through more effective engagement with throu~h the existing DIME offices at provincial government or other utilities (such as PPWSA). level 8 . MIME should develop 10-15 year licenses, They can lower purchasing costs through bulk with clear license conditions and minimum supply (e.g. of chemicals) and they can play a role requirements and pricing publicly disseminated. in advocacy. On the business operations side, Looking at the MIREP contracts, simple associations can play a role in accreditation of performance objectives could include: system operators, systematizing data reporting systems coverage, water quality, tariffs and conditions for and associated benchmarking efforts. There is tariff review, connection costs, system ownership little positive experience with supplier associations as well as other duties and responsibilities of the in Cambodia, and few -if any- examples that operator and the local authorities. Licenses should operators can follow. Careful encouragement and be issued at commune level (for individual village support by sector stakeholders could play an water supplies) or district level (for larger multi- important role in overcoming the hurdles. village clusters). A simple standard operator contract which clearly spells out rights, duties and remedies should be adapted for individual • Engage with Phnom Penh Water Supply operators. This could include information on OBA- Authority. type subsidies that have been agreed, lease or other payments, depending on the type of The PPWSA forms a vast resource of experience, scheme. The existing experience with the MIREP technical expertise and goodwill. Making use of project holds valuable insights, as do the World PPWSA experience and expertise should be a Bank financed OBA and DBL projects for small "no-brainer" especially given the fact that PPWSA town water supply and sanitation (even if management seems more than willing to play a experience with the latter is partly negative in supportive role in the DPSP sector. At present, nature; standard World Bank contracts for more effective engagement is held back by the example proved much too complicated). Long fact that there is no "entity" to effectively engage term licenses alone may lower operator costs and with (but the formation of associations could improve access to finance. change that) and by the fact that the expertise in PPWSA is not very accessible. Making the Providing technical support should be aimed at experience of a utility with some 175,000 lowering costs (e.g. lowering water loss, access to connections relevant to a rural water operator with alternative energy sources, benefiting from 300 connections requires some creative thinking. economies of scale and increased connections - for example through an OBA component In addition to being a source of technical subsidizing public standposts or connections of expertise, in future PPWSA may be able to play a poor households). The ongoing DPSP capacity role as investor in new water supply projects. development work by WSP, GRET and VBNK is Such a role would require permission from the providing valuable insights into what approaches board, as at present PPWSA is not allowed to work, and is contributing to better record keeping invest in anything but its own operation and and systematized data collection. How to make expansion. As such this is a future strategy technical support more widely available outside of component, but pursuing discussions with PPWSA specific support projects is a non-trivial question on the subject would be worth it (especially in the requiring serious further attention. Associations of absence of appropriate financing available to the suppliers could become the focal point for capacity sector, as mentioned earlier). • Focus on water quality 85 This may be easier said than done; a number of PO/ME offices may themselves require Although immediate work could be done (and strengthening. MIME and perhaps PPWSA could play should be done) with suppliers to strengthen their a role in fulfilling this need. understanding of, and ability to deal with, issues 98 Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia relating to water quality, that alone will not be access debt financing than is the case today. In enough. There is value in working with suppliers other words, some of the work currently ongoing, on water safety planning (work that could be and other activities proposed in the main body of supported by the large number of supporting the report as well as this supplement may lead to publications on the subject freely available from substantial improvements in operators' ability to WHO and IWA). This would arguably lead to access finance. At the same time, further financial improvements, but without credible systems in products could be designed that better match place for independent surveillance such conditions in the sector, or serve to remove improvements are bound to be short-lived. obstacles. Offering loans to licensed providers on Supporting improved surveillance capacity, easier terms (longer loan tenor, lower interest including random testing, on site analysis and free rate) were mentioned already. Including an OBA technical assistance for those operators who component subsidizing connections for poor consistently fail water quality tests should be households would be another example of a loan considered as part of any water quality product supportive to sector goals. improvement efforts. In addition, any water quality improvement work should include a consumer education program. This is particularly important because at present there is little customer demand for a chlorinated water supply. As a matter of fact, It is clear that much can be done to improve the customers don't like the smell or taste of chlorine, functioning of the current small scale private water and some households go to some lengths to operators, as well as increasing the attractiveness ensure that the water they consume has no of the water sector for domestic would-be residual chlorine any more (e.g. use the water investors. from a house connection to fill up a rain water jar, For that, engagement between entrepreneurs and and then let the chlorine dissipate before using it). government is required (as well as donor support). For an operator, it may be hard to resist the choice At the same time, we need to realize that capacity not to chlorinate the supply and sell more water. constraints on the side of operators as well as government makes this difficult. Operators want to + Support MIME run their business, not engage in policy debate. Most have a practical arrangement with local A number of the ideas and recommendations authorities and see limited need to engage at raised earlier of course imply working with and national level. Government is not set up to engage supporting MIME, as well as subnational with a varied group of geographically spread authorities (such as provincial DIME offices and businesses, and the question of how to engage Commune Councils). Such support would take the remains difficult to answer. Lack of trust between form of assistance in developing license both sides makes any engagement harder still. conditions and contracts, developing appropriate minimum technical standards (taking into account the experience with MIREP and other projects), Recognizing the need to move forward in the and supporting the development of improved absence of clear answers, the current capacity water supply surveillance capacity. In terms of building pilot program includes a "relationship direct support to MIME for sector reform, building" component between government and assistance with the formulation of a participating operators, creating a safe space for comprehensive reform package, as well as an the exchange of ideas as well as issues. assessment of public sector reform impacts Hopefully, the experience and materials resulting should be considered. Reform impact assessment from that program can be used to benefit capacity should encompass reforms as proposed by MIME building and overall reform on a larger scale. itself, as well as those currently being formulated by the Ministry of Interior, such as those described Much data and useful experience exists and has in the law on the Decentralization and been documented. All that is needed now if the Deconcentration (D&D). political will (and the resources) to apply it. • Improve access to finance It is likely that trained operators with a long term license, accredited by their local supplier Jan Willem Rosenboom, March 2010. association, and with proper business and operational records will find it much easier to Building water utilities with local private entrepreneurs: The example of the Mirep program in Cambodia 99 [1] Economisti Associati. 2007. Small-Scale Private Service Providers of Water Supply and Electricity: Survey and Mapping Initiative. Comparative Review. Economisti Associati, Bologna, Italy. [2] Virjee, Kameel. 2006. Assessing the potential tor small scale financing to water providers in Cambodia. Assessment report (unpublished). WSP, Phnom Penh, Cambodia. [3] Sy, Jemima. 2006. Scoping Mission for the Development of a Utility Improvement & Performance Diagnostics Program for Cambodia Small Private Service Providers (SPSPs). Assessment report (unpublished). WSP, Phnom Penh, Cambodia. [4] Rosenboom, Jan Willem et a/. 2007. Strengthening Domestic Private Sector Suppliers of Drinking Water In Cambodia: Project Design Note. (unpublished). WSP, Phnom Penh, Cambodia. [5] AFD. 2005. Water Supply and Sanitation Project in Small Towns of Cambodia, Draft Final Report. AFD, Phnom Penh, Cambodia. [6] Baker, Judy L. 2009. Opportunities and Challenges for Small Scale Private Service Providers in Electricity and Water Supply. Evidence from Bangladesh, Cambodia, Kenya, and the Philippines. PPIAF, The World Bank, Washington DC, USA. Building water utilities with local entrepreneurs The example of the Mirep program in Cambodia 2000-2010 Small town water supply management in Cambodia has been undergoing a transformation of late. Served by community wells or household rain water jars before, a number of small towns have seen spontaneous local investors establish water systems offering various service- and quality levels, ranging from pushcarts to treated , piped supplies. This publication highlights one approach to supporting domestic private water supply initiatives implemented in the period 2000-2005. With the benefit of hindsight, some lessons are distilled from the experience. Furthermore, some suggestions are offered for the further promotion of small scale private water supply in the country, based on the most important lesson of all. Translated from an original publication in French .a/ire~ RtPUBLIQI.: E FRANCAISE MINISTER£ DES AFFAIRES ETRANGERES ET EU RO PEENNES VEOLIA ENVIRONNEMENT Groupe de recherche et d'echanges technologiques Campus du Jardin tropical, 45 bis avenue de Ia Belle Gabrielle 94736 Nogent-sur-Marne Cedex, France Tel. : 33 (0)1 70 91 92 00- Fax: 33 (0)1 70 91 92 01 gret@gret.org - http://www.gret.org