WATER GLOBAL PRACTICE Citywide Inclusive Water Supply Role of Supplementary Urban Water Service Providers Smita Misra and Bill Kingdom About the Water Global Practice Launched in 2014, the World Bank Group’s Water Global Practice brings together financing, knowledge, and implementation in one platform. By combining the Bank’s global knowledge with country investments, this model generates more firepower for transformational solutions to help countries grow sustainably. Please visit us at www.worldbank.org/water or follow us on Twitter: @WorldBankWater. About GWSP This publication received the support of the Global Water Security & Sanitation Partnership (GWSP). GWSP is a multidonor trust fund administered by the World Bank’s Water Global Practice and supported by Australia’s Department of Foreign Affairs and Trade, Austria’s Federal Ministry of Finance, the Bill & Melinda Gates Foundation, Denmark’s Ministry of Foreign Affairs, the Netherlands’ Ministry of Foreign Affairs, the Swedish International Development Cooperation Agency, Switzerland’s State Secretariat for Economic Affairs, the Swiss Agency for Development and Cooperation, and the U.S. Agency for International Development. Please visit us at www.worldbank.org/gwsp or follow us on Twitter: @TheGwsp. Citywide Inclusive Water Supply Role of Supplementary Urban Water Service Providers Smita Misra and Bill Kingdom © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. 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Contents Acknowledgments vii Case Studies viii Executive Summary x Abbreviations xix Chapter 1: Introduction 1 Supplementary Service Provision Provides a Response to Climate Change, the COVID-19 Pandemic, and the Need to Create Economic Opportunity 1 Why Is There a Pressing Need for SSP Water Provision? 1 Need for Formalizing, Scaling Up, and Professionalizing SSP Services 5 Overview of the Report 7 Chapter 2: Facilitating High-Quality Supplementary (Nonutility) Water Provision 9 Clear Policy Framework 10 Supplementary Institutional Relationships 18 Regulations to Protect and Create Incentives 26 Availability of Finance 34 The Importance of Scale 38 Summary of Lessons Learned and Their Benefits to SSIPs 39 Application of the PIRF Framework 45 Notes 50 Chapter 3: Models for Scalable Off-Utility Water Provision in the Utility of the Future 51 Models That Benefit from Economies of Scale 53 Models That Benefit from Economies of Scope 63 Practical Models for Scale-Up 66 Notes 67 Chapter 4: Action Plan to Mainstream Supplementary Water Service Provision 68 Initial Diagnosis 71 Stakeholder Engagement 71 Developing a Demonstration Project for an “At-Scale” SSP Concession 74 Scaling up 78 Challenges Posed by Existing Markets in Operationalizing the Concession Model 79 Citywide Inclusive Water Supply iii Chapter 5: Concluding Remarks 80 Appendix A: The Accountability Challenge for Engaging SSIPs in Displacement Settings 82 References 84 Boxes 1.1. COVID-19: Underlining the Importance of Universal, Safe Water Supplies, Mumbai/India and Kenya 2 2.1. Policy-Driven Development in Colombia’s Water Sector 12 2.2. Water User Associations Improve Kiosk Operation with Local Government Support in Blantyre, Malawi 13 2.3. Political Support for Utility Off-Grid Supply in eThekwini, South Africa 14 2.4. Informal Water Provision in Maputo, Mozambique 15 2.5. The Challenge of Integrating Independent Water Networks in Cochabamba, Bolivia 17 2.6. Accepting the Role of Private Operators in Water Sector Policy, Ghana 18 2.7. Accountability Frameworks in Indonesia’s Water Sector 21 2.8. Aguateros in Paraguay 23 2.9. Domestic Resale in Abidjan, Côte d’Ivoire 24 2.10. Water ATMs in Nairobi Slum, Kenya 25 2.11. Umbrella Body of Authorized Vendors in Côte d’Ivoire 26 2.12. Regulation of Water Tankers in Yemen 28 2.13. Water Vending License in Kenya 29 2.14. Concession and BOOT Agreements with Local Authorities in India and Ghana 30 2.15. Affermage Contract in Rural and Small Towns in Benin 31 2.16. Water Quality Testing in Yemen 33 2.17. Size-Differentiated Regulation for SSIPs in Colombia 35 2.18. Results-Based Finance to Aguateros in Paraguay 37 2.19. PIRF through Performance-Based Service Contracts in Burkina Faso 46 2.20. SWEEP in Bangladesh 49 3.1. Building Resilience to COVID-19 into Service Delivery Models 52 3.2. Master Operator Model for Water Concessions in Kisumu, Kenya 54 3.3. Private Concessions and SSIP Integration in Manila 57 3.4. Private Electricity Mini-Grids as an Alternative to Public Utility Service Provision 60 3.5. Development of Private Piped Water Networks in Vietnam 60 4.1. The Mainstreaming of Private Electricity Mini-Grids in Africa 70 Figures ES.1. Improving Off-Grid Water Services xi ES.2. Case Study Application of PIRF Framework to Identify Facilitative Environments xiii ES.3. Possible Approach to Private Concessioning of Core and Periurban City Areas xiv iv Citywide Inclusive Water Supply ES.4. Off-Utility Concessionaire Service Area and Relationship with Utility and Government xvi 1.1. Off-Utility Service Delivery Supply Chain 4 1.2. Improving Supplementary Service Provision Arrangements 5 1.3. Overview of the Structure of This Report 8 2.1. Framework of Factors Crucial to Scaling up Off-Utility Water Businesses 9 2.2. Importance of Political Will in Driving PIRF for Off-Utility Development 11 B2.1.1. Improved Services by Private Utilities Benefiting Low-Income Households 12 2.3. Informal Water Service Delivery in Mumbai 16 2.4. Accountability Framework 21 2.5. Examples of Standards Based on MDG and SDG 32 2.6. Trade-offs in Regulating Off-Grid Service Provision 34 B2.17.1. Share of Population Served by SSIPs in Capital Cities and Rural Areas in Colombia 35 B2.19.2. Improvements through Private Sector Participation in Burkina Faso 47 3.1. Alternative Citywide Service Delivery Models 51 3.2. Examples of Business Models 53 3.3. Possible Approach to Private Concessioning of Core and Periurban City Areas 54 3.4. Off-Utility Concessionaire Service Area and Utility and Government Relationships  57 3.5. Private Water Mini-Grids as a Delivery Model 59 3.6. Water Tanker Cooperatives Allowing Scale Economies for SSPs 61 3.7. Illustration of On-Demand Water Supply as a Delivery Model 62 3.8. Standpipe SSIPs Investing in Manual Delivery 64 3.9. Mechanical Tanker Diversifying into Local Storage and Additional Delivery Models 65 3.10. Mechanical Tankers Diversifying into Complementary Services 66 4.1. Roadmap for Implementing Demonstration SSP Model at Scale 68 4.2. Stakeholders Involved in Facilitating Off-Utility Water Provision 72 4.3. Steps to Implement a Demonstration SSP Concession at Scale 75 Tables CS.1. Case Studies Used in This Report vii 1.1. Improving SSP Provision: Impact on GRID and Jobs 1 1.2. Overview of Dominant SSP Service Delivery Models 4 1.3. Overview of Necessary Improvements to Supplementary Service Provision 6 2.1. Success Factors: Policy 10 B2.4.1. Unregulated SSIPs and Domestic Resellers in Maputo 15 2.2. Success Factors: Institutions 19 2.3. Stakeholder Mapping for Off-Utility Provision 20 B2.9.1. Volume of Water distributed by Approved Resellers is Low in Abidjan 24 B2.10.1. Tariffs for Various Sources of Water in Mathare Slum 25 2.4. Success Factors: Regulations 27 B2.16.1. Absence of Regulation for Private Water Tankers in Yemen 33 2.5. Success Factors: Finance 36 2.6. Estimated Affordability with and without Subsidies 38 Citywide Inclusive Water Supply v 2.7. Summary of Case Studies 40 2.8. What Needs to Be Done to Create an Enabling PIRF Framework? 45 4.1. Responsibilities and Timeline for the Roadmap to Implement Demonstration SSP Model at Scale 69 4.2. Responsibilities and Timeline for Implementing Demonstration SSP Concession at Scale 76 4.3. PIRF Framework for Piloting SSP Concession at Scale 77 vi Citywide Inclusive Water Supply Acknowledgments This study builds on the earlier report on City-Wide Inclusive Water Supply: Refocusing on Off-Grid ­ rovides Solutions for Addressing Sustainable Development Goal 6.1 (Misra and Kingdom 2019). This study p further insights, analysis, and solutions, drawing on case study examples on how safely managed nonutility services can contribute to attaining the ambitious Sustainable Development Goal (SDG) 6.1 universal coverage targets. The study is inspired by the empirical evidence and insights on informal markets by Richard Damania, which synthesizes evidence from applied research and policy reports to summarize the state of knowledge and gaps regarding informal markets for water services. This report has been prepared by Smita Misra and Bill Kingdom. The development of this global study has been conducted in collaboration with the Economic Consulting Associates (ECA) firm based in London: The team particularly thanks Peter Robinson (director, ECA) and Andrew Tipping (senior consultant, ECA) for their dedicated work. The team would also like to thank Safe Water Network, Water for People, and Water and Sanitation for the Urban Poor (WSUP) for their contribu- tions. The team acknowledges contributions from Dale Whittington for an incisive review of the draft final document. The team is grateful for the advice and insights provided by Gustavo Saltiel during the preparation of this report. The team would like to acknowledge advice from Martin Gambrill, Alfonso Alvestegui, and James Origa Otieno. The team acknowledges support from Michael Haney in the preparation of the report. The peer reviewers are Patricia Lopez, Nishtha Mehta, and Dambudzo Josephine Muzenda. Citywide Inclusive Water Supply vii Case Studies The analysis in this report is supported by several case studies, as detailed in table CS.1. TABLE C S.1. Case Studies Used in This Report Location Description Reference Bangladesh PPP model that allows various operators to provide fecal sludge management Box 2.20, page 49 services. Cox’s Bazar, Water supplied by multiple humanitarian agencies to refugees from Myanmar, Appendix A, page 82 Bangladesh characterized by unclear long-term ownership and planning. Benin Responsibility of water services is delegated to communes who delegate provision Box 2.15, page 31 to private operators through bipartite contracts. Cochabamba, Established independent operators of small piped networks outside the formal Box 2.5, page 17 Bolivia system are difficult to integrate into a utility-rebuilding program. Burkina Faso Private operators are contracted through performance-based service contracts. Box 2.19, page 46 Colombia Government modernized the water sector to expand services in low-income areas by Box 2.1, page 12 encouraging private sector utilities to supply water. Colombia Regulation is differentiated by the size of the SSIPs, with small providers subject to Box 2.17, page 35 lower levels of regulation. Abidjan, Côte The utility’s attempt to regulate resellers failed because of a lack of incentives for Box 2.9, page 24 d’Ivoire operators to convert to licensed resellers. Côte d’Ivoire Water resellers established an umbrella association in an attempt to gain formal Box 2.11, page 26 recognition from the utility. Gambella, Ethiopia Water supplied to refugee camp by humanitarian agencies, with later attempts to Appendix A, page 82 convert these to a new public utility. Ghana Government’s sector development plan recognizes the role of private operators, Box 2.6, page 18 including developing guidelines to facilitate tanker operations. Ghana Safe Water Network’s collaboration with District Assemblies through BOOT Box 2.14, page 30 agreements to establish microutilities. Jordan Water supplied to refugee camps has become more established, but transfer to the Appendix A, page 82 government of Jordan appears unlikely, owing to significant operating costs. Mumbai, India Informal slums have been disproportionately affected by COVID-19. This is partly Box 1.1, page 2 because of limited access to water. Mumbai, India Private water vending is discouraged by government agencies, leading to vendors Figure 2.3, page 16 operating without a legal remit. India Safe Water Network’s collaboration with local governments, municipal corporations, Box 2.14, page 30 and village panchayats to launch new water kiosks. Indonesia Responsibility of water supply is devolved to local governments, who are Box 2.7, page 21 accountable to the national government in ensuring targets are met. Nairobi, Kenya Residents of the largest slum have created a network of handwashing stations to Box 1.1, page 2 help combat COVID-19. table continues next page viii Citywide Inclusive Water Supply TABLE C S.1. continued Location Description Reference Nairobi, Kenya Illegal cutting of pipes meant the pressure in pipes was insufficient to fill water Box 2.10, page 25 ATMs designed to served urban slums. Nairobi, Kenya Kenyan regulator issued guidelines to incorporate vendors in the regulatory Box 2.13, page 29 framework through licensing. Maputo, A lack of legal recognition of off-utility services prevents regulation of SSIPs. Box 2.4, page 15 Mozambique Nepal Water supplied to refugee camps has gradually been made permanent, with Appendix A, page 82 ownership and operations transferred to local authorities. Paraguay Private operators typically serve unserved areas but lack a legal understanding and Box 2.8, page 23 are not recognized by the public utilities. Paraguay World Bank initiative to attract private operators to serve unserved rural areas and Box 2.18, page 37 small towns through results-based finance subsidy. Manila, Philippines Private concessions that allowed concessionaires to use third parties to provide Box 3.3, page 57 piped services in areas more difficult to access. eThekwini, South Strong political will and successful public utility leadership have led to innovative Box 2.3, page 14 Africa solutions, which provide almost universal water access. Sub-Saharan Africa Development of electricity mini-grids by private operators across East Africa and Box 4.1, page 70 Nigeria. Mwanza, Tanzania Additional handwashing stations and water standpipes are being provided in Box 1.1, page 2 informal settlements and vulnerable communities because of the COVID-19 pandemic. Vietnam Design-lease contracts established by the World Bank’s PPIAF were implemented in Box 3.5, page 60 two towns, which saw private operators expand and operate piped systems before handing them over to the utility. Republic of Yemen Limited oversight of water tanker trucks. Water-quality testing conducted on private Box 2.12, page 28; well but no private tankers. box 2.16, page 33 Note: ATM = automated teller machine; BOOT = build-own-operate-transfer; PPIAF = Public-Private Infrastructure Advisory Facility; PPP = public-private partnership; SSIP = small-scale independent provider. Citywide Inclusive Water Supply ix Executive Summary This report builds on the earlier World Bank study on citywide inclusive water supply (Misra and Kingdom 2019), which identified the large and growing number of people without access to safely managed water supplies, especially the poor; how policies and regulations need to be changed to allow services to be formally provided to this group; and that new models of service provision are needed to address this challenge. The current report provides further insights, analysis, and solutions, drawing on case study examples on how safely managed off-utility services can contribute to attaining the ambitious Sustainable Development Goal (SDG) 6.1 universal coverage target. Supplementary service provider (SSP) has been adopted in this report as an umbrella descriptor to cover the full range of situations in which water services are not directly supplied by the formal, pipe-based utility in any city, state, or country. These SSPs may offer a range of services (from standposts, through manual or mechanical household delivery, to piped networks); they may be completely independent or contracted by the utility or by local government; and they may be regulated or unregulated. Whatever the precise arrangement, they all supplement the services provided by the formal utility through its piped system. Providing water services to those not connected to formal utility systems in the urban and periurban areas has been the focus of various studies over the past three decades. Such “off-utility”1 services are provided by so called small-scale independent providers (SSIPs) who operate at the community level in cities all over the developing world, filling a vacuum because of the inability of formal utilities to provide univer- sal access to piped supplies. The COVID-19 pandemic has made the need for universal water access more urgent, and funding more restricted, exacerbating the challenge and reemphasizing the need for inno- vative SDG 6.1 compliant solutions. As the world emerges from the pandemic, it is likely that developing countries will find public investment more constrained; thus, the numbers without access to safely managed supplies will likely increase. The global lack of access to safely managed water supplies was estimated at 676 million in 2015 (Misra and Kingdom 2019). This number is projected to increase to one billion by 2030, based on the revealed inabil- ity of utilities to keep up with rapid urban growth since the turn of the century. Most of these people will live in African and Asian cities, and more than two-thirds will be in the two lowest wealth quintiles. Many will be in informal settlements, including periurban areas, that are often overlooked by authori- ties and utilities. This is clearly an international challenge given its magnitude and the fact that it predominantly affects the poorest and most vulnerable in society. Unfortunately, however, there is no ­ international consensus to give priority to supplementary service provision, nor how countries should go about tackling the scale-up that is needed. These two aspects are interlinked: The development of prac- tical, implementable, and scalable solutions would enable a higher priority—and more resources—to be assigned by governments and development partners. Although less discussed, the lack of access to safely managed water supplies is prevalent in the global challenge to provide water supply for displaced people (for example, refugees and internally x Citywide Inclusive Water Supply displaced people). Appendix A discusses this and gives examples of how four countries have approached providing water to refugee camps. Based on the findings of this report, there are significant opportunities for existing SSPs to be enhanced and for increasing numbers of customers to move to a higher quality of service in the urban and periurban areas: • Informing the facilitating environment that would allow better SSPs to be delivered • Developing new models to deliver such services cost-effectively and professionally • Operationalizing such models for subsequent replication at scale Core to the study are proposals in which existing SSPs might be improved, either by enhancing the quality of existing service delivery arrangements or moving to a higher quality of service delivery. This is captured in figure ES.1, with the aim to facilitate service provision improvements that move up and to the right of the diagram. FIGURE ES.1. Improving Off-Grid Water Services Service quality ill 2w t 1 and ore n m eme and • Exceed SDG prov SDGs service Professionalize and improve service quality f i m n g e requirements on o ievi ctiv nati rd ach st refle Improvement 1: Improve existing model i (quality and b Com h towa nd co quantity) SDG “service pus icient a eff quality • Better quality standards” • Adequate • Better quality quantity • More affordable • Affordable • Insufficient quantity MDG “service • Better quality • Onsite (accessible) quality standards” and quantity • More affordable • May not be Improvement 2: Change to available 24/7 • Within 30 minutes better model except with • Expensive Professionalize and improve storage tanks • Low quality service delivery model (availability) • Low quantity • Good quality Standpost Household Household Piped Service delivery delivery delivery models Will never achieve SDG standards (manual) (mechanical) May never Necessary to achieve SDG achieve SDG standards standards Source: Authors. Note: MDG = Millennium Development Goal; SDG = Sustainable Development Goal. Citywide Inclusive Water Supply xi Although success stories are rare, case studies point to actions that can lead to large-scale solutions. This study looks at thirty-four off-utility case studies to see what actions facilitated or blocked the ability of SSPs to provide better services. It identifies three key actions that governments, donor partners, and sector professionals need to take for a successful international response to the challenge: • Accept responsibility for providing service to nonutility customers. Acknowledge that current arrange- ments are inadequate and that governments, utilities, and donors need to collaborate to improve the quality and affordability of such services. • Create a conducive operating environment for supplementary service provision. Inform the supportive framework at the national and/or city level to reduce SSP business risks, improve affordability for better services, and create incentives to deliver better services to the nonutility households. • Implement demonstration models at scale. This will simplify transactions and oversight costs for cities, utilities, and donors; deliver professional services with better quality and affordability; and be replicable internationally. Obligations to serve all citizens must be translated into actionable, measurable, reportable, enforceable objectives for increasing access to safe, affordable water. The first step in realizing the potential of the SSP sector is to create an acceptance that key stakeholders have a responsibility to ensure safe, affordable water is provided to all citizens and not just those connected to the utility network. This foundational action is perhaps the most difficult step as it challenges so many entrenched attitudes to the provision of urban water services. The example of Perusahaan Daerah Air Minum in Indonesia illustrates how responsibility for water provision was devolved to local governments, who then had the authority to delegate this to private providers and community-based organizations.2 “Water service” is unfortunately routinely interpreted only as the provision of a piped water supply into people’s homes through formal utilities. This pipe-centric and utility-centric mindset appeals to invest- ment-hungry politicians and technically-driven utility engineers. It is also relatively simple and man- ageable to implement and thus attractive to donors. However, it comes at the expense of the unconnected, who are also the poorest and most vulnerable. The operating environment must be aligned to the needs of off-utility service provision. This is the second step. The case studies in this report were reviewed through the lens of the World Bank’s policy, institu- tions, regulation, and financing (PIRF) framework (see figure ES.2) If the PIRF framework is not aligned with the provision of SSPs, then the business risks associated with such arrangements will force the sector toward the unsatisfactory arrangements we have today, which may be described as a low-level equilibrium trap. SSPs are unlikely to invest in new equipment, facilities, or capacity building if they lack the guarantee that they will be considered legitimate businesses that can expect to recover those costs over a reasonable time frame. SSPs will not provide better-quality services if they are too expensive for their customers, who are usually among the poorest yet typically do not xii Citywide Inclusive Water Supply FIGURE ES.2. Case Study Application of PIRF Framework to Identify Facilitative Environments • Paraguay/Côte d’Ivoire • South Africa: Political support for o -grid × Public utilities do not recognize supply the bene ts of integrating • Colombia: Policy-driven objective to o -utility providers increase PSP in o -grid water 9Associations of o -utility • Bolivia/Ghana: Policy framework providers to gain recognition for o -grid water service Policy Institutions from utility, leverage capacity, providers and protect their interests Financing Regulation • Paraguay: Results-based nance • Kenya: Guidelines for water through connection subsidy to vending through licensing attract private operators in o -grid • Paraguay: Minimum standards areas of safe and reliable services • India: Water ATMs fully subsidized in • Colombia: Size-differentiated New Delhi regulation for small providers Source: Authors. Note: ATM = automated teller machine; PIRF = policy, institutions, regulation, and financing; PSP = private sector participation. receive any of the significant subsidy that is provided to public utilities and their piped service ­customers.3 The case studies highlight many actions that can be taken to address the PIRF framework at the national or city levels. The PIRF framework identifies the specific actions needed to create a formal environment supportive of SSPs. However, any changes to the PIRF framework, and its subsequent operationalization, will happen only if the political economy in any situation is conducive to that change. This means working diligently with all stakeholders to explain the basis for reform, the proposed models, the opportunities that will arise, and the benefits that will flow to the many stakeholders. This will require an investment in outreach and in assessing the reform impact on a variety of stakeholders. With the aim being the expansion, profession- alization, and legitimization of the SSP market, there should be sufficient benefits to outweigh perceived disadvantages. With COVID-19 exacerbating inequalities and demonstrating the need to provide ade- quate water services to all, there may now be better chances of successful reform. Concessioning of areas to private operators, with obligations for universal service, provides a model to induce scale economies, opportunities for professionalization, and reduces transaction and oversight costs in supplementary service provision. For the third step, this study proposes that the core of a future model would be the use of geographic concessions to provide supplementary services to parts of a city and/or its periurban areas. Such concessions would delineate the boundaries of service areas, specify the levels of service to be provided, and clarify the periods over which the concession is granted. Both the level of service and the period of the concession may vary by subareas within the overall concession contract. For example, some subareas may require short-term arrangements before implementation of a planned piped network by the utility, whereas others may be long-term arrangements pending the development of such plans. Citywide Inclusive Water Supply xiii Figure ES.3 presents an example of how concessioning could involve core and/or periurban parts of a city, to be served by a range of service delivery models. Core to this model is the concept of a single point of responsibility for delivery of the off-utility services, with the concessionaire managing the service quality improvements, investments, capacity building, and payment arrangements for its staff and subcontractors.4 Attempts have been made to undertake similar arrangements at the utility level. The Office National de l’Eau et de l’Assainissement, the single water utility in Burkina Faso, contracted private operators for water supply provision, including services apart from the piped network.5 In Bangladesh, a lease public-private partnership model allowed multiple small and medium enterprises to operate under the same framework administered by the city ­ and/or the utility in a competitive environment, providing safe and reliable sanitation services to ­customers.6 However, these are transaction-heavy and oversight-heavy for the utility and/or city. The approach proposed in this report builds on recommendations from Misra and Kingdom (2019) and streamlines these examples by bundling the detailed implementation arrangements within one package to be managed by the concessionaire. Bundling the SSP arrangements into bigger packages, with low transaction costs and a large number of beneficiaries, makes them more attractive to governments and development partners. Reduced costs arise both in terms of securing the services of SSPs (through a single tender for a substantial concession area) and in terms of subsequent oversight (with “regulation” of quality and price of service delivered ­ oncession through the contract). Critically this bundling approach also enhances effectiveness. A single c for an SSP in a large defined geographic area brings with it simpler procurement (one package as FIGURE ES.3. Possible Approach to Private Concessioning of Core and Periurban City Areas Periurban Core city Concession area 1 Manual Water delivery 1 treatment plant (scaled) of utility Mechanical Concession delivery area 2 (franchised) Manual Mechanical delivery 2 delivery Water (on demand) (franchised) mini-grid Manual delivery (scaled, on demand) W min ater i-g rid Source: Authors. xiv Citywide Inclusive Water Supply opposed to many small ones), larger investments (with many small investments bundled together into one package), and delivery of service improvements to many more beneficiaries. This approach there- fore eliminates one of the biggest challenges that acts as a barrier to donor and government engage- ment in the SSP sector—that is, having to otherwise manage multiple small-scale contracts, investments, and providers to have any impact at scale. If workable models can be demonstrated to deliver results at scale, then a virtuous cycle of donor/government engagement will begin. Although not precluding the city as the concessioning authority, the approach proposed in this report is to manage such concessions through the utility, given • The many interfaces that will naturally occur between the utility and the off-utility concessionaires; • Their ability to manage public funds for provision of water supply; • The need for close coordination for planning of new schemes; and • The opportunity for local governments to have one point of responsibility for providing water services across their jurisdiction, using a mix of different modes of delivery. ­ Concessions may include areas currently poorly served by the utility through a piped network. In many cases the existence of a utility pipe does not mean the provision of an adequate service. The report argues that fixing performance of utilities to deliver improved service in such areas should be addressed through utility improvement initiatives. However, it would be feasible to include such low-service areas within the off-utility concession if the city/utility is willing to cede that part of the system to the concessionaire(s). The possible contracting arrangements and scope of service for the off-utility service delivery are summarized in figure ES.4. In addition to the concession model, other approaches to SSP water provision that have potential for expansion through taking advantage of economies of scale or scope include water mini-grids, water tanker cooperatives, on-demand water supply, and complementary services to water delivery (such as solid waste removal or the delivery of groceries). These models may also be components of the mix of service delivery options a concession- aire deploys to meet the service obligations in the concession agreement. In each case, the design of the concession will include consideration of how the different arrangements will be managed at the end of the concession period. This might include continuing with the concession (for example, through manual or mechanical bulk delivery) or by the utility taking back responsibility (for example, piped networks). This proposed approach is supportive of the World Bank concept of a Utility of the Future,7 which seeks to deliver more efficient, resilient, and customer-responsive water provision beyond what is being achieved or even considered today. In this case, the Utility of the Future-based model would deliver water services to all, acknowledging financial, institutional, and technical issues that imply different service levels and delivery methods will be required across a city area. Citywide Inclusive Water Supply xv FIGURE ES.4. Off-Utility Concessionaire Service Area and Relationship with Utility and Government Government (city/national) O -utility Utility concessionaire Piped – Adequate quality Piped – Poor quality O -utility Provison (a) Through utility or Provison thorugh o -utility Provision through utility (b) Ceding some or all concession contract(s) to o -utility Model 1 – Parallel utility and o -utility provision (single point responsibility at city level) Model 2 – Single point responsibility through utility Source: Authors. Planning and implementation of at-scale demonstration projects require country and donor leadership, supportive champions, and start-up funding. This report lays out a process for this, which will require ­ • Clarity in roles, responsibilities, and accountability of participating institutions; • A conducive environment in which a demonstration project will have a chance to succeed and showcase the new approach; • Identification of champion cities/mayors and country/project leaders; and • Start-up funding from forward-looking supporters of the approach, particularly relevant trust funds and bilateral donors. An at-scale demonstration project approach is proposed because the lack of viable SSP models that operate at scale is at the heart of the challenge. Although the case studies in this report show many promising approaches, none have been able to move to scale. One reason is that they are constrained by lack of finance, and another is they typically lack substantial backing from development partners and govern- ments. These, together, form a chicken-and-egg challenge for the sector. Today’s small-scale initiatives are transaction heavy—requiring intense support, multiple procurements and oversights of small providers, small investment packages, and low numbers of beneficiaries. Development partners and ­ governments prefer the exact opposite: small numbers of large procurement packages that deliver xvi Citywide Inclusive Water Supply results at scale. If new models can be demonstrated that meet the preferences of development partners and governments, then a new partnership can develop in the SSP sector. This report also highlights that the concept of off-grid electricity supplies was considered innovative a decade ago. However, after piloting by forward-looking countries and agencies, it is now widespread and accepted as one part of the power service delivery mix. If similar actions can be initiated in the water sector today, then tomorrow’s water professionals may find themselves equally comfortable with SSP delivery arrangements. The overarching message from this study is the need for governments (at the national and city levels) and donors to come together and take concrete steps to address the needs of those people, predominantly the poor, without access to piped utility water supplies. Although it is appropriate to focus on how policy, institutions, regulation, and financing will facilitate the creation of more formal, professional, and scaled-up supplementary service provision—as this report does— it is also important to remind readers how this work fits into the broader development agenda. The transi- tion to a formal, professionalized, and scaled-up SSP sector will also strongly support the World Bank’s approach to partner with its client countries to create jobs within a green, resilient, and inclusive devel- opment framework—as part of the global response to the effects of the COVID-19 pandemic. These ben- efits, which supplement those from the core activity of delivering improved water services, are as follows: • Addressing water supply needs of the unconnected, especially the poor and the vulnerable • Improving resource management, efficiency, and sustainability of water supply services • Building community resilience to a range of future shocks—whether from pandemics, endemic health challenges, climate change, or natural disasters • Providing improved access to water at the household level and narrowing the gap in basic services • Generating new employment opportunities for construction and/or operation of SSP systems Key Messages8 The following can be used as media messages: • Hundreds of millions of households in the global South receive water supply services from SSPs, and the number is growing. Improving the quality of services provided by such SSIPs is an import- ant interim step in meeting the SDG 6.1 for water supply. • Water utilities in the global South should adopt a public service and accountability approach, accepting the responsibility to provide high-quality services to all households in an urban area, including households currently supplied by SSIPs. • Formalizing the role of SSPs in the provision of water supply services can lower costs, expand ­coverage, and improve water quality. SSPs need to be incorporated into the operations of the formal utility and regulated to ensure that prices are fair and not based on monopoly power; services are Citywide Inclusive Water Supply xvii affordable to all households without a connection to the piped network; and quality of water pro- vided is safe. Formalizing the role played by SSPs will expand both the population served and increase jobs. • The water utility should consider granting exclusivity to an SSP to serve a specified geographic area to permit the SSP to capture economies of scale, promote professionalization of its workforce, and lower the prices charged. In some cases, an SSIP granted exclusivity to serve a specific geographic area may need to be subsidized to keep services affordable to poor households and to promote equity with households with private connections who received subsidized services. • Adopting a public service and accountability approach in which SSPs are formally incorporated into the operations of the water utility is consistent with the recent call for “transformational WASH” (water, sanitation, and hygiene) services that improve the health of all households in an urban area. The COVID-19 pandemic has highlighted the importance of adopting a comprehensive public health focus that includes all citizens in an urban area. Notes 1. Off-utility implies not directly supplied by a piped connection or other forms of service delivery arrangements from the formal utility. This could include a range of supply arrangements by SSIPs using utility bulk water or other bulk supplies to deliver services via standpipes or hand- or motorized-delivery of water to the household, or even a small piped supply. However, the term also covers larger enterprises because not all off-utility provision is via a SSIP. As noted, this report will use the term supplementary service providers (SSPs) going forward. 2. This example is discussed further in box 2.7. 3. Governments typically provide financing for capital expenditure equivalent to an annualized subsidy of US$25.60 per person for capital investment in addition to US$16.60 per capita in operating expenditure subsidies. The piped water subsidy therefore amounts to US$17.60 per household per month for a family of five, compared to no or negligible subsidies for the unconnected household (Misra and Kingdom 2019; see table 2.6). 4. It is anticipated that concessionaires’ staff or subcontractors will draw extensively on the SSIPs currently operating in the concession area. 5. This example is discussed further in box 2.19. 6. This example is discussed further in box 2.20. 7. The World Bank Water Global Practice’s Utility of the Future initiative supports the establishment of efficient, reliable, transparent, and inclusive utilities. The incentives help utilities transition toward a sustainable business model that enables them to build more resilient water supply and sanitation services for all. 8. These can be used as media messages. xviii Citywide Inclusive Water Supply Abbreviations AdeM Águas De Mocambique AFD Agence Française de Dévelopement AfDB African Development Bank AREQUAP-CI Association of Water Resellers in Precarious Areas of Côte d’lvorie ATM automated teller machine BOOT build-own-operate-transfer CCC Chittagong City Corporation (Bangladesh) CRA Conselho de Regulacao do Abastecimento de Agua/Council for Regulation of Water Supply (Mozambique) CSP complementary service providers CSR corporate social responsibility CSS Chittagong Sheba Sangstha (Bangladesh) CWASA Chittagong Water and Sewer Authority (Bangladesh) DMM delegated management model DWASA Dhaka Water and Sewer Authority ECA Economic Consulting Associates EIB European Investment Bank EWS eThekwini Municipality Water and Sanitation (South Africa) FIPAG O Fundo de Investimento e Património do Abastecimento de Água/Water Supply Investment and Assets Fund (Mozambique) FSM fecal sludge management GRID green, resilient, and inclusive development JMP Joint Monitoring Programme KfW Kreditanstalt Für Wiederaufbau (German Development Bank) KIWASCO Kisumu Water and Sanitation Company (Kenya) LIA low-income areas Citywide Inclusive Water Supply xix MDG Millennium Development Goal MO master operator NCWSC Nairobi City Water and Sewer Company NGO nongovernmental organization NRW non revenue water NWRA National Water Resources Authority NWSC National Water and Sewer Corporation (Uganda) ONEA Office National de l’Eau et de l’Assainissement (Burkina Faso) OTB territorial base organization (Bolivia) PDAM Perusahaan Daerah Air Minum (Indonesia) PIRF policy, institutions, regulation, and financing PPIAF Public-Private Infrastructure Advisory Facility PPP public-private partnership PSP private sector participation RBF results-based finance SDG Sustainable Development Goal SEMAPA Servicio Municipal de Agua Potable y Alcantarillado (Bolivia) SME small and medium enterprises SODECI La Société de Distribution d’Eau de la Côte d’Ivoire SSIP small-scale independent provider SSP supplementary service provider SSPD Superintendencia de Servicios Públicos Domiciliarios/Superintendency of Public Services (Colombia) SWNG Safe Water Network Ghana SWNI Safe Water Network India UNHCR United Nations High Commissioner for Refugees UNICEF United Nations Children’s Fund xx Citywide Inclusive Water Supply WASH water, sanitation, and hygiene WASREB Water Services Regulatory Board of Kenya WHO World Health Organization WSS water and sanitation services WSSDP Water Sector Strategic Development Plan WSUP Water and Sanitation for the Urban Poor WUA water user association Citywide Inclusive Water Supply xxi Chapter 1 Introduction Supplementary Service Provision Provides a Response to Climate Change, the COVID-19 Pandemic, and the Need to Create Economic Opportunity “Water service” is routinely interpreted as the provision of a piped water supply into people’s homes by a formal utility. This pipe-centric and utility-centric mindset appeals to investment-focused politicians and technically-driven utility engineers. However, as demonstrated in this chapter of the report, it comes at the expense of the unconnected, who are also the poorest and most vulnerable; opportunities to create new jobs; resilience to future disasters (including pandemics); and opportunities to better manage the environment. The global climate change crisis is inextricably linked to water. Climate change is increasing variability in the water cycle, thus inducing extreme weather events, reducing the predictability of water availability, decreasing water quality, and threatening sustainable development of safe drinking water and sanitation worldwide. National and regional climate policy and planning must take an integrated approach to climate change and water management. If a sustainable future is to be created, continuing along a “business-as- usual” pathway is no longer an option and water management needs to be scrutinized through a cli- mate-resilience lens. Increased investment is needed in improving institutions and governance, capacity development, risk assessment, and knowledge sharing. Policies need to ensure the representation, partic- ipation, behavioral change, and accountability of all stakeholders, including the private sector and civil society. Adaptation plans need to incorporate targeted strategies that assist lower-income populations— those who are disproportionately affected by climate change impacts—to navigate new conditions. Formalizing, professionalizing, and scaling up the supplementary service provider (SSP) sector provides many partnership opportunities for the World Bank and client countries to address the key challenges of the GRID (green, resilient, and inclusive development) framework and jobs, as summarized in table 1.1. Why Is There a Pressing Need for SSP Water Provision? Across the globe, a significant share of households does not have access to an adequate, safe water supply. The rapid growth of urban areas across the developing world and the sluggish pace of TABLE 1.1. Improving SSP Provision: Impact on GRID and Jobs Dimension of Addressing water supply needs of the unconnected, especially the poor and the vulnerable development Green Improving resource management, efficiency, and sustainability of water supply services Resilience Building community resilience to a range of future shocks, whether from pandemics, endemic health challenges, climate change, or natural disasters Inclusive development Providing improved access to water at the household level and narrowing gap in basic services Jobs Generating new employment opportunities for construction and/or operation of off-utility systems Note: SSP = supplementary service provider. Citywide Inclusive Water Supply 1 expanding piped networks by incumbent utilities implies that the number of households who rely on SSPs for their water supply will continue to increase. By 2030, it is likely that nearly one billion people will come to rely on SSP water supplies that do not meet the Joint Monitoring Programme definition of “safely managed” (Misra and Kingdom 2019). Most of these people will live in African and Asian cities, and more than two-thirds will be in the two lowest wealth quintiles. Many will be in informal settle- ments that are often overlooked by authorities and utilities. Thus, any program that seeks to support socially inclusive development must consider provision of SSP water provision as part of its toolbox of interventions. The need to ensure that all households have access to a safe, adequate, and affordable water supply is more important than ever. The COVID-19 pandemic has provided a sobering illustration of the real consequences of failing to ensure a citywide inclusive water supply. Box 1.1 highlights how the BOX 1.1. COVID-19: Underlining the Importance of Universal, Safe Water Supplies, Mumbai/India and Kenya COVID-19 has highlighted the importance of a universal, safe water supply. The World Health Organization (WHO) notes that frequent, regular hand hygiene is one the most important measures to reduce the risk of catching and transmitting the virus. Research has suggested that countries with weak handwashing culture are more exposed to COVID-19 (Pogrebna and Kharlamov 2020). The United Nations Children’s Fund (UNICEF) estimates that only three in every five people worldwide have access to basic handwashing facilities. In India, the National Family Health Survey found that most low-income households could not afford to regularly wash their hands (IIPS 2017). Stay-at-home orders and the fall in income experienced by households have further emphasized the importance of a safe, affordable water supply for all households. The impact of a lack of water is particularly pronounced in dense, urban slums that do not have adequate access to basic services, preventing households from being able to follow basic hand hygiene recommendations. Early evidence suggests that slums in Mumbai are more vulnerable to COVID-19 outbreaks than other areas (Patranabis and Tandel 2020). A five-person family in a Mumbai slum that receives less than 60 liters of water a day would use more than 40 percent of their supply just washing hands if they did it ten times a day for twenty seconds, following UNICEF and WHO recommendations (Pani Haq Samiti and Center for Promoting Democracy 2020). The limited water supply means that many households will prioritize drinking and cooking over hygiene and other essential measures to curb the spread of COVID-19. In Kenya, residents of Kibera, Nairobi’s largest slum, created a network of handwashing stations (World Bank 2020). In Tanzania, the utility, supported by United Nations (UN)-Habitat and the European Investment Bank, will provide fourteen handwashing stations in informal settlements in the northern Mwanza region. The utility is also installing one hundred additional standpipes in vulnerable communities and has, like other utilities, suspended disconnections during the pandemic (World Bank 2020). 2 Citywide Inclusive Water Supply pandemic has increased the urgency of the requirement for safe water supplies, including in informal settlements. Box 1.1 highlights the need for improved water supplies to provide resilience to COVID-19, and in the absence of piped/utility supplies, improving SSP provision will play a key role. However, a broader resilience can also be derived from improved off-utility provision—for example, in providing alterna- tive sources of water supplies should other sources become unviable in the event of unforeseen shocks. Expanding and professionalizing the off-utility sector will also provide economic opportuni- ties through employment. This might be in the form of capital-intensive infrastructure improvements related to pipe laying in dense urban areas where use of heavy machinery is difficult. Or it may imply a move away from standposts to the delivery of water directly to homes by teams of motorized or manual haulers. Any new grouping of formal and professional SSPs will also have a keen interest to manage their resources prudently, and this can only benefit the environment. In the short term, this may focus on issues related to sustainability (quality and quantity) of water sources, but in the longer term, this might mean business expansion to include the collection, reuse, and recycling of sanitation products. As cities and countries across the globe seek to “build back better,” this study illustrates how the global crisis resulting from COVID-19 offers an unprecedented opportunity to accelerate the widespread scale-up of high-quality water supplies with an emphasis on SSP water supply. The severe economic and social impacts of the crisis underline the need to pursue projects that combine providing short-term economic gains with developing long-term resilience to future pandemics and other shocks: the GRID and jobs agenda. This study also illustrates why governments have committed to meeting the Sustainable Development Goals (SDGs) by 2030. This includes SDG 6.1, which states, “By 2030, achieve universal and equitable access to safe and affordable drinking water for all.” The high costs of providing piped networks and institutional bottlenecks implies that SDG 6.1 cannot be met solely through a reliance on piped water supplied by traditional utilities. As a result, there is an urgent need to engage with the SSP sector to improve the quality and affordability of its water and scale up these provisions to facilitate formal, professional, citywide inclusive water supply. The focus of authorities, policy makers, and international donors on expanding access to piped services has meant that the typically informal SSP sector has often been overlooked. SSP water provision can take various forms, ranging from standpipes and kiosks, in which households collect water from a fixed location; to household delivery, either through jerrycans and bottles, which can be replaced, or trucks, which fill onsite storage; and through piped mini-grids. An overview of how the models operate is presented in figure 1.1, and the key features of these models is provided in table 1.2. Although some may be able to deliver a higher service quality than others, there is no one “ideal” SSP delivery model because not all are suited to every location. For example, if finan- cial resources are constrained, models requiring significant capital investments, such as piped mini- grids, may not be possible. Similarly, it is infeasible to deliver water by truck to informal settlements with narrow passageways. Citywide Inclusive Water Supply 3 FIGURE 1.1. Off-Utility Service Delivery Supply Chain Water source Delivery models Household/end user Water utility Pipes Mechanical (tankers) Manual (carts/jerrycans) Standpipes Boreholes/lakes/rivers Source: Authors. TABLE 1.2. Overview of Dominant SSP Service Delivery Models Model Key features Example Public standpipes • Located in communal areas • Water ATMs in New Delhi, India • Single operator or unattended with electronic touchpads • Communal ablution blocks in eThekwini, South Africa • Public standpipes in Ghana Household delivery— • Small transport—for example, bicycles and carts • Water vendors (pushcarts) in manual • Jerrycans and bottles brought to the door Nairobi, Kenya • Can be swapped for empty vessels Household delivery— • Larger tankers bring large volumes to a property • Private tanker trucks in mechanical • Require onsite tanks for storage Cochabamba, Bolivia, or Barranquilla, Colombia Piped • Provision to household (either to house or yard) directly via • Communitarian systems in pipes Cochabamba, Bolivia • Mini-grids, which serve a certain, potentially isolated, area; • Private piped network in Manila, these may be supplied via an interconnection with the main Philippines network or from a dedicated source Source: Authors. Note: ATM = automated teller machine; SSP = supplementary service provider. 4 Citywide Inclusive Water Supply Need for Formalizing, Scaling Up, and Professionalizing SSP Services SSP water suppliers typically operate informally and are not regulated. Consequently, the quality of the water provided can be below safe drinking water standards, and service delivery and reliability often fail to meet minimum standards. SSP water supply also tends to be more expensive than piped supply. Tariffs for piped water customers tend to range from 0.5 to 3 percent of household income; for SSP cus- tomers, the range is from 5 to 25 percent (Misra and Kingdom 2019). This reflects the higher operating costs of the service delivery models, the lack of scale economies achieved by these SSPs, and the absence of the subsidies often received by households connected to the piped system. The informal nature of SSPs also means that they often lack the scale and capacity to expand their service to provide water to more households. Figure 1.2 illustrates the potential for improving SSP water supply along two distinct dimensions. First, existing service delivery models can progress (moving up the chart) by taking actions to professionalize existing service delivery models and facilitating necessary investments. This may include providing higher-quality water, increasing the quantity that can be supplied, or ensuring affordability. Second, investments can upgrade to other delivery models (moving to the right in the chart). Such a shift FIGURE 1.2. Improving Supplementary Service Provision Arrangements Service quality will d2 n t 1 an more eme and • Exceed SDG prov SDGs service Professionalize and improve service quality f i m n g e requirements i on o chievi flectiv Improvement 1: Improve existing model a t a (quality and bin rd t re Com h towa nd cos quantity) SDG “ service pus icient a ef f quality • Better quality standards” • Adequate • Better quality quantity • More affordable • Affordable • Insufficient quantity MDG “service • Better quality • Onsite (accessible) quality standards” and quantity • More affordable • May not be Improvement 2: Change to available 24/7 • Within 30 minutes better model except with • Expensive Professionalize and improve storage tanks • Low quality service delivery model (availability) • Low quantity • Good quality Standpost Household Household Piped Service delivery delivery delivery models Will never achieve SDG standards (manual) (mechanical) May never Necessary to achieve SDG achieve SDG standards standards Source: Authors. Citywide Inclusive Water Supply 5 primarily increases accessibility and the quantity that can be delivered. It is this combination that improves the quality of SSP water provision and makes progress toward achieving SDG targets and stan- dards. This reflects the reality that, in many cases, it is impossible to move straight to the “ideal” model, with feasible options depending on the local context and constraints. Shifts upward and/or to the right in service provision should not be dismissed simply because they do not meet an SDG or other goal. Rather, they can be seen as intermediate steps toward these targets that still provide beneficial returns to large populations. Enhancing the provision of SSP water provision, either by improving the quality of existing service delivery or moving to better delivery models as outlined in figure 1.2, will require substantial invest- ments—whether they concern the quantity and quality of capital, human capital and managerial capac- ity, or technology. A summary of the general types of investments needed to improve each of these broad types of service delivery model is provided in table 1.3. The specifics will vary from case to case, depending on the quality of the existing model, the level of service quality to be achieved, and the local context. TABLE 1.3. Overview of Necessary Improvements to Supplementary Service Provision Household delivery— Household delivery— Standpost Piped manual mechanical Key • Considerable time • Labor-intensive • Mechanical delivery • Availability can be constraints required to access • High costs and modes cannot access intermittent and limitations water unaffordable all areas • High capital costs of existing • Expensive because of • Limited by ability of • Limited ability to access • Difficult to serve model the absence of scale households to store large quantities of households in informal economies water water settlements • Limited ability to • Quality of water can • Quality of water can access large quantities vary and be poor vary and be poor of water • Informal nature of • Quality of water may market means prices are be low often high Requirements • Increase the network • Improved technology • Improved technology to • Improve reliability to improve of standposts to to provide larger deliver higher-quality by managing and quality/service improved access quantities and larger quantities improving supply of delivery model • Provide subsidies to • Provide subsidies to • Increase household water ensure affordability ensure affordability storage • Increase ability to • Improve the quality • Improve the quality by • Subsidies or regulation implement at scale to by switching to higher switching to higher- to ensure affordability reduce average cost of quality sources or quality sources or developing network • Improve the quality by investing in treatment investing in treatment switching to higher- quality sources or investing in treatment Source: Authors. 6 Citywide Inclusive Water Supply The required investments often entail a large upfront cost, which must be recovered over time. There are significant risks if the SSP has no certainty about the period over which it can recover those costs, no protection from the entrance of low-cost/low-quality competitors, and the threat of the market being usurped by the formal utility. Ambiguity over future operational and maintenance expenditures adds to the range of business risks SSPs face. The informal nature of the sector and its limited capacity to man- age the risks explains why the sector has been reluctant to engage in large-scale investments needed to improve service provision and scale-up. Various challenges, such as the lack of finance or clear policy and regulatory frameworks, may appear to be only a minor impediment when operating at a small scale. However, they may be major barriers to SSPs achieving scale and improving the quality of the service provided. Facilitating improvements and scale-up in the SSP sector requires committed engagement with the sector, starting with an under- standing of how it functions. It cannot and should not be assumed that the same frameworks that apply to the utility sector will also be effective in the SSP sector. Practitioners and policy makers need to focus on the internal and external factors that play a role in such models. These include, but are not limited to, policy, institutions, governance, financing arrangements, and technical and contractual solutions. Overview of the Report This report outlines a proactive vision of how development of the SSP water sector can promote city- wide inclusive water supply, ensure rapid progress is made in achieving SDG 6.1, and deliver on the GRID and jobs development agenda. Using case studies from around the world, it analyzes the potential of off-utility provision of water and develops a framework focused on what is needed to formalize, pro- fessionalize, and scale up these services. It also presents potential models for high-quality SSP water delivery and outlines how these can be implemented. This report mainly considers the provision of SSP service in those areas that do not have a piped water supply. Figure 1.3 illustrates the structure of this report. Chapter 2 analyzes what is needed to facilitate high-quality SSP water provision that will support the GRID and jobs agenda. Drawing on various case studies and a policy, institutions, regulation, and financ- ing framework, it examines the factors that are crucial to securing the investments necessary to improve and scale up SSP water provision. Chapter 3 provides an overview of feasible models that can deliver professional SSP water provision, at scale, that is green, resilient, inclusive, and affordable. Chapter 4 discusses how such models can be implemented and what practical actions and steps need to be taken to ensure that such models can help achieve citywide inclusive water supply. Chapter 5 provides concluding remarks. Citywide Inclusive Water Supply 7 FIGURE 1.3. Overview of the Structure of This Report Chapter 2 Chapter 3 Analysis of factors that facilitate o -utility Analysis of possible o -utility development business models • What is needed to improve o -utility services • Models bene ting from economies of scale • What are the success factors o introducing • Models bene ting from economies of scope the PIRF framework • Practical models towards Utility of the Future • De nition of safe • Institutional Delivery Household/ Water source water access arrangements and models end user • Include o -utility key stakeholders in policy targets • Service providers • Legislative • Business models Pipes Water utility frameworks and relationship with instruments utility Policy Institutions Mechanical (tankers) Manual (carts/jerrycans) Financing Regulation • Access to Performance private nance monitoring • Availability of framework Standpipes donor funding / • Tari s and subsidies programs Boreholes/ • Service areas • Government lakes/rivers • Protection for allocation providers Chapter 4 Recommended action plan to facilitate o -utility development • What needs to be done to facility and encourage o -utility water service development and scale up • Initial analysis of the potential and need for o -utility provision, including geographic constraints on piped networks, and bulk water supplies Initial • PIRF diagnostic: Does policy and legal framework allow o -utility providers diagnosis and non-SDG water volumes? Identify relevant stakeholders and institutions. Assess impact of regulatory framework. check access to nance • Buy-in and support from government, utility, and development partners—identify a champion Stakeholder • Understanding from community of improved supplies that are engagement not piped • Interest from existing informal and external large-scale private sectors • Select service area and develop pilot project model or framework Pilot projects • Work with stakeholders on design • Implement pilot project, monitor, and evaluate implementation • Distill lessons learned and Lessons learned analyze success factors for scaling up • Develop plans for scaling up Source: Authors. Note: PIRF = policy, institutions, regulation, and financing; SDG = Sustainable Development Goal. 8 Citywide Inclusive Water Supply Chapter 2 Facilitating High-Quality Supplementary (Nonutility) Water Provision The key factors required to improve off-utility water provision include scaling up investment in successful models, enhancing capacity, reevaluating current approaches to sector subsidies, and developing and using new technologies. Facilitating this paradigm shift requires a conducive policy, institutions, regulation, and financing (PIRF) environment. Despite the large number of households relying on off-utility water provision, examples of professional, at-scale service provision are rare. Moving up or to the right of figure 1.2 will require the formalization of the sector to deliver professional, at-scale, service. This necessitates significant investment, either to scale up existing models to allow households to move right in the diagram and/or invest in new technol- ogies to move upward in the diagram. The PIRF framework, as illustrated in figure 2.1, can be used to diagnose and improve the enabling environment to facilitate such investment. If the PIRF framework is not aligned with the provision of off-utility services, then the business risks associated with such arrangements will force the sector toward the unsatisfactory arrangements, which may be described as a low-level equilibrium trap. Small-scale independent providers (SSIPs)1 are unlikely to invest in new equipment, facilities, or capacity building if they lack the guarantee that they will be considered legitimate businesses that can expect to recover those costs over a reasonable time frame. SSIPs will also not provide better-quality services if they are too expensive for the customers, who are usually among the poorest yet typically do not receive any of the significant subsidy provided to public utilities, and their piped service customers. FIGURE 2.1. Framework of Factors Crucial to Scaling up Off-Utility Water Businesses • De nition of safe water access • Institutioanal arrangements • Include o -utility in policy and key stakeholders targets • Service providers • Legislative framework • Business models and instruments Policy Institutions • Relationship with utility Financing Regulation • Performance monitoring • Access to private nance framework • Availability of donor funding/ • Tari s and subsidies programs • Service areas • Government allocation • Protection for providers Source: Authors. Citywide Inclusive Water Supply 9 In this chapter we outline the success factors in each of the four PIRF components, outlining why they are critical to scaling up off-utility water provision and how this can be achieved. Given the absence of professional SSIPs operating at scale, we substantiate the analysis through case studies that illustrate how a certain factor has supported SSIPs or acted as a barrier to them. These cases are drawn from the off-utility water sector and SSIPs in other sectors. Clear Policy Framework Including off-utility delivery models in the water policy framework and targets signals government’s com- mitment to the subsector, allowing SSIPs to plan for investments with lower business risk. Facilitating the scale-up of off-utility water businesses requires a clear, well-defined policy framework with established targets and definitions and the genuine engagement of policy makers with the sector. The key success factors are summarized in table 2.1. Political Will Given the infancy of formal off-utility service provision, it is essential to have policy makers willing to champion it. This can also help smooth the other barriers faced by SSIPs while increasing acceptance of the service by households. At the national level, strong political will can drive the development of national policy that includes the off-utility subsector. This in turn can mobilize subnational-level governments to include off-utilities in their water sector development strategies and plans. It will also allow budget allocation for the subsector. Complementarily, a bottom-up process can encourage political will at the local and subnational levels. For example, local private firms and/or community-based organizations that are successfully providing off-utility water supply to communities can motivate local governments to replicate TABLE 2.1. Success Factors: Policy Success factor What needs to be achieved? How it can be achieved? Examples Political will • Ensuring buy-in from authorities • Stakeholder engagement • Ghana • Willingness of policy makers to • Underlining the importance of • South Africa champion the provision of off-utility providing citywide inclusive water water supply • Increasing demand by improving community understanding Clear definitions • Clear definitions of safe water access • Development of specific guidelines • Bolivia and targets and legal framework to validate and adaptation of existing guidelines • Colombia off-utility service delivery models (JMP, SDG) to the off-utility sector • Ghana • Targets on expanding water access • Supporting cities in setting targets to and achieving universal coverage increase coverage Source: Authors. Note: JMP = Joint Monitoring Programme; SDG = Sustainable Development Goal. 10 Citywide Inclusive Water Supply FIGURE 2.2. Importance of Political Will in Driving PIRF for Off-Utility Development Improve understanding of decisions makers Political will Policy Institutions Increase demand for Financing Regulation o -utility provision Improve understanding of communities Scale-up of o -utility provision Source: Authors. Note: PIRF = policy, institutions, regulation, and financing. their success. Successful local government and municipality initiatives developing and supporting off-utility water provision can encourage a national government to consider and allocate more resources in the subsector. The political will can drive the development of the rest of the PIRF factors to allow and facilitate further development of off-utility provision in a virtuous circle, as illustrated in figure 2.2. Box 2.1 illustrates how decision makers’ understanding of the need for private sector participation in the water sector creates the initial political will to develop supportive policy, which in turn encour- ages successful private sector water provision, leading to scale-up and replication of the private provision. Box 2.2, using the example of Blantyre, Malawi, shows how partnerships between local governments and SSIPs can lead to improved water supplies (and other associated services) for poorer periurban com- munities. The example illustrates how improved management models of existing services that involve community members can increase the financial sustainability of water services. Citywide Inclusive Water Supply 11 BOX 2.1. Policy-Driven Development in Colombia’s Water Sector Colombia is one of the most active countries in Latin America in encouraging private sector participation in water supply services. The government embarked on a water sector modernization program to expand service provision among low-income areas through private water utilities. For this purpose, a study was carried out to compare private and public service provision in terms of service expansion to the poor. Private providers operating in Barranquilla, Cartagena, and Tunja were selected and their performances compared with the most-efficient public utilities serving Bogota, Manizales, and Medellin. The study found that both public and private service providers focused their efforts of low-income groups (strata 1 to 3, illustrated in figure B2.1.1). Private water utilities contributed substantially to improved coverage rates and continuity of supply, with positive effects on low-income households in the poorest and least-well-covered areas. These results provided the rationale for increasing domestic private sector participation through large private utilities operating in large urban centers. In addition, the National 2010–14 Development Plan specifically highlighted the need to promote private service provision in smaller urban and periurban areas. A corporate modernization program was carried out to encourage private operation and service provision and develop new organizational structures for small towns and rural areas. Key sector regulations were also introduced to facilitate small-scale independent providers (SSIPs) in off-grid areas. These are discussed in box 2.17. FIGURE B2.1.1. Improved Services by Private Utilities Benefiting Low-Income Households 70 60 Percentage increase in number of water 50 40 connections 30 20 10 0 –10 –20 Stratum 1 Stratum 2 Stratum 3 Stratum 4 Stratum 5 Stratum 6 Bogota-EAAB Medellin-EPM (ESP) Manizales Cartagena-ACUACAR Barran quilla-AAA Tunja-Sera.q.a. Source: ECA 2016; Sotomayor 2003. 12 Citywide Inclusive Water Supply BOX 2.2. Water User Associations Improve Kiosk Operation with Local Government Support in Blantyre, Malawi Since 2011, Water For People has implemented the Everyone Forever model—a system- strengthening approach to water, sanitation, and hygiene (WASH) implemented at the district level with strategic influence to scale nationally. The Everyone Forever model encompasses all WASH services within specific geographic (district) boundaries. In 2009, Water For People engaged in a pilot project in Blantyre, the commercial capital of Malawi, to get the periurban areas back online and out of debt with the utility, the Blantyre Water Board. That pilot project was funded by the World Bank and expanded to a multiyear program funded by the European Investment Bank. Water For People worked with community leaders, water users, the Blantyre Water Board, and the Blantyre City Assembly to establish high-functioning water user associations (WUAs) as an intermediate management model for water kiosks across low-income areas (LIAs). Since 2012, it has established full coverage of the twenty-one LIAs with consistent access to high-quality water services. Not only were the WUAs able to repay the arears of US$10,500 in 2012, but they have also consistently employed community members as water sellers and set the norm for service delivery through political will and system management to keep the kiosks functioning with a reliable level of service. The community water point level of service increased from 87 percent with an intermediate or high level of service in 2017 to 96 percent in 2019. Over the same period, intermediate and high levels of service in schools and clinics increased from 55 to 90 percent and in households from 70 to 84 percent. The increases are even greater if basic levels of service are included. The success of this work relies upon ongoing engagement between the Blantyre Water Board and the WUAs; clear expectations of the roles and responsibilities of all stakeholders, including community members, water sellers, and the WUAs; and political will of leaders in the community to support the work. The approach includes more than just the infrastructure to deliver water; it is a holistic, systemic approach that includes governance, tariffs and financial flows, and monitoring of services. After eight years, the LIAs in Blantyre benefit from high levels of service, and communities are committed to sustaining the progress of these systems. Source: Water For People. Box 2.3 illustrates a similar example, showing how the political will to ensure that all poor households have access to affordable water can help facilitate innovative solutions to provide off-grid water. Although this case does not relate to an independent operator, it illustrates how political will and sup- port, including for innovative solutions, can help expand access to poor households. Citywide Inclusive Water Supply 13 BOX 2.3. Political Support for Utility Off-Grid Supply in eThekwini, South Africa eThekwini, South Africa, provides one of the few, and most successful, cases of professional off-grid provision. The utility eThekwini Municipality Water and Sanitation (EWS) provides water and sanitation services (WSS) across the city of Durban and its surroundings. Although a quarter of settlements are informal and only 74 percent of households have access to piped water, total access to water is 97 percent. The high access rates have been enabled by a stable political context in which the public utility has been allowed to operate in a semiautonomous manner, ringfenced from other municipal activities. The utility management enjoyed the full support of city leaders to experiment and try new strategies to expand access. The local authority also maintains incentives and performance targets that encourage the utility to provide high-quality service to poor households. The combination of political support, freedom to pursue new routes, and incentives led to the utility using its resources to expand access while driving costs down through new technologies. Many poor households receive their water through communal ablution blocks, which provide water and sanitation to about fifty to seventy-five households within a 200-meter radius. The utility has begun providing full-pressured metered connections to a local offtake for a group of about fifteen households. This extends to 200-liter ground tanks in each house through inexpensive high-density polyethylene (HDPE) pipes. Electronic bailiff units ensure that the tank is filled automatically overnight. The combination of these provisions allows the utility to extend the free allowance of 6,000 liters per month to low-income households who are not connected to the grid. Source: Eales 2018; Misra and Kingdom 2019; World Bank 2016. Policy Definitions and Targets SSIPs need to operate in an environment that will lower their risks, particularly investment risk, and allow them to scale up and expand their businesses. Clear policy definition, direction, and targets can create this necessary environment: •• Including off-utility provision in national water policy will legitimize SSIPs’ businesses, presenting the opportunity to expand. •• Clear definition(s) of off-utility services will help raise community awareness of these services and create demand, which will motivate more SSIPs to offer the services. •• Including off-utility provision in water policy and strategies allows public budget and other resources to be allocated to develop the subsector. •• Government commitment to the off-utility subsector through inclusion in national policy will, in turn, reassure investors and/or banks when providing financing to SSIPs. 14 Citywide Inclusive Water Supply Policy is typically then implemented through legal frameworks that clearly allocate the responsibilities to appropriate institutions (discussed further in Supplementary Institutional Relationships) and a regulatory framework (as discussed in Regulations to Protect and Create Incentives). Having clear ­ definitions of off-utility services in policy and legal frameworks provides this much-needed legal ­ ­ recognition. The example in box 2.4 from Mozambique shows that if off-utility services are not legally recognized, they cannot be regulated, and hence customers cannot be protected from low-quality water and/or services. BOX 2.4. Informal Water Provision in Maputo, Mozambique Since 1999, the city of Maputo has been served through a lease contract signed between the private operator Águas de Moçambique (AdeM) and the Water Supply Investment and Assets Fund (FIPAG), with the Council for Regulation of Water Supply (CRA) in charge of regulating the contract. Although service quality has largely increased since then, the low access rate in the outer neighborhoods of Maputo led to the emergence of alternative service providers, including small-scale independent providers (SSIPs). Although standpipe management models are legally recognized and subject to some degree of regulation, the activity of SSIPs and domestic resellers is currently unregulated, as shown in table B2.4.1. Subsequent studies of water service provision in Maputo have also highlighted that the existing policy and regulatory framework inadequately addresses the improvement of service delivery in areas unserved by the formal utility. Although SSIPs have been recognized as temporary alternatives to formal utility provision through ad hoc measures, these seem designed to increase control over SSIPs rather than support their professionalization. TABLE B2.4.1. Unregulated SSIPs and Domestic Resellers in Maputo Price Competition Service provider Service quality regulation Customer protection regulation regulation AdeM CRA in CRA/FIPAG for enforcing Bidding process CRA for ensuring charge of penalties and performance compliance with codes tariff review standards of practice and approval SSIPs Standpipe assistants Water Water committee/AdeM/ Selection by Water committee/local committees/ municipality water committee authority/municipality municipality Water resale Note: AdeM = Águas de Moçambique; CRA = Council for Regulation of Water Supply; FIPAG = Water Supply Investment and Assets Fund; SSIP = small-scale independent provider. Source: Ahlers et al. 2013; Matsinhe et al. 2008. Citywide Inclusive Water Supply 15 FIGURE 2.3. Informal Water Service Delivery in Mumbai • Not registered but organized in associations Water tankers • Supply high-/middle-income households • Highest prices by volume • No legal status and o cially prohibited but not enforced Municipal water resellers • Sell in small quantity to an average of twenty households • Very lucrative business because of the utility’s at rates • Mostly in slums who cannot a ord borewell construction Groundwater resellers • Queuing and time-consuming • Cheap source but low quality and unreliable supply • Lakes, public wells, borewells, not directly chargeable Free open sources • No control over these sources • Low-income households fetch water Source: Angueletou-Marteau 2008. Similarly, in Nairobi (Kenya), the only categories of formally licensed providers are the utility and SSIPs supplying more than twenty households or 25 cubic meters per day for domestic consumption. A signif- icant proportion of the population without access to networked water services rely on smaller informal mobile vendors that are largely unregulated. Regulations to Protect and Create Incentives discusses more on regulation. Another example is Mumbai (India), where a wide range of informal household delivery models provide water supply services, summarized in figure 2.3. Although water vending is actively discouraged as gov- ernment agencies are often inclined to suppress informal SSIPs, vendors provide an important service but lack proper legal standing and continue largely to operate at the margins of established frameworks. A similar example showing the challenge of integrating established SSIPs without a clear policy frame- work is discussed in box 2.5 for Bolivia. This case study highlights how the lack of clear roles and responsibilities for SSIPs, particularly regard- ing their relationships with utilities and other sector stakeholders, can lead to suboptimal outcomes for the promotion of citywide water supply solutions. The example of Ghana, presented in box 2.6, shows how recognition of the role of private provision can be made effective through incorporation in sector plans and guidelines. 16 Citywide Inclusive Water Supply BOX 2.5. The Challenge of Integrating Independent Water Networks in Cochabamba, Bolivia For the past thirty to forty years, many citizens of Cochabamba, Bolivia, have had their water supplied either by the municipal water company (Servicio Municipal de Agua Potable y Alcantarillado [SEMAPA]) or by small independent system operators. Poor availability of bulk water limited SEMAPA’s ability to expand its network, providing an opportunity for the small operators to establish themselves to meet demand without any official recognition through policies or regulatory oversight. Water supply in Cochabamba today apart from SEMAPA is managed through 189 independent systems ranging from water committees (46 percent), water associations (20 percent), territorial base organizations (OTBs; 15 percent), and cooperatives (11 percent). These small operators source water from boreholes, natural springs, truck deliveries, and interconnections with SEMAPA’s network and distribute through local neighborhoods, sometimes in areas of just one or two blocks. Although several cooperatives, water associations, and OTBs have legally recognized identities, the other entities do not. Despite their lack of regulatory oversight for quality, quantity, or price of water delivery, some operators provide a higher-quality service, at a lower price, than SEMAPA. In 2017, the Misicuni Dam, located about 35 kilometers from Cochabamba, began supplying much larger and more reliable volumes of water to SEMAPA. This greater supply gave new impetus to SEMAPA to restart its network expansion but has left the challenge of expanding into areas supplied by the small providers, with their varying degrees of legal recognition. Without such a clearly identified formal role in citywide water supply, it is difficult for SEMAPA to establish formal relationships (even though some of the operators receive bulk water from SEMAPA). However, introducing formality through regulation is likely to be resisted by suppliers, who have formed strong and enduring relationships with their customers, because of the likely ensuing cost increases. Similarly, taking a strong-arm approach to expand in spite of the small operators is also a complicated option. Cochabamba’s path to integrated supplementary water service providers is overshadowed by the legacy of its troubled history—the promotion of private water companies and the private concessioning of water supplies in the 1990s led to a Water War from 1999 to 2000. Resistance to this war was led, in part, by the small operators and the communities they supplied. After the privatization was reversed, SEMAPA was returned to public ownership and some of the small operators received legal recognition (as community organizations, rather than private entities). This history suggests that careful negotiation with the small operators and the communities they supply will be needed to develop an integrated water system that combines the new bulk water supply, SEMAPA, and the established small independent operators. Although technical solutions exist, such as the inclusion of the small operators in citywide plans and the gradual provision of regulatory oversight that protects their supply areas, ongoing political challenges limit Cochabamba’s ability to establish a single water supply approach that combines both small operators and the public utility. Source: Luis Alfonso Alvestegui (senior water and sanitation specialist, World Bank), in discussion with the author; WatJust n.d. Citywide Inclusive Water Supply 17 BOX 2.6. Accepting the Role of Private Operators in Water Sector Policy, Ghana The government of Ghana recognized the need to extend water service provision to periurban and low-income communities through private operators in the Water Sector Strategic Development Plan (WSSDP) of 2014. The WSSDP specifically recognizes the role of water tankers and mobile vendors and makes provisions for designated tanker service points to allow the legal withdrawal of water for sale in the main cities of Accra and Kumasi. Service guidelines have been developed to facilitate water tanker operations and to promote collaboration between tankers and other sector stakeholders (Metropolitan, Municipal, and District Assemblies and Ghana Water Company, among others) to enforce these guidelines and ensure safe and reliable water supply services. In addition, the government has developed a private sector engagement framework to encourage private participation in rural areas and small towns. Source: WSSDP 2014. Supplementary Institutional Relationships Specifying clear roles, responsibilities, and relationships with other institutions (regulator, ministries, and existing utility) for the off-utility sector will ensure institutional collaboration and strengthen the account- ability of the off-utility subsector. A prerequisite for the scale-up of SSIPs is clarity surrounding the institutions and stakeholders involved in the sector. Table 2.2 shows what this involves, with the relationship of SSIPs to the utility particularly important. Clear Roles, Responsibilities, Accountability, and Relationships among Stakeholders Setting clear roles, responsibilities, and accountability for the SSIPs and their relationships with different stakeholders requires formalizing the sector and is crucial to ensuring its sound governance. Although inspiration can be taken from the division of responsibilities for existing utilities, such as those among government ministries and regulators, they should be adapted to meet the unique needs of the off-utility sector. Table 2.3 provides an example of stakeholder mapping of the off-utility sector. Accountability The multiplicity of stakeholders in the water sector, often with conflicting interests, reinforces the need for clear accountability mechanisms and a clear single point of responsibility if off-utility service provision is to be formalized, scaled up, and professionalized. The World Bank World ­ ­ ector, Development Report (2004) provides an analytical framework for accountability in the utility s as in figure 2.4. 18 Citywide Inclusive Water Supply TABLE 2.2. Success Factors: Institutions Success factor What needs to be achieved? How can it be achieved? Examples Clear roles, • Specification of clear roles and • Clear regulations specifying the • Côte d’Ivoire responsibilities, responsibilities for different stakeholders responsibilities • Indonesia accountability, • Ensuring buy-in of the utility to the • Facilitating regulators and other • Kenya and relationships concept of the SSIP serving areas to stakeholders to encompass and consider among • Paraguay which it does not provide piped water the off-utility sector stakeholders • Incentives to fulfill responsibility and • Clear division of responsibilities deliver services • Regulations and policies to provide room • Effective and transparent contract and scope for both utility and SSIPs enforcement between the utility and • Giving voice to customers SSIPs • Developing clear, effective contracts among stakeholders Supporting • Ensure SSIP has sufficient, high-quality • Capacity building of SSIP staff • Côte d’Ivoire institutions to internal capacity to scale up • Engaging international stakeholders • Paraguay increase capacity • Develop entrepreneurial spirit and (donors, NGOs, and private sector) to of SSIP managerial capacity of SSIP provide capacity building and knowledge transfer Source: Authors. Note: NGO = nongovernmental organization; SSP = small-scale independent provider. The accountability framework can be adapted and applied to the off-utility sector: •• Ensuring that customers of SSIPs can exercise their voice: ºº To demand water supply services and influence policy makers and politicians to allow and/or encourage off-utility provision (first part of the long route of accountability) ºº To give feedback to the SSIPs as to what they want in terms of service quality (short route of accountability) •• Strengthening relationships/compacts among policy makers and politicians and formalized SSIPs (second part of the long route of accountability): ºº To legalize or provide formal mandate to SSIPs to provide water supply services as demanded ºº To provide incentive-based contracts to SSIPs that improve the outputs of service provision ºº To allow performance monitoring of the SSIPs For the accountability framework’s success, it is important to start by identifying the entity responsible for ensuring that all citizens receive safe water supply, which can then engage with SSIPs. To this end, it is important to ensure that the framework and policy also encompasses informal settlements, such as urban slums and settings for displaced people, which may be overlooked. Citywide Inclusive Water Supply 19 TABLE 2.3. Stakeholder Mapping for Off-Utility Provision Type of institution Common roles and responsibilities Formalizing relationship with SSIPs National government—line • Policy development • Including off-utility in policy definition and ministry responsible for • Technical support targets WSS development • Create incentives for technology development • Financing large capital investment National government— • Financing WSS investments through budget • Could provide budget allocation to off-utility ministry of finance or allocations subsector development national planning • Planning of WSS investments Subnational governments • Local WSS policy development • Contract with SSIP, including through • Service providers incentive-base programs • Contracting agency to public or private utility • Approve tariffs or customer charges • Some regulatory functions: tariff approvals • Monitor performance of SSIPs and performance monitoring Regulator—separate • Licensing • Issue licenses entity or part of the line • Tariff regulation • Regulate tariffs ministry • Performance monitoring • Regulate service and water quality standards • Customer protection • Monitor performance of SSIPs Water utility • Provide water supply services via piped or • Bulk water providers nonpiped network • Contract out parts of service area to SSIPs • Contract out parts of the service areas Customers • Consume and pay for water • Create demand for off-utility services • Provide feedback on services to either • Generate revenue via purchases of water regulator or to service providers Private sector • Invest in off-utility technologies and systems • Investor • Operate off-utility systems • Operator Donor/development • Financial support • Finance off-utility program partners • Technical support • Assist in stakeholder engagement • Introducing reforms • Incentivize new technology Source: Adapted from Mumssen, Saltiel, and Kingdom 2018. Note: SSIP = small-scale independent provider; WSS = water and sanitation services. In the Indonesia example in box 2.7, the local government has the responsibility and is accountable to the national government to meet the target of providing access to safe water supply. This structure cre- ates incentives for the local government to not only rely on the utility but also to seek alternatives that can fill the gap in supply of water and sanitation services (WSS). These incentives can be passed on to the SSIPs through incentive-based contracts that align the interests of the local governments and SSIPs, helping the latter both improve their service provision and shift toward more-efficient service delivery models. Off-utility provision is treated differently in other countries. In Uganda, for example, the national utility, National Water and Sewer Corporation (NWSC), is mandated to provide water supply to certain areas, 20 Citywide Inclusive Water Supply FIGURE 2.4. Accountability Framework State Politicians Policy makers Long route of accountability Co m pa e ct ic Vo Short route Citizens/clients Service providers Coalitions/inclusion Client power Management Nonpoor Poor Frontline Organizations Services Source: World Bank 2004. BOX 2.7. Accountability Frameworks in Indonesia’s Water Sector The Following nationwide decentralization from 1999 to 2000, responsibility for providing water supply services in Indonesia was devolved to local governments. Through various decrees and regulation issued after the decentralization, the local governments were given a choice of how they could provide water supply services: •• By establishing a local government-owned water utility (Perusahaan Daerah Air Minum [PDAM]) and delegating the responsibility to provide water supply services to PDAM •• By providing the water supply services themselves, usually by creating a unit within the local government structure that would operate and maintain the infrastructure and provide the water supply services •• By contracting water supply services to private sector operators—although private operators are restricted to providing only bulk water supply, distribution still must be undertaken by PDAMs or local government units •• By engaging community-based organizations to operate and maintain the infrastructure and provide water supply services Source: Authors. Citywide Inclusive Water Supply 21 whereas the national government is responsible for engaging providers for the other areas. Clearly iden- tifying the single entity responsible for the provision of water supply allows for the creation of a more robust accountability mechanism: •• The entity responsible for water supply is usually mandated by law to provide water supply ser- vices and is therefore accountable to all people. •• Service providers, including SSIPs, are accountable to the entity responsible to provide water ser- vices per their licenses or contracts (depending on the business model). Although settings for displaced people (for example, refugees and internally displaced people) can provide a potentially dense customer base that could be served by SSIPs, they present unique account- ability difficulties. Appendix A discusses these and gives examples of how four countries have approached them. The challenge is exacerbated by weaker PIRF frameworks and financial health of recipient countries, even more so when the numbers of displaced people requiring services is enor- mous. Such conditions only increase the difficult objective of more robust PIRF arrangements for sus- tainable SSIPs to provide off-utility water supplies, and the cases show little opportunity for their involvement. Relationship with Existing Utility Although SSIPs may source water from boreholes or local surface water sources and treat it them- selves, they may also obtain water directly from the utility and focus on distributing it in areas that are not served by the utility. Under such arrangements, it is crucial that a good relationship is main- tained and that the utility buys into the process. This requires the utility to engage with and provide consent to SSIPs to provide services in areas in which the utility does not provide piped water. This consent is not always sufficiently guaranteed, as shown in box 2.8 for aguateros (SSIPs) operating in Paraguay. Another example highlighting the importance of creating a strong relationship with the public utility is illustrated in box 2.9 for Côte d’Ivoire. This case study shows the utility’s attempt to regulate domestic water resellers failed because of the lack of incentives for illegal operators to convert into licensed resellers. This would have required incurring substantial investment costs and being subject to higher tariffs. As a result, domestic resellers continued to operate outside established legal and regulatory frameworks. Currently, SSIPs often operate in parallel with the utility, providing a complement to or substitute for utility water for households who are dissatisfied with the quality or reliability of water utility provision. To maximize connection rates to high-quality water supplies—be this from a large utility or SSIP—both providers should be healthy, and it is preferable that boundaries are set regarding the responsibility and roles of each. An example is the institutional arrangement between the utility and water tankers for water automated teller machines (ATMs) in urban slums of Nairobi (Kenya), where water tanks are cur- rently filled up by tankers sent from the public utility. This is discussed in box 2.10. 22 Citywide Inclusive Water Supply BOX 2.8. Aguateros in Paraguay The Small-scale independent providers (SSIPs) in Paraguay, also known as aguateros, have progressively increased investments in water supply systems, starting from water carters, moving to tanker trucks and wells, and finally to owning wells and distribution networks designed for a ten- to twenty-year life span. These more-sophisticated systems developed as water carters and truckers found ways to build cheap but reliable piped systems and took advantages of new well- drilling technologies to serve customers at reasonable costs living in areas not readily accessible to the public water utilities. Aguateros typically identify an area with potential customers and launch their operations only if the neighborhood is not covered by a public utility or alternative SSIP. They then usually buy a plot of land in or near the neighborhood receiving their services to establish a well and pump house to serve the first wave of households. Customers are initially charged a flat rate, and as the customer base reaches 150 to 200 households, aguateros decide whether to install meters and charge volumetric tariffs. In practice, their supply network expands until it reaches another area served by public water companies or other SSIPs. Therefore, aguateros must act quickly before others claim an area because, once established, their exclusive right to operate within a given area is generally respected. The existence of areas “on the end of and between” business zones of different SSIPs protects customers from monopolistic pricing and ensures that aguateros do not gain unfair advantages. Although they follow a set of regulations monitored by central governments and municipalities (that is, registering their business, obtaining permission for drilling wells and building the distribution network, and obtaining semiannual water quality certification), aguateros lack a strong legal standing within the water sector regulatory framework. This is because the public water companies have failed to recognize the benefits of integrating SSIPs into the national policy to expand coverage and improve service quality. Despite efforts by the public utilities to reach low-income neighborhoods, aguateros have expanded to serve poor households and communities that would not otherwise have adequate water services. They continue to provide water services to a significant share of the population in Paraguay and other countries in Latin America. Source: Loach, Melgarejo, and Lombardo 2000; World Bank 2001. Supporting Institutions to Improve Capacity of SSIPs Scaling up SSIPs requires that they have the necessary capacity and know-how to run an effective and efficient operation on a large scale. Such capacity is often lacking in the main utility, which also needs capacity building: Numerous case studies from piped utilities have highlighted the adverse conse- quences of poor management capacity. Citywide Inclusive Water Supply 23 BOX 2.9. Domestic Resale in Abidjan, Côte d’Ivoire The water utility in Abidjan (La Société de Distribution d’Eau de la Côte d’Ivoire [SODECI]) recognized the need to formalize domestic water resale, acknowledging the role that household resellers played in meeting the demand of many users not reached by the utility and without other access to a water supply. In the 1980s, SODECI and the national government agreed to address the rise of unauthorized resale, mostly obtained through illegal connections, by providing resellers with a permit to sell water after applying to the utility and converting to a formal connection. In 1983, SODECI launched a campaign for legal vending points, with the main objective of reducing illegal activity and improving revenue collection. However, the impact of this campaign was limited. As shown in table B2.9.1, the total volume of water distributed by approved resellers remained low, accounting for less than 5 percent of the total population. TABLE B2.9.1. Volume of Water distributed by Approved Resellers is Low in Abidjan Number of approved resellers 1,034 933 869 Volumes billed (‘000 m3) 648 505 465 Average per reseller 627 542 536 Total volumes billed (‘000 m3) 60,603 80,436 86,303 Percent billed to approved resellers (%) 1.1 0.6 0.5 Percent of total population (%) 4.8 3.6 3.2 The low turnover was primarily explained by the lack of incentives for authorized resellers, who were required to invest heavily in the cost of extending the network between the meter and vending point and subject to higher prices than illegal resellers not billed by the utility. Approved resellers were charged a progressively increasing block tariff, severely penalizing the high-water consumption stemming from domestic resale and resulting in high unit rates that ultimately affected customers. This failed attempt highlighted the need to establish contracts between utilities and private resellers to review tariffs applied to domestic resellers through a bulk water rate, to formalize service delivery and reduce risks associated with domestic resale, and to promote communication among utilities and municipalities. The resale of water from household connections is still widespread in Côte d’Ivoire. A recent study assessing the barriers to improved water supply in periurban settlements of Abidjan shows that resale remains one of the main sources of water, accounting for approximately 40 percent of water supply. Source: Angoua et al. 2018; World Bank 2010; WUP 2003. 24 Citywide Inclusive Water Supply BOX 2.10. Water ATMs in Nairobi Slum, Kenya According to the National Water Services Strategy for 2007–15, approximately 60 percent of residents in Nairobi live in slums and informal settlements, lacking access to safe and affordable drinking water. In line with achieving Sustainable Development Goal (SDG) 6 and ensuring access to affordable and reliable water to the unserved urban poor, water automated teller machines (ATMs) were introduced in 2015 for the first time in urban Kenya in the Mathare slum of Nairobi through a public-private partnership (PPP) with the Danish engineering company Grundfos. Water ATMs are coin-operated or smart card-operated (water cards) standpipes dispensing a given amount of water and considered a better alternative to standpipes and water taps—in which there is a high risk of misappropriation of funds by kiosk managers or standpipe attendants—while also providing availability and cost advantages to customers. Water ATMs were initially designed to obtain water from the utility network. However, because of illegal cutting of water pipes, the pressure was not sufficiently high for the water to reach the tanks, which are currently filled up by tankers sent from the public utility, Nairobi City Water and Sewer Company (NCWSC). Water cards cost K Sh 300 (US$3) and can be topped off at a kiosk or through a mobile app. Water is priced at half a Kenyan shilling (half a U.S. cent) for 20 liters, and payments per unit volume are fixed and processed through the cards, without the need for ATM managers. Because tariffs are fixed, ATMs have been shown to provide water at lower costs than standpipes and water vendors, selling water for fifty to one hundred times the price of ATM water. Table B2.10.1 compares tariffs for various sources of water available in the Mathare slum. ATM managers were also given a master ATM card with 40 percent water credit fee of cost as profit. TABLE B2.10.1. Tariffs for Various Sources of Water in Mathare Slum Water source Tariff per 20-liter jerrycan Water ATMs 50 cents (US$0.005) Water standpipes K Sh 2–10 (US$0.02–$0.10) Water vendors K Sh 2–50 (US$0.02–$0.50) Source: Sarkar 2019. What is needed is to enhance the human capital embedded in the SSIP (and utility), both to provide efficient services using established approaches and to encourage the entrepreneurial spirit to explore new, novel technologies and models, which can help improve service delivery. It is beneficial for SSIPs to come together to share their capabilities and experience and have a common voice in tackling barriers to scaling up off-grid utility provision. For example, in Côte d’Ivoire, water resellers created an umbrella association that leveraged their capacity and strength to gain formal recognition from the utility (box 2.11). Citywide Inclusive Water Supply 25 BOX 2.11. Umbrella Body of Authorized Vendors in Côte d’Ivoire The The umbrella body of authorized vendors in Côte d’Ivoire (Association of Water Resellers in Precarious Areas of Côte d’lvorie (AREQUAP-CI)) was created in 1998 to obtain recognition from the water utility, La Société de Distribution d’Eau de la Côte d’Ivoire (SODECI), and lobby for the establishment of an appropriate tariff system based on a bulk rate for resellers, shorter billing periods, and protection from unfair competition from illegal water resellers. The association brings together water resellers and allows them to negotiate with SODECI and the municipal authorities. Some of its key achievements include •• Reduction in water tariffs paid by licensed resellers to the same rate applied to standpipes; •• Creation of a guarantee fund to finance initial installation expenditures; and •• Education and informational campaigns to raise awareness on the association Source: World Bank 2010; WUP 2003. In Paraguay, the SSIPs called aguateros (discussed in box 2.8) have formed the Aguateros Association, which helps in mitigating competition and conflicts among SSIPs, protecting their interests, standardiz- ing service quality and tariffs, and preventing government attempts to drive them out of business. International stakeholders, such as donors, nongovernmental organizations (NGOs), and international firms, engaged in the off-utility sector can play a pivotal role in helping develop local capacity. It is cru- cial that capacity building be emphasized in the design of off-utility support programs. Regulations to Protect and Create Incentives Regulation for SSIPs must be light-handed, requiring minimum service standards governed by license or contracts in return for geographic exclusivity of provision for a given period. A professional off-utility sector will require regulations that govern the performance of SSIPs and set minimum standards. These regulations can also develop incentives for SSIPs to expand and be able to recover their investment costs. Competition is a central feature of a market for service provision. A distinction is made between compe- tition in the market and competition for the market. Currently, off-grid water provision is largely char- acterized by competition in the market. In the absence of a single off-grid monopolistic service provider, different private operators compete for households’ business. This means that there may be different operators serving the same geographic area and providing similar products or services to households. Competition for the market is when a specific market is identified as best served by a single provider (as is typical for piped networks). Providers compete for the exclusive right to serve this market, usually through a competitive procurement process. 26 Citywide Inclusive Water Supply Evidence across a range of informal water market suggests that it is possible to see competition among SSIPs in informal markets in which barriers to entry are low, economies of scale are limited, operators have a small effect on prices, and consumer pressure leads to improved service quality (Damania 2021). Therefore, it is not possible to state that a lack of formality in SSIP markets will always lead to high prices, or that higher prices in informal markets are always because of a lack of regulation or competition—in fact, lack of formality can lead to uncompetitive behavior (see table 2.4). In a survey of ­ SSIPs in Nairobi, Kenya (UNDP 2011), one-third of cart vendors indicated they also set prices using a cost ­ ushcart markup, suggesting collusion among vendors. As a result, low-income households who rely on p vendors pay more than 30 times the tariff charged by the utility for a piped connection. Protection through Licensing or Contracting Regulation of SSIPs rarely extends beyond simple registration (for example, for tanker trucks), and wher- ever regulatory rules exist, they are often ignored because of the lack of enforcement capacity. For instance, in the Republic of Yemen, little oversight is exercised over the provision of tanker services—it is mainly limited to registration of tankers and the development of a database with contact information, data on water tank capacity and areas of operation, compliance with standards, and water quality testing. The National Water Regulatory Agency and the United Nations Children’s Fund (UNICEF) are mostly carrying out this oversight through a World Bank-financed program. However, regulation remains limited and focused on mitigating the risk of spreading cholera and managing the country’s scarce water resources. Box 2.12 discusses the regulation of private water tankers in the Republic of Yemen. TABLE 2.4. Success Factors: Regulations Success What needs to be achieved? How can it be achieved? Examples factor Protection • Ensure that SSIPs are protected • Developing regulations outlining who can • Benin of SSIP from illegal service providers who provide water • Bolivia from illegal may undercut the formal provider • Licensing and associated enforcement to • Kenya competition (especially if this is done by lowering regulate SSIPs through quality standards) • Paraguay • License provided through a competitive licensing or • Protect the SSIP from usurpation by • Republic of Yemen procurement process contracting the utility to ensure it has incentives to recover its fixed costs • Provide temporal, geographic exclusivity to SSIPs Setting • Ensure SSIPs meet minimum standard • Developing minimum quality standards • Colombia standards and requirements • Enforcing standards • Kenya monitoring • Ensure raw water meets minimum • Developing regulations that provide • Paraguay performance health standards incentives to exceed minimum standards • Republic of Yemen • Defining minimum water quality standards in line with international guidelines Source: Authors. Note: SSIP = small-scale independent provider. Citywide Inclusive Water Supply 27 BOX 2.12. Regulation of Water Tankers in Yemen The ongoing conflict and humanitarian crisis in the Republic of Yemen have led to a collapse in basic services, a series of cholera outbreaks, and displacement of millions of people. The collapse has also posed serious challenges for the provision of water and sanitation services and left a considerable gap in the urban water supply sector. With much of the public water network not operational, the vacuum in water service delivery has been largely filled by private tanker trucks. Although the increasing role of private water tankers has improved the availability of water services, it also raised concerns over water quality and the impact on low- income households. The water sector in Yemen is governed by two primary regulations—the Water Law (ratified in 2002) and the National Water Sector Strategy and Investment Program—aimed to ensure coordination among water sector stakeholders, consistency across water and national policies, and sustainable financing to achieve sector objectives. Although the Water Law requires water tankers to be inspected and registered, several districts do not undertake any registration activities for tankers, as in the city of Aden. To address these challenges, the World Bank-financed project between the United Nations Children’s Fund (UNICEF) and the National Water Resources Authority (NWRA) supported the implementation of a tanker registration pilot in the city of Sana’a. Before the project, water tankers were not registered or regulated in any way. As part of the project, the NWRA was able to identify and verify the occupation of tanker drivers, obtain their contact details, and invite them to take part in the registration pilot in exchange for free rehabilitation, inspection, and painting of their trucks. The NWRA database collects the various categories of information listed below. Tanker owner Tanker driver Water tanker Plate and tanker Water tank contact details contact details type and color chassis number capacity Water source Water use (drinking Notes on Area of service Date of (well name agriculture, evaluation of delivery activity evaluation and location) and so on) water tank Tanker trucks were therefore registered and granted a six-month temporary license that could be renewed after reinspection if meeting the NWRA criteria. As a result of the pilot, 1,878 trucks were also rehabilitated and registered in the districts of Ma’aeen and Bani Alhareth. However, there seem to be insufficient incentives for drivers to renew their registration after taking part in the initial pilot. Similarly, tankers failing the second inspection after six months are required to pay a fine under the current temporary license, which deters noncompliant trucks from participating. Source: Global Development Solutions 2019; World Bank 2018. 28 Citywide Inclusive Water Supply To create incentives to scale up their service and make the investments necessary to improve the quality of service, SSIPs need to be granted some form of service provision exclusivity. If this is not the case and the off-utility sector is effectively a completely free market, it is unlikely that SSIPs will make the neces- sary investments to achieve substantial improvements given the business risks from these investments would be large for a small firm. Providing a license to SSIPs for the exclusive provision of water in a defined area for a fixed period can provide the SSIP with a level of certainty about the revenues it can expect while also allowing authori- ties to define and enforce certain service standards. Exclusivity can also promote more efficient use of scarce water resources so that boreholes and fossil groundwater are not abstracted too quickly, threat- ening the resilience of an area to future shocks to the water supply. The extent of exclusivity can be related to the service standards enforced; if the service to be achieved requires a high level of upfront investments, there is a rationale to provide a license covering a larger market and/or a larger time frame. Box 2.13 illustrates an example of licensing of an SSIP initiative in Kenya. In this Kenyan example, licenses are provided by the water utility on application by the proposed SSIP. Wherever a market is clearly defined, licenses can be allocated through a competitive process in which all interested firms can bid. This process could be administered either by the utility or the local govern- ment, depending on how responsibilities are defined and the capacity of the utility or government to BOX 2.13. Water Vending License in Kenya The In 2019, the Water Services Regulatory Board of Kenya (WASREB) published guidelines for water vending, which is defined as a “formal or informal reselling or onward distribution of water from other sources by small-scale vendors for domestic use.” The purpose of the guidelines is to include water vendors in the regulatory framework, through licensing, to regulate and monitor water and service quality provided to customers. In terms of licensing, the guidelines assert that: “All vendors should be licenced by both the water utility and the public health unit before they start vending water. Any person wishing to carry out water vending should first make an application to the water utility clearly stating the type of water vending, the water sources and area of operation. The person will also then apply to the public health unit for a permit. The latter will carry out an inspection of the premises and equipment to ensure all hygiene requirements are in place. The license should only be given once the vendor has put in place all the requisite provisions needed to ensure water safety to the satisfaction of both the water utility and the public health unit. The license should be renewed annually subject to an inspection of the vendor’s water sources, premises, transport, storage containers, equipment and water handling practices.” Source: WASREB 2019. Citywide Inclusive Water Supply 29 BOX 2.14. Concession and BOOT Agreements with Local Authorities in India and Ghana The Safe Water Network India (SWNI) enters into concessionaire agreements with local governments, municipal corporations, and village panchayats to launch new water stations. Local governments provide the infrastructure (that is, land, raw water, and electricity source), and SWNI provides and owns the multistage water purification plant. SWNI engages and trains social entrepreneur Slum Level Federation or women-led Self Help Group to operate and maintain the plant on daily basis. This social entrepreneur or group also provides a portion of upfront investment. The remainder of start-up and capital expenditures are financed through grants. This process results in a water treatment kiosk equipped with remote monitoring and 24/7 automatic water-dispensing (water ATM [automated teller machine]) systems that use smart cards for payment. Treated water meets water quality standards for safe drinking water under the Bureau of Indian Standards. Consumers can purchase water at the station in 1-liter and 20-liter volumes, priced at US$0.07 cents per 20 liters. High reliability is supported by design; stations are geographically clustered to receive ongoing, affordable maintenance and repair services from a professional field service entity, which was launched by SWNI but is now independent. With start-up and capital expenditures largely financed through grants, Safe Water Network Ghana (SWNG) enters into twenty-year build-own-operate-transfer (BOOT) agreements with district assemblies, during which new stations are owned by SWNG and managed as a business portfolio. Following the end of the BOOT term, ownership transfers to the district assemblies in trust for the community. SWNG works with district assemblies to set up and train up a local water and sanitation management team, identify and train operators, set pricing, and implement community mobilization and consumer activation activities. The result is a microutility with a piped network of conveniently located community standpipes—and direct connections to institutions and households—that incorporate prepaid metering. Treated water meets Ghana national standards and is priced at US$0.02 per 20 liters. Stations are geographically clustered to receive maintenance and repair services through a field services capability currently incubated within SWNG. Source: Safe Water Network 2020. deliver such a procurement process. Examples of such agreements being granted by local authorities is shown from the Safe Water Network programs in India and Ghana, illustrated in box 2.14. Off-utility providers could also be regulated through contracts, with either the utility or the municipal- ity or local government, or even with the local community, as shown for Benin in box 2.15. Guidelines or other regulations can provide market rules to promote competition for such contracts, thereby ensuring that the cost of provision remains at efficient levels. In Latin America, the piped water and other sectors, such as off-grid electricity and solid waste management, have shown that contracts and licenses can spur competition from local and international firms. 30 Citywide Inclusive Water Supply BOX 2.15. Affermage Contract in Rural and Small Towns in Benin Following decentralization of water services in 1999, responsibility for water service delivery in Benin was transferred to the communes (districts). The legal framework requires the communes to delegate the provision of water services through water posts with or without a connection to the network to small-scale independent providers (SSIPs) or water user associations (WUAs). One of the most common types of management models is a bipartite affermage contract between the commune and private operator. Under this contract, the municipality retains ownership of the assets, whereas private operators oversee the piped water scheme and receive revenues from the sales of water based on the tariffs agreed upon with the municipality. The financial flows under the affermage contract are illustrated in the diagram. Private operators pay the municipality a municipal fee to cover the costs of service monitoring, in addition to a capital maintenance and investment charge. Minicipality Capital maintenance Municipal fund and investment fund Capital maintenance and Municipal investment charge fee Private operator Revenues Tariffs Profit O&M margin Household MOHP Standpipes connections Source: Migan 2015. Note: MOHP = manually operated hand pump; O&M = operation and maintenance. Setting Standards and Monitoring Performance Defining standards is a crucial step in professionalizing the off-utility sector. As outlined initially in figure 1.2, off-utility service provision is unlikely to meet the same standards as piped water but may nonetheless meet Millennium Development Goal (MDG) or Sustainable Development Goal (SDG) requirements, dependent on the delivery model and the level of investment undertaken to improve the model. These requirements provide the general targets that policy makers and regulators can use to set standards adopted in the specific countries, considering political economy and geographical factors. An illustrative example of what this could look like is provided in figure 2.5. Citywide Inclusive Water Supply 31 FIGURE 2.5. Examples of Standards Based on MDG and SDG Millennium development goals Sustainable development goals Target 7c: Target 6.1: Halve population without Universal and equitable access to improved water acess to safe and sources affordable water sources • Definition of improved water sources—for example, • Definition of safe water sources—for example, distance from polluting sources, required distance from polluting sources, required infrastructure to protect source infrastructure to protect source, distance of • Water quality standard access point from customer, hours of availability • Water quality standard • Affordability threshold Source: un.org. Note: MDG = Millennium Development Goal; SDG = Sustainable Development Goal. The provision of off-utility water is largely substandard. In many cases, the quality of the water pro- vided does not meet minimum standards outlined in national policy and/or international standards, such as MDG or SDG. The reliability of the service can also be poor, with intermittent or sporadic avail- ability. Despite this, it is often expensive, especially when compared with subsidized piped water. As mentioned in the “Need for Formalizing, Scaling Up, and Professionalizing SSP Services” section, tariffs for households connected to the piped network on average range from 0.5 to 3 percent of house- hold income, whereas for those relying on nonnetwork sources, the cost can range from 5 to 25 percent (Misra and Kingdom 2019). Additionally, in many cases there are no criteria for minimum standards and/or no monitoring frame- work for SSIPs, leaving customers vulnerable to low-quality water and service. Many households strug- gle to afford the service itself and end up spending an excessive share of income on substandard service. An example is discussed in box 2.16 for water tankers in the Republic of Yemen. Although private wells are regularly monitored to ensure compliance with public health and safety standards, none of the water tankers surveyed are subject to water quality testing of any kind. In Kenya (box 2.13), licensing SSIPs also have the purpose of setting and monitoring water and service quality. In the World Bank-funded results-based financing (RBF) pilot implemented in Paraguay to attract SSIPs (aguateros) to rural areas and small towns, minimum standards of safe and reliable ser- vice were met by requiring them to build water networks inclusive of boreholes, systems for disinfec- tion, elevated or pressurized storage tanks, and distribution networks. The contract between SSIPs and communities also sets out specific standards for water quality, pressure, and service continuity. More details on the RBF pilot initiative are provided in box 2.18. Although no regulatory framework at all is not satisfactory, adopting highly stringent regulations might drive many informal SSIPs out of 32 Citywide Inclusive Water Supply BOX 2.16. Water Quality Testing in Yemen Tanker trucks in Yemen are generally unaware of water quality and public health standards, which leads to low compliance rates and lack of enforcement across districts. In Sana’a, the National Water Resources Authority (NWRA) carries out tanker inspection, relying on trained inspectors with experience in water testing, a water quality testing laboratory, and information technology (IT) specialists for database management. As mentioned in box 2.12 tankers failing inspection are fined and potentially banned from operation. NWRA is offering to pay for rehabilitation of drivers’ trucks to incentivize compliance with public health and safety standards. In practice, however, these rules are not enforced. All water quality testing in Sana’a is currently conducted on private wells, but there is no regular testing for tankers. Similarly, various entities are involved in water quality testing in Aden, but none of the water tankers surveyed by the World Bank as part of its initial value chain analysis of private water tankers in Yemen (2018) are subject to water testing of any kind, as illustrated in table B2.16.1. TABLE B2.16.1. Absence of Regulation for Private Water Tankers in Yemen Ministry of Public Local Water Ministry of National Water Health and and Sanitation Public Works and Resource Authority Population Corporation of Aden Highways Private wells  Public wells   Water treatment  centers Tankers World Bank 2018. Local stakeholders expect the Ministry of Public Health to take the lead in promoting inspection of water tankers, in partnership with the Local Water and Sanitation Corporation of Aden Central Laboratory. The study also shows that these entities have the necessary equipment and capacity to test water tankers, but additional donor funding and awareness campaigns are required to educate drivers on the need to adhere to safety standards and how they can bring their services to compliance. Source: Global Development Solutions 2019. business and deprive informal dwellers of access in a context in which the main utility may not be able to fill that gap. Introducing universal regulations and standards for informal SSIPs entails a trade-off between the implementation of rules, their enforceability, and the flexibility of the market, as illus- trated in figure 2.6. Citywide Inclusive Water Supply 33 FIGURE 2.6. Trade-offs in Regulating Off-Grid Service Provision Adoption of rules Degree of enforceability Flexibility of the market Source: Authors. Regulations should ensure that incentives exist to encourage the SSIP to exceed minimum service stan- dards and provide innovative solutions. Regulations and incentives should not limit the flexibility of operators and thereby prevent the development of a piped network if this is the first best solution to achieving SDG 6.1. Rather, efficient incentives should, for example, encourage the SSIP to develop water supply solutions that might be replaced by isolated piped networks, which can, in turn, later be inte- grated into the larger single network, such as in Bolivia. Light-handed and output-based regulation is a means to address this trade-off through appropriate service quality standards and coverage targets to ease access of the poorest and prioritize unconnected areas. The approach adopted in Colombia, illustrated in box 2.17, provides an example whereby regulation is differentiated between formal and informal SSIPs, reflecting the challenges of servicing financially con- strained households living in off-utility areas. Availability of Finance Enabling policy, institutional arrangements, and regulatory frameworks need to be supported by different sources of finance to ensure SSIP sustainability and ability to scale up and improve service quality. As out- lined in the “Need for Formalizing, Scaling Up and Professionalizing SSPs” section, both require consid- erable upfront investments (see table 2.5). Public Finance Although existing examples are rare, public funds can be used to finance off-utility water provision, either through providing support for initial capital expenditure or subsidizing operational costs. If pub- lic funds are currently used to subsidize the provision of piped water, there is a strong argument to be made for such funds to be allocated, or indeed reallocated, to the off-utility sector—given that off-utility water provision tends to target poorer households who cannot afford a piped connection. There is also scope for international donors to work in this space and provide capital loans or grants for the investments necessary to fund the improvements, which can help the off-utility sector achieve city- wide inclusive water supply and make progress toward meeting SDG 6.1. 34 Citywide Inclusive Water Supply BOX 2.17. Size-Differentiated Regulation for SSIPs in Colombia In the 1990s, Colombia introduced a policy of decentralization to privatize water and sanitation service (WSS) provision (typically managed at the municipal level) and increase the involvement of the private sector in public service delivery. As discussed in box 2.1, the latter resulted in improved continuity of service indicators and higher coverage rates among low-income areas. There are several different delivery models available for WSS provision in Colombia. Service providers that wish to be considered public service providers have to follow a registration procedure at Superintendencia de Servicios Públicos Domiciliarios (Superintendency of Public Services [SSPD]), which monitors and enforces the performance of WSS small-scale independent providers (SSIPs). Nevertheless, the population outside small towns is too dispersed to make a centralized water supply economically viable, and many organizations still provide WSS services informally without having registered at the SSPD. To address the issues of informal service provision and minimize the number of nonregistered providers, SSPD defined the procedures for subscription, update, and cancellation of WSS providers in the national register, splitting service providers between •• Large providers, defined as serving more than 2,500 subscribers. These organizations are subject to regulation and may therefore charge only regulated tariffs for the provision of WSS services; and •• Small providers, defined as serving fewer than 2,500 subscribers. These are subject to a different tariff methodology, as of 2014. They can be registered with the SSPD or unregistered. In the latter case, they are considered informal providers because they do not follow the legislation or the normative related to the provision of WSS services. FIGURE B2.17.1. Share of Population Served by SSIPs in Capital Cities and Rural Areas in Colombia Number of capital cities and rural areas 1,200 96% 100 Percent of Colombia population 1,000 82% 1081 80 800 925 60 600 40 400 197 20 200 41 0 0 Municipal capital Rest (mostly rural) Small providers Large providers Source: ECA 2016. The importance of SSIPs is illustrated in figure B2.17.1, showing the share of the population served by SSIPs in municipal capital cities and rural areas, based on a survey carried out in 2005 by the regulatory authority. Source: ECA 2016. Citywide Inclusive Water Supply 35 TABLE 2.5. Success Factors: Finance Success What needs to be achieved? How can it be achieved? Examples factor Public • Budget allocation • Budget can be allocated for capital investments • Colombia finance • Direct or indirect subsidies • Support can be provided to SSIPs through output-based • India subsidies to households in the form of vouchers or to the utility • Paraguay providing bulk water to SSIP through lower bulk water tariffs Private • Banks or other lending • Ensuring that a sound regulatory framework is in place and the finance institutions off-utility sector is formalized • Private firms/investors • Leveraging results-based finance facilities • Private firms through CSR • Considering blended finance opportunities to reduce capital initiatives costs to SSIPs • Seeking to engage social financing channels to provide patient capital to support increasing access to water Source: Authors. Note: CSR = corporate social responsibility; SSIP = small-scale independent provider. Capital Investment National and/or subnational governments, or even the public utility, can allocate capital budget resources to build the infrastructure for off-utility systems, which will then be operated by private or community-based organizations. This, after all, is how most integrated piped networks are financed in developing countries. Another way to provide capital investment is through subsidizing connection charges, which covers part of the capital investment. This can be administered through results-based schemes, as shown in box 2.18. Operating Cost Subsidies To ensure the sustainability of SSIPs, it is critical that they can recover costs. This can be done through a combination of customer charges and, if needed, subsidies. Piped water supplies are commonly priced below full cost, with the difference provided by a mix of capital and operational subsidies. This ensures that water is affordable to households. Given that SSIPs disproportionally serve poorer households, there is a strong rationale to ensure that subsidies are also available to SSIPs. However, this is rarely the case. One example is Delhi, India, where water ATMs are subsidized to ensure that poor households have access to an affordable water supply. Subsidies should be designed to ensure the financial sustainability of the SSIP and affordability for all households. This could be done in different ways, depending on the institutional arrangements and the aim of policies: •• Vouchers that subsidize the cost of water or provide a free allocation could be provided to the poor- est households. This could allow subsidies to be targeted at specific households, although there is an extra administrative burden involved. 36 Citywide Inclusive Water Supply BOX 2.18. Results-Based Finance to Aguateros in Paraguay The As discussed in box 2.8, small-scale independent providers (SSIPs) account for an important segment of the water sector in Paraguay. Aguateros initially operated in urban areas where they could meet the needs of customers with sufficient ability to pay for the full costs of service. Given the constraints of the public water company, it was agreed that SSIPs would be the best means to expand service into unserved communities and increase rural coverage. A World Bank- funded initiative attempted to attract aguateros to unserved rural areas and small towns with a results-based finance (RBF) subsidy awarded through competitive bidding, the first initiative of this kind for investment in rural and small-town water supply. In the first phase of the pilot, a connection subsidy was designed to attract private operators while remaining well below the traditional cost of rural water supply systems and the subsidy paid by the state water utility in some communities. Aguateros were invited to bid on the fee they would apply to connect customers to their system, and the winner was selected based on technical requirements and connection charges. The lowest bid from the first round of competition was extremely competitive, allowing the construction of water systems in four towns at the cost of US$200–$217 per connection. To facilitate payment among low-income households, aguateros allowed customers to pay the connection fee in instalments at a “social” interest rate. The success of the first bidding round highlighted the presence of sufficient competition to build water systems and encourage private service provision. The pilot also received positive responses from the communities that have received access to water services through this initiative. Source: World Bank 2005. •• Lump-sum subsidy to the SSIP in exchange for providing water to households at a lower price. •• Bulk water tariff subsidies paid to the utility providing bulk water, which would allow lower bulk water charges being incurred by the SSIP. Although some government strategies include off-utility services, subsidies are primarily targeted at networked utility services, benefitting wealthier customers (that is, those who already have access to service or living within the utility’s service area) at the expense of sustainable service provision. Misra and Kingdom (2019) estimate that piped users receive an average subsidy of US$42.2 per person per year,2 and unconnected households relying on nonnetworked service provision do not get any sub- sidy. The piped water subsidy amounts to US$17.6 per household per month for a family of five. If the same level of subsidy were to be applied to off-grid customers, the burden of monthly water bill on these vulnerable households would be significantly reduced, as shown in table 2.6 for selected case studies. Citywide Inclusive Water Supply 37 TABLE 2.6. Estimated Affordability with and without Subsidies Monthly Without subsidy With subsidy household Monthly cost Monthly cost Water bill as Water bill as Case study income for household for household percent of percent of of lowest of five (US$ of five after income after income (%) quintile (US$) per 40 lpcpd) US$17.6 subsidy subsidy (%) Tanker trucks in Nairobi (Kenya) 190 42 22.1 24.42 13 Private kiosks in Port-au-Prince (Haiti) 175 24 13.7 6.42 4 Kiosks in Bangalore (India) 225 21 9.3 3.42 2 Private tankers in Cordoba (Argentina) 100 15 15.0 0 0 Source: Misra and Kingdom 2019. Note: lpcpd = liters per capita per day. Private Finance Finance can be provided by private investors, banks, and microfinance organizations through ­ traditional commercial loans and other financing arrangements. For such funds to be available, it is crucial that the sector is formalized and an efficient regulatory framework is in place to allow SSIPs to apply for these types of private financing. Other more innovative sources of private finance can also be explored, such as corporate social responsibility (CSR) initiatives. The Importance of Scale Scale provides opportunities for SSIPs to raise money, professionalize, invest in new technologies, and so on. It reduces the transaction costs of regulatory oversight, contractual interfaces with the public utility, and channeling of public subsidies. Many of the proposals contained in this chapter will make scaling up easier, but the question is whether such measures should be left to the market through bottom-up, organic growth or whether it should be driven from above through policy directives. This is a central question to the challenge addressed in this report and for which there is no guidance from existing arrangements. On balance, however, driving the market through a top-down policy-based approach seems more likely to deliver better and quicker results. Leaving scale-up to the market will require forward-looking entrepreneurial SSIPs willing to take risks, take time and effort to bring all stakeholders on board, and be open to pushback and backsliding when faced with obstacles—ones that a small and growing concern cannot overcome but a large-scale provider could. Competitive off-utility markets with a lack of regulation have not delivered professional, at-scale water service provision. A  top-down approach that delivers the adequate framework for a professional off-utility sector can subsequently create opportunities for competition and, in this market, allow customer demand to drive improved service provision. 38 Citywide Inclusive Water Supply Summary of Lessons Learned and Their Benefits to SSIPs The case studies discussed in the preceding sections highlight key success factors for improving off-­ utility water provision by enhancing the quality of existing arrangements or moving to a higher quality of service delivery. This is captured in Figure 1.2 as shifting upward or to the right of the diagram. The preceding sections highlight a range of individual actions that will make a more SSIP-friendly environment to encourage better, more professional services to those without access to a house con- nection to the utility piped network. However, whether individually or implemented in a scattergun approach, they may not deliver the desired results. As each of the case studies has addressed different constraints, a recommended approach for each country will also differ depending on its circum- stances. However, a selection of consistent critical success factors may be observed. Table 2.73 high- lights what these factors appear to be in delivering better nonutility services (that is, moving up and to the right in the outputs of their water service provision), referencing those case studies that illus- trate them best. Light blue-shaded cells highlight case studies in which PIRF elements have successfully encouraged nonutility service provision, and examples in which these have been found to be lacking are highlighted in orange. The last two columns illustrate whether a movement to the right (moving to a higher quality of service model) or upward (improving the quality of existing models) has been achieved in different case studies, with reference to the diagram introduced in 1. Each of the case studies shows elements of how a robust PIRF framework can reduce business risks and improve financeability of SSIPs. From the SSIPs’ perspective, the application of each framework compo- nent would do the following: •• A robust policy framework would give assurance from the highest level that SSIPs are acknowledged formally as part of the solution to increase water access (for example, Colombia, Ghana, and Manila), regulatory tools developed to assist SSIPs fit within the broader framework and should be applied consistently, and SSIPs can be acknowledged also by donors and financiers with the bless- ing of the policy makers (for example, Bangladesh and Malawi). •• Identifying the institutions responsible for water supply provision (such as national or local govern- ments) is a start to be able to encourage SSIPs. Support for these institutions directly assists SSIPs in their own development (for example, Cote d’Ivoire and Paraguay) and can assure them that the institutions they interact with will also understand the various policy, regulatory, and financial tools that have been designed to support them (for example, Ghana and Indonesia). •• Clear and consistent regulations set out the rules that support SSIP investment and operations, including certainty that an operating area will not be encroached upon by competitors or the large utility (for example, Nairobi), transparency over performance by all formal SSIPs in a market Citywide Inclusive Water Supply 39 TABLE 2.7. Summary of Case Studies 40 Case study Policy Institutions Regulation Financing Improvement Key success • Incorporate off-utility service • Each entity in the supply chain • Transparent, robust, • Subsidies to support factors and SSIPs in national plans familiar with and capacitated enforced regulations initial investments • Develop clear lines of for its role(s) • Clear delineation of service • Scale can support responsibility between targets • Align incentives between different areas and periods access to more cost- and implementers entities • Cost-recovery tariffs effective financing allowed Higher quality of Improving service model existing model Chittagong, Clarifying national policy and Stimulating buy-in from the utility Dhaka, legal framework for PPP model and private entrepreneurs increased Bangladesh reduced entrepreneurs’ business risk through lower start-up costs stakeholder willingness take part in the PPP model ü ü and returns on investment Benin The framework required the Approach to regulate communes to delegate the SSIPs through contracts, provision of water services with municipality retaining through water posts to SSIPs ownership of assets/ or WUAs setting tariffs and SSIP overseeing operations Cochabamba, The lack of a unified policy Supportive institutional frameworks A specific framework for Bolivia for integrated, citywide water needed to improve and maintain CSP participation can be service delivery can lead to relationships with existing water introduced through a system ü ü Citywide Inclusive Water Supply difficult relationships among organizations and the community of concessions and licenses SSIPs and utilities over specific areas table continues next page TABLE 2.7. continued Citywide Inclusive Water Supply Case study Policy Institutions Regulation Financing Improvement Burkina Faso The government did not The PPP model incentivized the Tariffs are regulated and set Substantial interfere with utility but private sector to improve service directly by the utility based investments to showed strong political will quality and expand access in poor on cost recovery targets, improve service in promoting private sector participation to increase areas through a performance-based contract with a social tariff applied to its poorer customer through quality, efficiency, and financial performance ü ü efficiency and cost recovery cross-subsidies were achieved through donor funding Colombia National development Differentiated provisions for large Light-handed/differentiated plans should include specific providers subject to regulation and regulation should be adopted provisions for off-utility service delivery and create a favorable informal SSIPs serving most of the urban and rural population and by relaxing service quality standards and coverage ü ü policy context following separate legislation targets Abidjan, Cote SSIPs created an umbrella Umbrella association d’Ivoire association that leveraged their allowed resellers to capacity to gain formal recognition negotiate the creation from the utility of a guarantee fund to finance ü initial installation expenditures Ghana Government has recognized Specific engagement framework Collusion among tankers and the role of SSIPs in the WSS promoted collaboration between mobile vendors highlights development plan, making SSIP and utility, clarifying the need for regulations to ü provisions for designated stakeholder roles within the overall provide incentives for SSIPs tanker service points to legally institutional framework to ensure affordable tariffs withdraw water, facilitating and quality of service operations of water tankers and vendors table continues next page 41 TABLE 2.7. continued 42 Case study Policy Institutions Regulation Financing Improvement NGO microutilities enter into twenty-year BOOT agreements ü ü with district assemblies, after which ownership transfers to district assemblies in trust for the communities Mumbai, Delhi, Wide range of informal SSIPs Government agencies are often Differentiated service levels Water ATMs fully India (water tankers, water resellers, inclined to suppress informal SSIPs, with high- and middle-income subsidized provide groundwater resellers) lack despite the role they play in filling households receiving tanker great advantages a strong legal standing and the utility’s service coverage gap services and groundwater to low-income operate at the margin of legal resellers serving slums households who frameworks cannot afford and/ or do not need large quantities of water in one purchase India NGO water stations enter concessionaire agreements with local governments, municipal corporations, and village panchayats ü ü to launch new water stations Indonesia Targets for nonpiped water Clear allocation of responsibility Clear regulation on the types ü ü services are included in national to local government for providing of service provision the local government policy water services government can choose to Citywide Inclusive Water Supply provide Nairobi, Kenya Lack of competition in the market Rationale to provide a license leads to deteriorating service quality to SSIPs is to reduce business ü and makes services less affordable risk and guarantee a degree of when cartels are formed, placing certainty and stability in their a disproportionate burden on low- revenues income households table continues next page TABLE 2.7. continued Citywide Inclusive Water Supply Case study Policy Institutions Regulation Financing Improvement Kisumu, Kenya Delegated management to master ü ü operators to operate concessions for the main utility has led to reduced NRW and greater reliability of supply Blantyre, Malawi Collaboration among local government and SSIPs allows for improved management of public water service facilities in urban and ü periurban areas Maputo, Standpipe water provision is SSIPs are largely unregulated, SSIPs operating Mozambique regulated, but roles are shared and customers are not illegally within the ü among various committees, protected from low service utility’s jurisdiction undermining the implementation quality also negatively affects and expansion of the model their access to finance and professionalization Paraguay Stakeholders failed to recognize SSIPs formed an association, which Although lacking a strong Subsidizing connection the benefits of integrating helped mitigate conflicts, protect legal standing, once SSIPs charges through a SSIPs into the national policy to their interest, and standardize tariffs reach an unserved area, results-based scheme expand coverage and improve service quality and service quality their exclusive right to operate within it is generally covers part of the capital investment ü ü respected required to finance SSIP infrastructure Manila, Philippines Private concessions included Awarding of concessions was Inadequate regulations It was hard for third nonpiped solutions as “access” opaque and not robust; SSIPs were prevented necessary security parties to access and empowered SSIPs in not empowered to negotiate with for SSIP network operators, finance without addition to larger utilities utilities on an equal footing leading to high prices and unstable market operations security; some donor finance supported ü ü lower tariffs for some SSIPs table continues next page 43 TABLE 2.7. continued 44 Case study Policy Institutions Regulation Financing Improvement eThekwini, Political will ensuring that all Political will is expressed through South Africa poor households have access a stable political context and the to affordable water can help facilitate innovative solutions to right support to increase access to services without interfering with ü ü provide off-grid water utility management Vietnam Allowance for private operators Local stakeholders collaborated Clear rules on asset ownership Utilities can provide to design and build private in the process, with communities and financing, with operation financing to private ü networks and lease them back and authorities developing the scope of the network being assumed operators in exchange from the utility to operate them and managing the procurement by the utility after ten years for lease payments for a fixed period process and ownership of the assets Republic of Yemen The Water Law promotes There are currently neither Despite the current Additional donor consistency across water and formal nor informal channels requirement for tankers to funding is required to national policies and stakeholder of communication across well be inspected and registered, promote compliance coordination, requiring water owners, network operators, tankers, tankers do not have sufficient with water quality tankers to be inspected and registered and regulatory entities); options are being explored to improve incentives to renew their registration and risk being standards and raise awareness among ü coordination across the entire water fined or banned from private water tankers supply chain operation upon failing the second inspection Note: BOOT = build-own-operate-transfer; CSP = complementary service provider; NGO = nongovernmental organization; NRW = non revenue waterPPP = public-private partnership; SSIP = small-scale independent provider; WSS = water supply and sanitation; WUA = water user association. Citywide Inclusive Water Supply through regular reporting, and an assurance that investment costs can be recovered over time through formally approved tariffs (for example, Burkina Faso) and compensation mechanisms if the public utility integrates the networks and purchases the assets. •• The provision of financing, which depends on the other components, including budget allocations from government and grants from the donor community, is likely to be lower cost, long term, and in greater supply, thereby lowering costs to serve customers. Such cost and tariff decreases may decrease the volatility of volumes consumed, which can decrease the risk and increase the viability of investments (for example, Cote d’Ivoire, India, and Paraguay). Application of the PIRF Framework The analysis presented in this section shows that a robust PIRF framework is needed to facilitate and scale up off-utility water provision. Table 2.8 summarizes what can be done to create an enabling PIRF for scaling up off-utility provision, and chapter 4 outlines the action plan to scale up off-utility provision. TABLE 2.8. What Needs to Be Done to Create an Enabling PIRF Framework? Actor Policy Institutions Regulation Financing National Include off-utility and SSIPs Develop capacity Establish an independent Allocate budget government in national water policy building for SSIPs regulator and ensure its Allow private Set targets for off-utility Raise community independence investment in water provision awareness sector Encourage off-utility and SSIP approaches that function at scale Subnational Include off-utility and Raise community Contract with SSIPs Allocate budget for government SSIPs in water sector awareness Monitor performance of SSIPs operational subsidies development plans Regulator Not applicable Develop capacity Develop regulatory framework Create a stable building for SSIPs Issue licenses to SSIPs environment to Raise community lower business risks Monitor performance of SSIPs awareness and allow private Protect SSIPs from illegal investment competition and usurpation Utility Not applicable Build capacity through Contract with SSIPs Not applicable knowledge sharing with Monitor performance of SSIPs SSIPs Donor Assist national and Assist in building Develop guidelines and Provide financing for community subnational governments technical capacity of all templates as regulatory tools pilot projects and/or in developing policy for stakeholders scaling up of existing off-utility sector scheme Source: The Role of Non-utility Urban Water Service Providers, Draft, 2021. Note: PIRF = policy, institutions, regular, and financing; SSIP = small-scale independent provider. Citywide Inclusive Water Supply 45 An example of the application of the PIRF framework is Burkina Faso, where the mix of enabling policy environment and political will, supplementary institutional relationships, pro-poor tariff regulation, and continued donor support successfully expanded access to household and standpipe connections through performance-based contracts with private operators. This is elaborated in more detail in box 2.19. BOX 2.19. PIRF through Performance-Based Service Contracts in Burkina Faso The provision of urban water supply services in Burkina Faso is the responsibility of the Office National de l’Eau et de l’Assainissement (ONEA), transformed from a quasipublic agency to a state-owned limited liability company in 1994. Despite the successful achievements of the first decade of corporatization, ONEA remained a small utility, serving fewer than 700,000 people nationwide (that is, the wealthiest segments of the urban population) with piped water, and had 1,600 standpipes serving half a million people. As pressure on water resources continued to grow in Ouagadougou, requiring further costly investments in water supply, and given the already high tariffs, a public-private partnership (PPP) model was implemented to achieve the required gains in operational efficiency and increase access to standpipes and household connections. A private operator was contracted based on the innovative approach of performance-based services. The model has been successful, and approximately 20 percent of all villages are now served by private service providers. Operators received a fixed monthly fee for management services through a system of rewards or penalties based on their performance against contractual targets and fixed price for each specified output, which created strong incentives for service providers to improve efficiency and performance. See diagram below. Contract verified Contract: by international • Performance Government technical auditor targets • Indicators ONEA: ONEA • Selects the private operators • Provides water Private (water • Subsidizes connections operator provider) • Ensures safe quality of water Private operator: • Sells water at standpipes and connections in informal areas • Raises demand for connections M • Undertakes works and supply • Maintains the network Note: ONEA = Office National de l’Eau et de l’Assainissement. box continues on the next page 46 Citywide Inclusive Water Supply BOX 2.19. continued The contract also made provisions for private operators to rely on an operating investment fund (US$3 million) and received support from a pool of development partners (Agence Française de Dévelopement [AFD], African Development Bank [AfDB], European Investment Bank [EIB], and the German Development Bank [KfW]) providing about €200 million (approximately USD225 million) to finance the expansion of the distribution network in Ouagadougou, doubling the number of household connection and installing an additional 280 standpipes in poor neighborhoods. Thanks to improvements in operational efficiency, NRW remained stable and ONEA’s financial situation improved substantially with an increase in revenues of 50 percent. Efficiency gains were gradually passed onto customers through an 8 percent decrease in average tariffs and remained sustainable throughout the years. These improvements, illustrated in figure B2.19.2, were reinforced by the government’s commitment to rely on private sector participation with increased transparency and accountability and continued support from donors to scale up the subsidized connection program and increase piped water coverage. The success of the urban water reform in Burkina Faso stems from the combination of different policy, institutional, regulatory, and financing components: •• Policy – The government refrained from interfering with ONEA’s utility management and decreasing tariffs to reap short-term political gains but focused on increasing efficiency and achieving cost recovery through private sector participation, highlighting the role of political will and commitment to create the conditions for private operators to deliver. FIGURE B2.19.2. Improvements through Private Sector Participation in Burkina Faso 100 3.0 2.5 80 2.0 60 Percent Million 1.5 40 1.0 20 0.5 0 0 2001 2002 2003 2004 2005 2006 2008 Year Connection coverage (%) Improved coverage (%) Estimated population served (m) Sources: IBA 2014; PPIAF 2010. box continues on the next page Citywide Inclusive Water Supply 47 BOX 2.19. continued •• Institutions – The PPP model allowed the private sector to contribute more effectively toward improving service quality and expanding access in poor areas. The performance-based contract was provided appropriate incentives for private operators, and ONEA proved open to test this innovative management approach. •• Regulation – Tariffs are regulated by decree and set directly by ONEA based on cost recovery targets, with a social tariff applied to its poorer customer groups through cross-subsidies from large-consumption users. The current price-setting mechanism forms a solid base for success in reaching more customers at an equitable rate. •• Financing – A key success factor for the water reform in Burkina Faso was the substantial investments to achieve improvements in service quality, efficiency, and financial performance through private operators. An essential component to access donor funding was establishing credibility among development partners. Source: IBA 2014; PPIAF 2010. The successful approach to derisking private service delivery in Bangladesh through a program SWEEP (a public private partnership for fecal sludge management) provides another example from sanitation sector. It is an innovative market-based solution providing inclusive, pro-poor sanita- the ­ tion services through partnerships between private operators and public authorities. The first of its kind in Bangladesh, SWEEP has proved successful in enabling private enterprises to make a profit while targeting inclusion of low-income customers. The application of this model is illustrated in box 2.20 for Dhaka and Chittagong. It is worth closing this chapter by reiterating the point made in the first section: Any reforms to improve the delivery of supplementary services requires political will. Although the PIRF framework identifies the specific actions needed to create a formal environment supportive of supplementary service provid- ers (SSPs), its subsequent operationalization will happen only if the political economy in any situation is conducive to that change. This means working diligently with all stakeholders to explain the basis for reform, the proposed models, the opportunities that will arise, and the benefits that will flow to the many stakeholders. This will require an investment in outreach and in assessing the reform impact on a variety of stakeholders. With the aim being the expansion, professionalization, and legitimization of the SSP market, there should be sufficient benefits to outweigh perceived disadvantages. With COVID-19 adequate water services to all, there exacerbating inequalities and demonstrating the need to provide ­ may now be better chances of successful reform. 48 Citywide Inclusive Water Supply BOX 2.20. SWEEP in Bangladesh In 2015, Water and Sanitation for the Urban Poor (WSUP) Bangladesh developed an innovative fecal sludge management (FSM) service delivery model called SWEEP. This approach is based on a public-private partnership (PPP) model allowing multiple small and medium enterprises (SMEs) to operate under the same framework in a competitive environment, providing safe and reliable services to customers. SWEEP was first established in Dhaka, where a lease agreement was signed between a private operator providing vacuum tanker-based fecal sludge emptying and disposal services and the utility, Dhaka Water and Sewer Authority (DWASA), with responsibility for providing treatment facilities for private operators to discharge waste. WSUP’s role entailed gaining buy-in from relevant stakeholders, supporting SMEs to reach scale, and assisting public authorities to design a tender to select suitable private operators and draft a PPP agreement. SWEEP initially targeted mid- to higher-income customers and institutions willing to pay more for desludging services. The initial focus on large customers allowed private operators to cover their operational costs and become profitable, with SWEEP reaching more than 100,000 people in Dhaka by October 2016. Following this success, WSUP replicated the model in Chittagong, building on sustained engagement with Chittagong City Corporation (CCC) and Chittagong Water and Sewer Authority (CWASA). WSUP had also supported CCC in preparing an onsite sanitation strategy before the introduction of the national institutional and regulatory frameworks for FSM. The PPP arrangement in Chittagong involved CCC, WSUP, and Chittagong Sheba Sangstha (CSS), a medical waste management company. The agreement with CSS specified a target to deliver citywide improved sanitation services among 30 percent of poor households. The breakdown of SWEEP Chittagong’s customer base in 2017 is illustrated in the figure below. 100 6 9 27 25 80 54 54 60 36 Percent 40 66 20 40 36 39 7 0 Emptying jobs Revenues Volume (m3) People served Business High- and middle-income consumers Low-income consumers This example shows how innovative management approaches can provide services to lower- income customers without jeopardizing private operator finances. Some of the key drivers of change and success factors in the SWEEP management model include: Citywide Inclusive Water Supply 49 BOX 2.20. continued •• Stimulating buy-in from the utility and private entrepreneurs to ensure that all stakeholders involved in the PPP commit to the process; •• Identifying households who are willing to engage with new service providers to assess the business potential for SWEEP and building customer demand through service quality and marketing activities to promote referrals and increase revenues; •• Reducing entrepreneurs’ risk of entering the market by incurring lower start-up costs, reaping attractive returns on investment, and operating under a legal framework through the structure of the PPP; and •• Clarifying national policy to strengthen the enabling environment for sanitation service delivery and obtaining sufficient financial support to scale up through effective targeting of low-income customers. Source: WSUP 2017, 2018, 2020. Notes 1. Historically the term Small-Scale Independent Provider (SSIP) has been used in the sector. Generally, in this document, the authors have introduced the term Supplementary Service Provider (SSP) as an improved descriptor. However, for now at least, the two terms can be considered interchangeably. 2. The calculation assumes a capital cost subsidy of US$25.6 per capita per annum over fifteen years (assuming a capital cost of US$265.6 per capita) and an operating cost subsidy of US$16.6 per capita per annum (approximately 65 percent of operation and maintenance costs). 3. Although some of the case studies in table 2.7 are presented later in this report, they are included in this summary to highlight the lessons learned. 50 Citywide Inclusive Water Supply Chapter 3 Models for Scalable Off-Utility Water Provision in the Utility of the Future To scale up off-utility provision, business models must deliver economies of scale and/or scope. Having off-utility business models that can complement and/or integrate with utility provision can ensure sustain- ability of both and create the Utility of the Future. Although chapter 2outlines various elements of the policy, institutions, regulation, and financing (PIRF) framework that can be implemented at the national level and that will create a conducive enabling envi- ronment for off-utility provision, this chapter provides a citywide service delivery approach to provid- ing water. This includes consideration of different delivery models. We consider how the Utility of the Future might look when the limits of the “traditional” integrated public utility service delivery model are unable to meet the needs of a city’s population. The transition toward a sustainable business model that enables local authorities and utilities to build more resilient water supply and sanitation services for all can encompass delivery models beyond the single utility and its piped network. We begin by outlining citywide service delivery approaches to providing water before discussing a range of more specific and innovative off-utility service delivery options that might fit within the broader, citywide approach—from wider contracting arrangements to business choices for individual Supplementary Service Providers (SSPs). The range of citywide service delivery models for water provi- sion are presented in figure 3.1. FIGURE 3.1. Alternative Citywide Service Delivery Models Public Public utility utility storage/distribution/customer service storage/distribution/customer service Service Extraction/transmission/treatment/ Extraction/transmission/treatment/ Oversight contract Extraction/ entity Extraction/ treatment/ treatment/ storage/ storage/ Public SSP utility SSP SSP Distribution/ Distribution/ Distribution/ Distribution customer customer customer /customer service to service to service to service to non- non- connected connected connected connected Fully piped utility model Stand-alone SSP model Complementary SSP model Integrated SSP model Source: Misra and Kingdom 2019. Note: SSIP = small-scale independent provider. Citywide Inclusive Water Supply 51 The model on the left-hand end—the fully piped utility model—represents the traditional approach, in which services are provided by a single, vertically integrated public utility responsible for all activities across the service delivery chain. Until now, such an approach has typically been the ultimate objective for any city. The model second from left—the stand-alone SSIP model—has a similar approach to the first but is for a smaller integrated system. Such systems can be commonly found in rural areas or, in some cases, on city fringes (such as those in Cochabamba, Bolivia [see box 2.5] . The two models on the right-hand side of the diagram suggest alternative approaches that represent the sustainability and resiliency of water supply (and sanitation) objectives of the Utility of the Future, bringing a more collaborative approach between the large-scale, integrated public utility and SSIPs, without necessarily being part of a contiguous network. Here, the public utility and SSIPs both are part of the citywide service delivery model. The two models differ by the interrelationship between the two types of providers. In the complementary SSP model, the SSP is a bulk customer of the utility overseen by a separate entity, which then distributes water to its customers, whereas the integrated SSP model involves the SSP being contractually bound to the utility as part of its service obligations. The degree to which the utility and SSP are integrated depends on the different factors discussed in the section below on Models That Benefit fr om Economies of Scale In the integrated SSIP model, a single entity remains responsible for water delivery in a city, avoiding parallel systems and coordinating a greater arsenal of water service delivery options that can meet a city’s needs. Such approaches can har- ness the entrepreneurial spirit and technological change that is present in many of these cities. In addi- tion to the benefits of improved water supply, innovative business models can address some of the risks associated with COVID-19, as discussed in box 3.1. BOX 3.1. Building Resilience to COVID-19 into Service Delivery Models The COVID-19 pandemic has identified many risks from what was previously considered “normal” daily behavior for many people: chatting with friends, greeting people with a hug or kiss, exchanging goods, and payment from hand to hand. Innovative off-utility service delivery models can reduce the risk of COVID-19 transmission. Examples of this include: •• Reduced crowding around informal water sources, replaced by organized supplies that provide water from taps •• Smart kiosks that reduce personal interaction with kiosk attendants, instead relying on touchpads (although these carry contact risk) •• Less face-to-face contact through delivery of jerrycans, bottles, or bulk water supplies •• More organized cleaning of vessels to carry water, enforced by formal safety standards Source: Authors. 52 Citywide Inclusive Water Supply FIGURE 3.2. Examples of Business Models Economies of SCALE Economies of SCOPE Large areas of a city bid out for a private Kiosk operator invests in manual carts to supply concession with result-based deliver water to households finance subsidies depending on service level provided (piped, home storage, standpipe, and so on) Water tanker supplies to its own water storage in densely populated periurban Operators of multiple, private, regulated area, with kiosk taps, household delivery, mini-grids of piped networks and small piped network from it Water tankers form bankable cooperative Water delivery provider offers other serving more than one service area within services—for example, collects an urban city solid waste, empties septic tanks, provides groceries Uber–style water delivery—on-demand jerrycan supply Source: Authors. The innovative ways in which operators may use emerging technologies, such as smart water metering, new digital technologies, advances in sensors, software, and artificial intelligence, to improve the man- agement of water resource and supply high-quality water and sanitation services (WSS) to households are part of the building blocks of the Utility of the Future and are discussed in the remainder of this chapter. The models presented suggest new ways of thinking about water services, unconstrained by traditional approaches. Rather than strictly comparable delivery models, they encompass approaches to service delivery that may be complementary. Although not all models are suitable for every city, many could work together in the same business. The critical driver of the different models is scale and the question, “What models can be delivered at scale?” The models benefit from reduced costs or more resilient financing through economies of scale and economies of scope. Figure 3.2 presents examples of service delivery models that might allow for financing at scale. In the following two sections the models set out in figure 3.2 are explored in more detail. For most, a diagram is provided based on that presented in figure 1.1. Each diagram has been modified to highlight the innovative private business model; bold red lines show key water service flows, solid lines of other colors show lines that remain important for the business model but are not necessarily part of the inno- vative business’ operations, and the dotted lines are not related to the business model. Models That Benefit from Economies of Scale Economies of scale provide opportunities for SSPs to expand their business and cover larger service areas, making the business more cost-effective by allocating fixed costs across a wider customer base. Citywide Inclusive Water Supply 53 Large-Scale Concessions for Off-Utility Service Provision Under this concept, delivering services to unserved or underserved populations in a large section of a city, or a whole city, is tendered to a private company through a competitive process. Figure 3.3 demonstrates how this could be applied to core and periurban areas of a city. Core to the model is the concept of a single point of responsibility for delivery of the off-utility services, with the concessionaire managing the service quality improvements, investments, capacity building, and payment arrangements for its staff and subcontractors.1 Although not a direct replica of this model, there are examples in which a limited bundling of services has taken place to reduce the transaction costs of working with multiple small-scale providers. This can be observed in initiatives supported by Water and Sanitation for the Urban Poor (WSUP) through their master operator (MO) model, applied in Kisumu and Naivasha, Kenya, as explained in box 3.2. FIGURE 3.3. Possible Approach to Private Concessioning of Core and Periurban City Areas Periurban Core city Concession area 1 Manual Water delivery 1 treatment plant (scaled) of utility Mechanical Concession delivery area 2 (franchised) Manual Mechanical delivery 2 delivery Water (on demand) (franchised) mini-grid Manual delivery (scaled, on demand) W min ater i-g rid Source: Authors. BOX 3.2. Master Operator Model for Water Concessions in Kisumu, Kenya To cover the inadequacy of access to improved water in low-income areas (LIAs) of the city of Kisumu, Kenya, the Kisumu Water and Sanitation Company (KIWASCO) has implemented a delegated management model (DMM), which uses a public-private partnership (PPP) and decentralization concept. KIWASCO partners with nonutility water operators, known collectively as master operators (MOs)—who are either community-based organizations, groups, or individual entrepreneurs—to deliver affordable and good-quality water and sanitation services to unserved and previously underserved areas of Kisumu’s informal settlement. KIWASCO identifies the MOs through competitive tendering processes. box continues next page 54 Citywide Inclusive Water Supply BOX 3.2. continued Each of these MOs has clear designated areas of operations and clear reporting structures. This is a contractual partnership with clear deliverables for both parties. The MOs are required to supply water, bill customers, collect revenue, and perform minor maintenance. The arrangement is shown in the figure below Delegated coverage area for nonstate service provider 1 Delegated coverage Master meter area for nonstate service provider 2 Main supply utility line Delegated coverage area for nonstate service provider 3 Simba Kogello Water and Development Group is one such MO managing a water supply in Nyalenda, one of Kisumu’s informal settlements. With more than 600 customers (both domestic and kiosks), Simba Kogello is responsible for marketing, last-mile connections beyond the master meter, billing, collection, and operation and maintenance of service lines within its jurisdiction. KIWASCO provides support through capacity building and technical guidance to the MO and its employees. KIWASCO sells water to Simba Kogello, at a subsidized rate of 25 M3/K Sh, which in turn sells water to individual consumers and kiosk operators. Kiosks are charged 35 M3/K Sh and the rest on a graduating tariff of •• 0–6 M3 K Sh 180; •• 7–20 M3 +K Sh 35; and •• >21 M3 +K Sh 50 for domestic consumers. This allows the MO a profit margin of between 5 and 10 percent, depending on efficiency of operations. box continues next page Citywide Inclusive Water Supply 55 BOX 3.2. continued Despite DMM being one of the best models in water service provision within the LIAs, it has had its own share of challenges: •• Unregulated developments of commercial and residential properties •• Water infrastructure damage because of the ongoing city development projects—that is, road constructions and expansions •• Lack of adequate infrastructure and existence of old dilapidated infrastructure for water supply •• Continued and unplanned nature of informal settlements leading to lack of wayleaves •• Resistance by pockets of community members prone to illegal connections •• Limited capacity of MO to hire and retain qualified staff Sources: Origa Otieno 2021; WSP 2009. Including in a private concession part of an existing utility’s service area that is currently underserved (with poor quality connections and/or customers not connected to an available piped network) can combine new connections with improved service for existing customers. Figure 3.4 illustrates how a concession area of a city may encompass both unserved and underserved population groups through two ways of combining utility and off-utility provision—the first model being one in which the single point of responsibility for ser- vice provision is at the city level, the second being when the utility concessions the off-utility provider. Under either model, the concessionaire will have the obligation to supply water services to the population under its concession. Price will form a component of the competitive process through which the conces- sion is awarded. For the winning bidder, subsidies may be available to ensure services are affordable (see box 2.18) for an example of results-based finance [RBF] per connection made in Paraguay). Customers need not receive a piped connection, but the value of the subsidy could depend on the service connec- tion—for example, a piped connection receives the greatest subsidy, access to a standpipe the lowest. Structured correctly, such a subsidy should offer the right incentives for the greatest total return (that is, economic and social) to the investment made. It should also provide the maximum potential for inclusive development, whereby all customers have the greatest opportunity to be connected, not simply those who can more easily be connected to a piped network. Box 3.3 describes an example in the Philippines of private concessions in Manila. The case shows that private providers can successfully be given an incentive through a performance-based contract to both operate existing piped networks and increase access, including hard-to-reach communities, through third-party SSIPs and alternative approaches, such as public standpipes. However, it also shows that inad- equate regulation of the arrangements among the utility and the SSPs can lead to considerably higher prices charged (typically to the poorest households) and add unnecessary business risks for the SSPs. 56 Citywide Inclusive Water Supply FIGURE 3.4. Off-Utility Concessionaire Service Area and Utility and Government Relationships  Government (city/national) O -utility Utility concessionaire Piped Adequate quality Piped Poor quality O -utility Provison (a) Through utility or Provison thorugh o -utility Provision through utility (b) Ceding some or all concession contract(s) to o -utility Model 1 – Parallel utility and o -utility provision (single point responsibility at city level) Model 2 – Single point responsibility through utility Source: Authors. BOX 3.3. Private Concessions and SSIP Integration in Manila Metro Manila, in the Philippines, privatized its water services provision in 1997 with the creation of two concessions, Maynilad Water Services and Manila Water, through a competitive procurement process. Each company entered performance-based contracts that included output standards for pressure, reliability, quality, and coverage, though neither a universal service obligation nor specific pro-poor incentive. The contracts also gave flexibility for the service delivery models, including public standpipes and third-party provision if the activity was licensed and the concessionaire gave its consent. Part of Manila Water’s expansion was through its Tubig Para sa Barangay (Water for the Poor) initiative that included three service delivery models: •• Bulk water supply to the edge of a community, beyond which a small-scale independent provider (SSIP) would supply the community •• Taps serving two to five households on a single meter •• ndividual household meters located on a public road, rather than at the household The supply of bulk water to SSIPs transferred responsibility for payment from the individual households to the SSIP, which was better placed to liaise with customers who might otherwise have been difficult to reach. Although Manila Water was not directly responsible for these box continues next page Citywide Inclusive Water Supply 57 BOX 3.3. continued customers, it was able to claim the communities as served in its aggregate coverage reports. There were an estimated ninety SSIPs operating in this way with Manila Water in Taguig City in 2007, each serving between forty and 400 households. In contrast, Maynilad did not immediately engage SSIPs to assist with service to customer premises but focused on individual metering of customers. Retaining responsibility for monitoring theft and leakage, Maynilad struggled financially until in 2009 it instituted a program resembling Tubig Para sa Barangay, called Samahang Tubig Maynilad (Water Association of Maynilad), where it engaged with SSIPs, leading to increased coverage. The sale of bulk water to SSIPs, though approved, was not without difficulty. The larger utilities charged commercial tariffs for bulk water so that after the SSIP added its own costs to the price, the tariff charged to households (typically poor), though cheaper than alternative informal SSIPs, was as much as eight times higher than those charged by the larger utility for an equivalent household connected to its own network. Similarly, an unbalanced and opaque relationship among SSIPs and the larger utility meant SSIPs lacked certainty about the security of their arrangements and faced the risk of being terminated prematurely or having the utility construct over the top of their networks. As a result, they charged tariffs that allowed them to recover capital costs within four years rather than risk not being paid compensation for their network investments. Sources: Capistrano and Gerlach 2005; Cheng 2014; Dumol 2000; Rosenthal 2001. The scale of the proposed concession will induce economies of scale in service provision, leading to lower prices for customers and/or lower subsidy amounts for sponsors, while at the same time providing opportunities to professionalize the service provision arrangements. The scale of the investment required will attract both lower-cost and more-sophisticated financiers than those currently serving the market, as well as national and international bidders with significant operational capability—not just those operating at the city level. The competitive element of the tendering process and contractual relationship under which the conces- sionaire will operate allows for the inclusion of various nonprice scoring conditions: • The role of technological innovation in service delivery • The collaboration with existing informal SSIPs • The provision of supplementary community services—for example, health advice Private Water Mini-Grids If geography allows for small, piped networks to be developed yet the incumbent utility is unable to construct them for financial, political, or other reasons, alternative piped water providers can be viable. Small, private, piped networks can operate either independently from or integrated with larger 58 Citywide Inclusive Water Supply utility-owned water networks, supplying water directly to households, mechanical or manual delivery agents, or standpipes, as demonstrated in figure 3.5. In Cochabamba, Bolivia, small water mini-grids receive water in three ways: from the municipal system, from their own source, or delivered by tankers. The mini-grids operate with varying degrees of formal recognition by the legal system (see box 2.5), even if they are well organized and sup- ported by nongovernmental organizations (NGOs) and religious organizations. Beyond this, there is no specific regulatory framework covering issues, such as price, water quality, or technical design standards. With an appropriate regulatory framework, a piped water mini-grid SSIP can be granted an exclusive right to serve a defined area for a given period, thus giving confidence that investment costs can be recovered and that the SSIP’s market will not be usurped by other providers, both illegal and legal (for example, the utility). Such exclusivity is discussed in the section Supplementary Institutional Relationships . Tariffs can be calculated in the same way as for a large utility, apportioning the reason- able costs of service (operating, capital, and financial) over assumed consumption. Technical standards guide the design of the piped network, based on required service quality targets. There are obvious economies of scale. An SSP of one piped water mini-grid will have many of the same fixed overhead costs as an SSP of multiple sites but not the ability to spread them across the sites. The SSP of multiple sites should have access to cheaper sources of capital by virtue of the scale of their cap- ital investment requirements. A larger operator may also be able to make better use of technologies, such as remote customer monitoring and billing systems. FIGURE 3.5. Private Water Mini-Grids as a Delivery Model Water source Delivery models Household/end user Water utility Pipes Mechanical (tankers) Private investment in network Manual (carts/jerrycans) Standpipes Boreholes/lakes/rivers Source: Authors. Citywide Inclusive Water Supply 59 Box 3.4 briefly touches on how a similar innovation in private service delivery of electricity has become a part of national electrification strategies. A further discussion of the evolution of the private electricity mini-grid model is given in box 4.1. Private water mini-grids could form part of the concessions as discussed in the section Models that Benefit from Economies of Scale , allowing for progress to be made toward a fully piped connection while ensuring a high-quality water service in the interim. An example of a potential arrangement in which SSPs construct piped networks with financing provided by the utility, who also maintain owner- ship of the assets, is provided in box 3.5. BOX 3.4. Private Electricity Mini-Grids as an Alternative to Public Utility Service Provision In many countries across the world, and particularly in Africa, private electricity mini-grids are increasingly becoming a key component of national electrification strategies. Having been included in national electricity policies, dedicated regulatory frameworks have been developed that give both private mini-grid developers/investors and customers certainty that a private operator of a small, isolated electricity system can deliver electricity of a high quality, safely, at an affordable price. Increasingly, mini-grids are being seen as a complementary solution to national grids, and frameworks provide accommodation for future integration of the two networks with adequate compensation paid for operators who choose to sell their assets to the national grid operator. Source: Authors. BOX 3.5. Development of Private Piped Water Networks in Vietnam In 2002, the World Bank’s Public-Private Infrastructure Advisory Facility (PPIAF) piloted design- build-lease contracts in two small Vietnamese towns. This arrangement brings together different local stakeholders, including the local community, local authorities, and the utility, to identify potential schemes and procure SSIPs through a competitive bidding process. The successful private SSIP designs and constructs the piped system, with financing provided by the utility. The utility owns the assets and receives a lease payment for ten years, during which the private SSIP operates the system. The utility assumes operation after this period. In Lim Town, this scheme saw a rapid increase in the number of piped connections—from 1,792 to 2,336, which exceeded what was originally anticipated. It also became evident that households were willing to pay a premium to receive high-quality piped water soon, as opposed to waiting for a piped utility connection. Sources: Adank 2013; Kingdom 2005. 60 Citywide Inclusive Water Supply Water Tanker Cooperatives In cities with multiple water tanker SSIPs, any one single mechanical tanker supplying water to custom- ers has limited access to capital and technology, as well as limited bargaining power with bulk water suppliers. By forming an association, such as a cooperative2 as shown in figure 3.6, SSPs can align their interests and be better positioned to benefit from economies of scale. A larger entity comprising multiple tanker SSPs allows for various scale benefits: • It can access more sources of finance, at cheaper rates, necessary for acquiring and maintaining vehicles—this could be extended to acquiring newer and cleaner vehicles, thereby enhancing the green contribution of water service delivery. • It can coordinate capacity building across SSIPs to ensure skills are developed, leading to more inclusive development of service providers. • It can introduce supplementary activities to support beneficiary communities, providing links with other businesses and providing more inclusive development for other people in an area. • It is better able to coordinate activities to meet changing levels of demand, avoiding oversupply or ­ eallocating undersupply of water in any given area, or accommodating mechanical interruptions by r supply at short notice—such an approach can manage water resources more efficiently and opti- mize the scheduled deliveries of tankers, thereby increasing their green contribution. • The necessary security as an offtaker to develop new water supplies and/or treatment works. FIGURE 3.6. Water Tanker Cooperatives Allowing Scale Economies for SSPs Water source Delivery models Household/end user Water utility Pipes Tankers Mechanical (tankers) form a cooperative Manual (carts/jerrycans) Standpipes Boreholes/lakes/rivers Source: Authors. Citywide Inclusive Water Supply 61 • It may negotiate more favorable bulk supply prices and utilize water resources more efficiently and sustainably. • It can have a greater ability to increase supply at short notice, based on existing channels to market, thereby increasing the resilience of a service delivery area to shocks to the water supply. However, such an association also has the potential for negative outcomes, such as cartel behavior, which leads to overpricing of services or predatory pricing to remove competitors. Therefore, new forms of regulation may be required to ensure the balance between SSP and customer interests. Many of the benefits outlined earlier can apply to a single SSP rather than a cooperative. The choice of a cooperative model applies best when there are existing suppliers who lack scale, whereas a larger single operator with multiple vehicles may be more advantageous when there are few existing SSPs. Either model could be utilized under the large-scale concession discussed in the section Large-Scale Concessions for Off-Utility Service Provision. On-Demand Water Supply The development of on-demand service provision is a major development across many sectors in both developed and developing countries. Through a single mobile device, people can request transporta- tion, hot food deliveries, groceries, and just about anything from operators who are not employed by the provider of the goods or service but are independent operators in the “gig economy.” Figure 3.7 high- lights the manual deliverer of jerrycans or bottled water. FIGURE 3.7. Illustration of On-Demand Water Supply as a Delivery Model Water source Delivery models Household/end user Water utility Pipes Mechanical (tankers) Manual (carts/jerrycans) Standpipes Boreholes/lakes/rivers Manual delivery on demand Source: Authors. 62 Citywide Inclusive Water Supply The model itself is not new, but new technologies create new opportunities for manual SSPs. Using a dedicated app, a customer could request a water delivery of any volume for the following week, the following day, the following hour, or as soon as it can be delivered. The app then goes to the “market” for manual SSPs, who can choose to accept the customer’s request and supply water, charging a price for the sale. The customer can rate the SSIP based on the service delivered and report any problems—for example, poor quality water. There could be variations in how the SSP sources the water—for example, their own source, mechanical tankers, standpipes, a third party, or from the app operator. An app owner sits behind the operation, developing the technology, determining pricing, building their network of manual SSPs, and marketing their business to customers. All these activities incur costs, many of which are fixed, so the larger the SSP becomes, the more these costs can be apportioned across multiple customers. Financing will help an SSP cover the high start-up costs. An on-demand supply model could be adopted within any of the business models discussed in this chapter. Such technologies introduce greater efficiencies—for example, in leak reporting and in scheduling of service delivery. When optimized (as can easily be done through software and applications), this should lead to reduced costs and lower aggregate emissions from service vehicles, thus enhancing the green contribution of water service delivery. Similarly, when such models drive operators to find multiple water supply sources, the service delivery model will be more resilient to shocks that might affect a single utility model more significantly. Models That Benefit from Economies of Scope Economies of scope allows SSPs to add additional services to their business while serving the same area, taking advantage of existing customer base, area knowledge, and operational synergies. Deliveries from Standpipes Standpipe SSPs can get to know their customers well, becoming familiar with their water consumption patterns. Some customers may find the journey to the standpipe problematic for many reasons—for example, distance, time, and increased volume to carry. Entrepreneurial standpipe SSIPs who under- stand their customers’ requirements could invest in manual delivery mechanisms for supplying jerry- cans or bottled water from their standpipes to households, as shown in figure 3.8. There are a range of benefits and opportunities for a standpipe SSIP from engaging delivery services: • It may strengthen the relationship with existing customers, increasing revenue security. • Customers may demand more water, increasing sales volumes and revenues. • Customers may demand the delivery of additional goods, creating links beyond water and enhanc- ing the business opportunities of other goods providers, leading to more inclusive development. • “Upgrading” customers can lead to reduced risk for COVID-19 transmission as customers no longer need to visit standpipes and the delivery service provider can ensure their own protective measures. Citywide Inclusive Water Supply 63 FIGURE 3.8. Standpipe SSIPs Investing in Manual Delivery Water source Delivery models Household/end user Water utility Pipes Mechanical (tankers) Manual (carts/jerrycans) Deliveries from a standpipe Standpipes Boreholes/lakes/rivers Source: Authors. • A broader business model, with asset purchases, will require finance, but the larger, more secure business will have greater access to finance, as discussed in the section on Availabiity of Finance Tanker Investing in Storage and Local Delivery Mechanical tanker SSIPs can bring water from a bulk supply source into a community. However, they are able to supply customers with the capacity to store only large volumes of water on or close to their prop- erty. For many customers, this is impossible because of a lack of finance or insufficient space. If the tanker SSIP can find a site close to unserved or underserved communities to develop water stor- age, which they can supply with water, they could diversify their supply options and customer base into alternative models that can reach other customer categories. This approach is presented in figure 3.9. A diversified service delivery model that encompasses localized storage feeding different service deliv- ery options is not unique in rural areas. NGOs, including Water Mission,3 provide such integrated service delivery options, depending on customer needs. Similarly, in the community of Central San Miguel, Cochabamba, Bolivia (discussed further in the section above on Private Water Mini-Grids , households are served by a virtual network, in which bulk water is supplied by tanker trucks before being fed into a local piped network. These needs can change over time as they become more accustomed to the supply options and demand greater quantities of water, or through an increased ability to pay for different service options. Although the sources of clean water may differ between a rural provider and a mechanical tanker, the benefits and opportunities that the increased diversity of service delivery options provides can include: 64 Citywide Inclusive Water Supply FIGURE 3.9. Mechanical Tanker Diversifying into Local Storage and Additional Delivery Models Water source Delivery models Household/end user Water utility Pipes Local storage Tankers invest in Mechanical local storage (tankers) Manual (carts/jerrycans) Standpipes Boreholes/lakes/rivers Source: Authors. • all those listed for the standpipe SSP providing deliveries • the potential for results-based funding for customers to invest in onsite water storage (for example, $x per household for the installation of water storage), or • for tanker SSIPs with multiple sites, to fund larger storage systems with similar funding. Such arrangements should also reduce the requirement for regular tanker visits, and thus the carbon impact of previous models; and onsite storage should increase the resilience of customers to shocks. Tanker Providing Supplementary Services Water tankers establish channels to market and customer bases for water delivery that could be utilized for supplementary services, such as grocery delivery or sewer and solid waste removal. Although these replace services by other providers that might have used different forms of transport, the more-efficient delivery models can reduce transport costs and emissions from vehicles, thus making a green contribu- tion via the delivery model (see figure 3.10). Although the logistics of using the same vehicles for backhaul are likely to be complicated, an SSP can benefit from familiarity with vehicle operations, neighborhoods for navigation, customer trust, cus- tomer databases, and so on. As with the previous two models, diversified mechanical tankers can broaden and deepen their cus- tomer bases (reducing revenue volatility and increasing sales) and increase funding opportunities, including through results-based funding at the customer level. Diversified operations can allow econo- mies of scale in maintenance of their vehicles, and similar benefits can accrue in regulatory licensing procedures, both for the SSP and any entity with regulatory oversight of its activities. Citywide Inclusive Water Supply 65 FIGURE 3.10. Mechanical Tankers Diversifying into Complementary Services Water source Delivery models Household/end user Water utility Pipes Mechanical (tankers) Manual (carts/jerrycans) Standpipes Tankers o er Boreholes/lakes/rivers complementary services Source: Authors. Practical Models for Scale-Up This chapter has demonstrated that supplying water through supplementary service provider (SSP) models can deliver scale benefits, which would reduce risks for the businesses and their investors and ultimately reduce costs for customers while providing improved services. In addition, the greater professionalization of formalized SSPs would provide the basis for investing in newer technologies, such as on-demand water sup- ply. To increase their value offering, SSPs will need to continually think outside the box. Notwithstanding this conclusion, to date the application of innovative approaches to SSP models at scale has been limited, as evidenced by the paucity of strong examples of their successful application. Customers without piped supplies and the informal SSPs trying to serve them face a complex mix of different legal, administrative, social, economic, and technical challenges in the pursuit of better water supplies. To overcome the initial inertia that radical change so often faces, a practical model is one that is likely to be composed of a coordinated approach to deliver a mix of SSP services to a wide geographic area. The lack of viable SSP models that operate at scale is at the heart of the challenge. Although the case stud- ies have shown many promising approaches, none have been able to move to scale. One reason is that they are constrained by lack of finance; the other is they typically lack substantial backing from devel- opment partners and governments. These, together, form a chicken-and-egg challenge for the sector. Today’s small-scale initiatives are transaction heavy—requiring intense support, multiple procurements and oversights of small providers, small investment packages, and low numbers of beneficiaries. Development partners and governments prefer the exact opposite: small numbers of large procurement 66 Citywide Inclusive Water Supply packages that deliver results at scale. If new models can be demonstrated that meet the preferences of development partners and governments, then a new virtuous partnership can develop in the SSP sector. Such an approach is presented in the next chapter. Notes 1. It is anticipated that concessionaires’ staff or subcontractors will draw extensively on the SSIPs currently operating in the concession area. 2. See also the case study of the umbrella body of authorized vendors in Côte d’Ivoire in box 2.11 3. For more information, visit their website at watermission.org. Citywide Inclusive Water Supply 67 Chapter 4 Action Plan to Mainstream Supplementary Water Service Provision A well-constructed action plan combines the necessity of having an adequately conducive policy, institu- tions, regulation, and financing (PIRF) enabling environment with creating opportunities for business mod- els to benefit from economies of scale and/or scope. Moving toward achieving Sustainable Development Goal (SDG) 6.1 and facilitating universal water access necessitate engagement with the supplementary service provider (SSP) sector and enabling SSPs to professionalize and scale up their service in areas that are not served by piped utility water. In partic- ular, it needs the demonstration of models that will work at scale, with low transaction costs and high numbers of beneficiaries, and thus be attractive to development partners and governments. ­ verview This section outlines how SSP delivery models could successfully be implemented at scale. An o of the approach is provided in figure 4.1. Table 4.1 expands on this figure by providing additional details as to which entities may be responsible for each step and an indicative timeline. However, it is important to note that this is a general and high-level indication only, as the exact responsibilities and time frames must be tailored to the specific context. Given the absence of professional, at-scale SSP models, we recommend piloting the delivery in a single or small number of cities to gain deeper insights before distilling these into a more general, scalable approach. FIGURE 4.1. Roadmap for Implementing Demonstration SSP Model at Scale • Initial analysis of the potential and need for off-utility provision, including geographic constraints on piped networks, and bulk water supplies Initial • PIRF diagnostic: Does policy and legal framework allow off-utility providers diagnosis and non-SDG water volumes? Identify relevant stakeholders and institutions. assess impact of regulatory framework. check access to inance. • Buy-in and support from government, utility, and development partners—identify a champion Stakeholder • Understanding from community of improved supplies that are engagement not piped • Interest from existing informal and external large-scale private sectors • Select service area and develop pilot project model or framework Pilot projects • Work with stakeholders on design • Implement pilot project, monitor, and evaluate implementation Lessons learnt • Distill lessons learned and for scaling up analyze success factors • Develop plans for scaling up Source: Authors. Note: PIRF = policy, institutions, regulation, and financing; SDG = Sustainable Development Goal; SSP = supplementary service provider. 68 Citywide Inclusive Water Supply TABLE 4.1. Responsibilities and Timeline for the Roadmap to Implement Demonstration SSP Model at Scale Stage Task Responsibility Indicative level of effort and timeline Initial Analysis of potential National or subnational entity For the demonstration to be successful, it is diagnosis candidate cities with responsibility for water essential a suitable location is chosen that has provision, with support from adequate potential and a necessary threshold of PIRF diagnostic donors and/or international PIRF success factors in place. This analysis will development agencies take two to four months. Stakeholder Generate buy-in from Local government This process should occur throughout and can engagement key stakeholders begin immediately. In addition to more informal stakeholder engagement and dialogue that will Community/customer Local government develop buy-in, this task will require workshops engagement spread over a longer time period. Develop interest of Responsible entities, utility, providers and international development agencies Demonstration Select service area and Subnational entities, in close This will be based on the work from the initial projects develop demonstration collaboration with the utility, diagnostic. model/framework donors, and other levels of government Design demonstration Subnational entity, in This is estimated to take nine to twelve months, project collaboration with local as it will require an analysis of potential options stakeholders and potential and assessment of how they can be implemented providers in a technically feasible manner. Implement Subnational entity, utility, The demonstration project will take as many demonstration project and potential providers, in as twelve months to procure, followed by an collaboration with donors implementation period of, say, five years. Monitor project Subnational entity and donor Ongoing throughout the demonstration project. Evaluate Donor, development agencies, Ongoing throughout the demonstration project, implementation and industry stakeholders/ augmented with regular workshops. Given the providers potential benefits from the model, a midterm evaluation would be worthwhile. Lessons Distill lessons learned Donors and development This should occur throughout, with increasing learned for and analyze success agencies effort as the demonstration project matures and scaling up factor effects begin to be seen. Develop plans for Donors and development Once sufficient lessons can be learned from scaling up agencies for international scale- the demonstration, donors and development up plans, along with national agencies should work on developing and authorities for national plans and formalizing the frameworks and expanding scale- local entities for a local scale-up up projects to more cities. Furthermore, national, and subnational authorities may want to develop plans to scale up the SSP approach. Source: Authors. Note: PIRF = policy, institutions, regulation, and financing; SSP = supplementary service provider. Citywide Inclusive Water Supply 69 Box 4.1 summarizes the brief history of the development of electricity mini-grids to the scalable model that we observe today. The key features, which the water sector can adapt and adopt, include • Identification of a country, and notably a champion within that country, in which to pilot the approach; • Development of a robust and transparent policy and regulatory framework (which continues to evolve as the market develops); and • Support for early market innovators with seed and innovation funding until models are sustain- able, scalable, and able to benefit from more catalytic funding. BOX 4.1. The Mainstreaming of Private Electricity Mini-Grids in Africa Ten to fifteen years ago, electricity access was still largely the domain of national utilities, which, in many cases, were not proving particularly successful. There was little private investment in reaching the poorest communities. Some utilities operated isolated systems, but these were typically treated as isolated parts of their own systema, with the same tariffs and funding available as the main grid networks. From 2008, the World Bank began supporting Tanzania in the development of regulations to support small power projects, which became known as mini-grids. Few projects were developed as technologies were untested, licensing was a slow and opaque process, financing was unavailable, and the developmental returns were minimal. Some donor funds emerged around 2014 to 2015 but still struggled to fund projects as policy makers and regulators remained skeptical of private investment in electricity supply to poor customers. Small private developers, particularly in East Africa, began to develop portfolios of five to ten mini-grid sites. Donor support increased for technical assistance to develop policies and regulations, and private mini-grids became an accepted component of national electrification strategies, filling a niche between grid extensions and the growing off-grid solar market. In Nigeria, a champion emerged within the federal government who was able to catalyze the political will, under conditions in which privatized utilities had little interest in operating, to support the development of a coherent policy and regulatory framework, built on the foundations of frameworks developed elsewhere in Africa. The combination of political will and a robust framework gave confidence to donors to provide significantly more results-based funding; the World Bank and African Development Bank have each committed more than US$200 million in results-based grant finance to private mini-grid developers in Nigeria. Other countries have followed suit, with frameworks and significant funding. The small private companies previously operating only in East Africa are now developing portfolios across the continent, and tens of thousands of customers are being connected to electricity for the first time. More policy and regulatory frameworks are being delivered, multicountry funding facilities are being delivered, and the price of electricity supplied continues to fall. Source: Authors. 70 Citywide Inclusive Water Supply The remainder of this chapter details the four stages outlined in figure 4.1. Although many possible models could be demonstrated (see the section on Models That Benefit from Economies of Scale) , it is the large-scale concession that is considered most appropriate at this time. It captures the various chal- lenges faced in the SSP sector, it can incorporate a wide range of possible service delivery arrangements (from standposts to mini-grids), and, if successful, it offers the greatest opportunities for replication around the globe. As noted already in this report, there are no off-the-shelf models of professional, at-scale SSP arrangements. This chapter therefore looks at the steps that would be needed to develop such a model. Given the innovative nature of what is being proposed, it will be necessary to mobilize tech- nical assistance funding from a range of bilateral, trust fund and internal sources to take this critical initiative forward. Initial Diagnosis Knowing where things stand currently provides the basis for developing an action plan and, in turn, for developing the necessary PIRF environment and business models that are suitable and applicable in the specific country and city. An essential first step will be to conduct an evaluation and diagnostic of a city that is a potential candi- date for the demonstration project. This diagnostic needs to encompass different aspects, including • An analysis of current water provision in the city, considering the current levels and quality of water supply and examining the status quo of the SSP market; • An evaluation of which SSP service delivery models are feasible given the technical, geographic, and social constraints in a given environment; • A diagnosis of the PIRF framework outlined in chapter 2 to gain an understanding on the feasibility of implementing SSP provision and examine which interventions need to be taken into the enabling environment to facilitate this; and • Identification of champions who are supportive of the concept and its subsequent operationalization. This initial diagnostic is crucial to examine what is in place and gain an understanding of whether SSP provision, in a demonstration model, is feasible. This will avoid investing significant resources in an environment in which the barriers that need to be overcome turn out to be too large—or support is too limited. Stakeholder Engagement Understanding who the key stakeholders are and ensuring their buy-in and support for SSP provision is one of the key success factors for the demonstration approach. Citywide Inclusive Water Supply 71 Implementing successful SSP water provision will require buy-in from stakeholders spanning the public sector, utilities, the private sector (including financiers), and communities. Given the novel nature of these models, this is crucial to address the concerns of vested interests both for and against this para- digm shift. To succeed in scaling up SSP water provision to support many of the poorest households, there is a need for all actors to buy into the concept and work together. An overview of these stakehold- ers is provided in figure 4.2. Public Sector Any intervention that involves the private sector requires public sector buy-in. This encompasses the national government (especially if the scale of intervention is significant), the regulator (if any), and subnational government. As each country and city is unique, the level of buy-in needed from each entity can differ across them, depending on how responsibilities are allocated. The ideal form of buy-in is to identify and support a champion within the relevant public sector entity, be that the president or, at the institutional level, the ministry or regulator or parastatal authority taking on the role of champion. FIGURE 4.2. Stakeholders Involved in Facilitating Off-Utility Water Provision • Executive functions: policy making National government • Some regulatory functions: monitoring and tariff approvals • Regulatory functions: monitoring and tariff setting Regulator • Capacity building Usually at national level • Development of guidelines • Executive functions: policy making at local level Subnational governments • Some regulatory functions: monitoring and tariff approval • Service provision and contracting out • Some regulatory functions: monitoring and tariff approval Public/private utility • Service provision and contracting out • Drive demand for water services Customers • Pay for services • Feedback to service providers • Investor and/or operator Private sector • Source of inance • Technical and inancial support to all functions Development partners • Introduce reforms Source: Authors. 72 Citywide Inclusive Water Supply Buy-in is also essential to identify the body with responsibility for providing access and understanding the definition of its mandate. If no such mandate exists, one could be created. For example, it could be either the local government or the utility with responsibility for water provision; engaging with the cor- rect one to discuss SSP provision is essential. Engagement of the public sector extends beyond simple buy-in and must consider capacity to implement. PIRF approaches need to be targeted to the capacity of the institutions that are imple- menting them, and the entities governed by them, without becoming overly ambitious and creating additional costly hurdles that restrict water access rather than improve it. Enforcement needs to be feasible and politically tenable (the example of Cochabamba in box 2.5 illustrates some of the chal- lenges of introducing regulations to established and socially accepted informal providers). If first best solutions are unlikely to be implementable, alternatives may be considered that “nudge” improved services by suppliers, such as improving information provided on prices, service provid- ers, and quality; promoting consumer associations to counter market power of sellers, lowering barriers to entry; or improving communication channels between customers and service providers (Damania 2021). Existing Utility Regardless of the location of the champion, it is critical to engage with the existing utility. The challenge of the utility relationship is discussed further in the section Supplementary Institutional Relationships. When it comes to working with a utility, various approaches may arise: • A strong utility may provide a competent and willing counterpart, supportive of the initiatives that are proposed. • A weak utility may lack the capacity to participate in discussions and pose no threat to any pro- posed interventions but could potentially undermine it through being a weak counterpart. • A medium-strength utility may see the proposed interventions as a threat and should be incorpo- rated carefully in stakeholder engagement. Ideally the utility should be willing to recognize and support the proposed role of the SSPs. This can include the provision of treated, potable bulk water to the utility but also support the public sector and development partners in the implementation of the scheme. The utility can also play a central role in the implementation of the process, managing contracts and the procurement process with the SSP as outlined in figure 3.1. The extent to which this is feasible is dependent on the capacity of the utility. Customers and Local Communities To ensure the success of off-utility water provision, it is important to mobilize local communities and the households to be served by the SSP behind the project. This can help ensure that the service is accepted by households, which is particularly important if these households are currently accustomed to sourcing water themselves or from other SSPs with substandard schemes. Citywide Inclusive Water Supply 73 Community leaders and local community champions can help in efforts to publicize the benefits of the safe water provided by the SSP. They can also help play a crucial role in informing households on how they are able to access subsidy vouchers or procure equipment, such as tanks, which are necessary to receive the service. The role of engaging local communities is particularly important in informal settle- ments in which typical public communication channels have little reach. Private Sector The private sector, who will bid for or identify opportunities to provide SSP water, along with those in the supply chain, needs to buy into the concept to develop appropriate technical solutions, source finance, and pursue opportunities in this field. This encompasses both local and international compa- nies with the necessary expertise and capacity to provide such a service. The private sector needs to be engaged from an early stage to consult on potential technical solutions and facilitate collaborations with their suppliers to develop appropriate technologies. Early engagement is also critical to help understand the requirements of both the private SSPs and (potentially) private finance providers to ensure the pro- posed model is financially feasible. Such testing of the market can help guarantee that there is healthy competition for the market once the procurement stage is reached. Care should be taken to confirm that a new SSP concessionaire does not simply displace existing infor- mal SSPs. This may lead to a lower acceptance of the provider and the approach in general and affect the livelihoods of those who make a living from working in the sector. Instead, incentives should be pro- vided for the concessionaire to understand and engage with existing SSPs and provide necessary capac- ity building. Incorporating their expertise can be beneficial because they are likely to know the area and customer base to be served. Nongovernmental organizations (NGOs) may play a role in assisting the private sector to incorporate informal SSPs into new formal models. Development Partners Development partners and international donors have a significant role in facilitating the scale-up of SSP water provision. They can finance initial demonstration projects and provide technical assistance in developing feasibility studies and draft bidding documents; and in the future they will lead in the sim- plification and standardization of standard documentation to scale up implementation of successful approach(es). To ensure success, development partners need to collaborate, which enables an exchange of knowledge and findings from previous projects, and engage with the local community and the institutional ecosys- tem to facilitate approaches and solutions tailored to the local context. Developing a Demonstration Project for an “At-Scale” SSP Concession Having a successful example of SSP provision is a powerful tool to encourage further development and ­ caling up. s Once a location has been identified, and support obtained, an approach should be used to demonstrate a business case and obtain lessons that can be improved upon. Ideally such demonstrations could be 74 Citywide Inclusive Water Supply conducted in two to three cities across different geographies to examine and highlight the potential of this approach in different contexts. The initial diagnosis outlined above will be a decisive step in considering which cities are suitable for such an initial pilot. ­ Here we outline how such demonstration projects could be developed for the concession model pre- sented in chapter 3. Although the exact process for delivering such a model in a specific city will require further consideration, this report provides an overview of the general, broad steps that need be taken to develop and implement a pilot project. This approach does not dictate specific service delivery arrangements. Instead, the concession holder may choose to use a single model, or a mix of models, to deliver a service that meets pre- defined service standards. This could also allow room for a differentiated service, based on the needs of different households. For example, the concession agreement may dictate that a clean, affordable supply of at least 30 liters per capita per day is to be delivered to households, but if this not possible (for example, because of physical constraints or a lack of household storage facilities), a supply of 10 liters per capita per day is to be provided to standposts within 100 meters of house- holds. It is assumed that some form of subsidy will be required to guarantee affordable service—as happens in the piped utility sector—but the level of subsidy can be based on the exact service level provided. The concession could also provide incentives for innovations to ensure that providers provide a cost-efficient, effective solution, facilitating the transition toward a fully piped network while ensuring a high-quality intermediate service. FIGURE 4.3. Steps to Implement a Demonstration SSP Concession at Scale Facilitate • Ensure PIRF framework is in place to allow for professional off-utility water provision enabling • Draft service standards for the proposed service area environment • Develop concession agreements and contract templates Develop • De ine proposed service area and assess its characteristics technical • Evaluate water supply options concept • Develop a least-cost plan Tender • Conduct a competitive procurement process concession • Support the provider in starting operations • Ensure off-utility provider Monitor meets minimum service operations standards laid out in contract Source: Authors. Note: PIRF = policy, institutions, regulation, and financing. Citywide Inclusive Water Supply 75 Implementing such a demonstration project requires interventions in the enabling environment as outlined in chapter 2, developing a technical plan and tendering out the concession. It will also require ­ continual evaluation and support while operational in a pilot phase. Figure 4.3 provides an overview of the steps needed to carry out such a pilot. Table 4.2 expands on this, with an indication of responsible entities and level of effort required for each step. The exact allocations will, however, be dependent on factors related to context. TABLE 4.2. Responsibilities and Timeline for Implementing Demonstration SSP Concession at Scale Stage Task Responsibility Indicative level of effort and timeline Facilitate Ensure adequate PIRF Donor, development agency, and/or The required actions depend on the PIRF enabling framework is in place local/regional authorities. Wherever assessment and will take three to six environment there are significant gaps in the months to define and resolve but will framework, assistance should be ultimately depend on the local context. provided to the local entities to help This step should not be rushed because close them. it is important to ensure the PIRF framework is adequately in place to allow for a successful demonstration project. Draft service standards Entity responsible for water These tasks will require collaboration provisions (for example, local among institutions and, consequently, government or utility) and their take as long as three months. customers, and in collaboration with donors and development agencies. This will be a new contractual Develop concession Entity responsible for water arrangement, so it might take nine to agreements and contract provisions (for example, local twelve months to design. template government or utility), in collaborations with donors and development agencies. Develop Define proposed service Entity responsible for water provision The required level of effort will depend technical area and assess its in collaboration with subnational on the scale and local context. As a concept characteristics governments. Technical assistance demonstration project, extra effort will may be provided by donors and/or be required to evaluate potentially novel Evaluate water supply international providers. options and their technical feasibility. options Allow nine to twelve months in parallel Develop a least-cost plan with the preceding activity. Tender Conduct competitive Entity responsible for water A competitive procurement process concession procurement process provision, with support from donors will take nine to twelve months from if necessary. start to finish, including the request for proposals, evaluation, and contract negotiations. Support provider in Contracting entity, utility, and Provide intensive assistance in the initial starting operation local authorities. External technical phase of operation, with effort reducing assistance may be provided if as operations ease into normality. necessary. Monitor Ensure minimum service Entity responsible for water provision, Ongoing throughout the operation. operations standards are adhered to regulatory agency (if applicable), or responsible authorities. Source: Authors. Note: PIRF = policy, institutions, regulation, and financing. 76 Citywide Inclusive Water Supply Facilitate the Enabling Environment After selecting a city and area in which to demonstrate this model, the city and utility should begin developing the concept and tailoring it to the needs of the city. To begin, focus needs to be laid on the PIRF factors discussed in chapter 2. The necessary framework must be in place to enable the tender- ing process and implementation of an at-scale SSP concession. In particular, the aspects set out in table 4.3 need to be addressed. Develop a Technical Concept A technical concept needs to be developed, working with the city and utility, ahead of putting the concession to tender. This concept should encompass the following aspects: ­ • Define the proposed service area boundaries – By engaging with the local community and assessing current levels of water provision and demand, draft the area that is to be tended out in the concession. • Assess the characteristics of the service area – Consider the geography and demographics of proposed service area. This will allow for an assessment of which technical solutions are the ­ feasible and, by evaluating the willingness to pay, identify the specific financing needs of the project. • Evaluate potential water supply options – Assess potential technologies to supply water to the con- cession area. In the demonstration phase, this will require working with suppliers to understand what appropriate, feasible technical solutions are suitable. TABLE 4.3. PIRF Framework for Piloting SSP Concession at Scale Aspect Steps to be taken to develop the concept Policy • Define clear targets of what is to be achieved, specifically acceptable levels of water supply • Update policies to allow for the proposed model, which will include concessions and private SSPs Institutions • Decide which entities should be involved in the demonstration project • Clearly define the role of the different entities and agree how they should be engaged • If applicable, ensure the utility has sufficient capacity to procure and manage the procurement process Regulations • Assess which existing frameworks need to be adapted • Draft service standards for the SSP service area provision • Draft concession agreements and contracts Finance • Market sounding for cost and financing estimates • Consider the aggregate willingness to pay and develop tariffs • Examine the availability and role of commercial finance • Source funding from central and local governments • Meet the shortfall through external donor subsidies, including by means of RBF and trust funds Source: Authors. Note: PIRF = policy, institutions, regulation, and financing; RBF = results-based finance; SSP = supplementary service provider. Citywide Inclusive Water Supply 77 • Develop a least-cost plan – Based on the potential water supply options, develop a least-cost plan for serving the area. Using this, estimate the cost of servicing the area. Depending on the nature of the concession agreement, there may be incentives for the provider to choose the most-efficient, ­least-cost solution. • Assess the availability and suitability of existing bulk water supplies – Evaluate the options for the utility to provide bulk water to the concession holder. This should also take climatic considerations and their effects on water supply into account. • Develop a high-level set of prices – Based on customers’ willingness to pay, constraints, and the costs to serve, develop a set of prices that can guide the assessment of bid prices and the potential fund- ing gap needed to be covered through subsidies. Because this is a demonstration project, potential SSPs and contractors should be consulted throughout the development of the technical concept to ensure its feasibility. Tender the Concession and Monitor Its Operation Implementing the demonstration will require drafting procurement documents following government and/or donor guidelines. If the concession is to be administered by the utility, it is essential to ensure that the utility is supported with the capacity and know-how to conduct a thorough competitive and transparent procurement process. Lessons learned from the Water War in Cochabamba, referenced in box 2.5, that arose from the complications associated with large private concessions and other case studies should be considered in the design of the tender. Under the concession approach, the SSP is given scope to decide how to provide water. The tender sets out the target levels of supply and can provide scope and incentives for innovation. It is desirable to also encourage developed country utilities to bid to allow for these concessions to help mature the sector. However, contracts should incorporate requirements to engage with existing informal SSPs and help embed them in the new formal provision. As part of the concession, the contract can also include spe- cific performance targets that provide incentives to deliver a higher-quality service beyond the mini- mum standards specified. As with any contract of this nature, special consideration should be paid to the design of the incentives and bid evaluation criteria to ensure they align clearly across all parties and with the final outcome that is being sought. An important part of the concession will be clarifying how services will be managed at the end of the contract period. At one end of the spectrum, all the activities of the concessionaire could be transferred back to the utility. At the other end, the concession could be updated and rebid. Expect that some ele- ments will have been subsumed back into the utility during the life of the concession as the utility expands its piped network into currently unserved areas. Scaling up Lessons learned from the demonstration project need to be distilled and used in developing tools that will support the scale-up, such as guidelines and templates. 78 Citywide Inclusive Water Supply Demonstration projects significantly improve the evidence base pertaining to SSP water provision and provide a valuable basis from which to develop further the models, analytical tools, and tem- plates that support the scale-up of the SSP approach. To ensure this, it is crucial that the implemen- tation of demonstration projects be carefully followed by development partners and other experts to help analyze findings, refine the framework and models, and distill them to help mainstream SSP water provision at scale. Key steps that need to be taken to scaling up this approach include the following: • Provide a toolkit of standardized technical assistance. This can include standardized SSP concession contracts, licenses, bidding documents, pricing models, and regulatory principles. However, they must be adapted to the local context and support development partner and government staff in implementing SSP provision at scale. • Deliver ongoing technical assistance. To ensure the success of the SSP approach, continued assis- tance should be provided to SSPs, policy makers, regulators, and utilities. • Increase funding available for SSP provision. Source new funding channels, such as challenge and innovation funds, results-based finance (RBF), trust funds, and catalytic funds to reach additional cities and expand water access to more areas. • Drive and pass on efficiency gains. As SSPs scale up and gain experience, they will likely to be able to lower their costs. This can help reduce the subsidy component. As the sector matures, procure- ment may also become more competitive, leading to further efficiency gains. Challenges Posed by Existing Markets in Operationalizing the Concession Model There are almost no examples of public utilities that have fully integrated SSPs into the delivery of water supply services. Large-scale demonstration projects, as described earlier, are needed to learn how best to design and implement this new approach. Selecting the right location for the demonstra- tion projects will be important—particularly in relation to the existing market. Two extremes highlight this point: • If there is a competitive water vending system in place already, with many independent vendors providing a variety of water supply services at prices close to supply costs, then professionalizing the vending system and making a single concessionaire serve a specified geographic area may not be appropriate—at least in the short term. In this case, the model is working, even if it is likely to be suboptimal compared with what is feasible or what is desired by customers. • The state or utility may have no desire to lower prices and improve services, especially if there are substantial rent-seeking opportunities in retaining the status quo. The proposed model may not be viable in the short term in either of these two extremes. It will therefore be important to find situations in which the existing vendors are small and inefficient, provide poor quality service, and neglect to serve many residents in the area (likely to be poor households). Citywide Inclusive Water Supply 79 Chapter 5 Concluding Remarks As highlighted in this report, an estimated 676 million residents (Misra and Kingdom 2019) in cities across the globe rely on supplementary service provider (SSP) water provision, a number that is con- tinuing to grow—it is projected to reach one billion people by 2030. Most of these people will live in African and Asian cities, and more than two-thirds will be in the two lowest wealth quintiles. Many of these people will be in informal settlements that are often overlooked by authorities and utilities. This is clearly an international challenge given its magnitude and the fact that it predominantly affects the poorest and most vulnerable in society. In fact, if public expenditures in developing countries are adversely affected by the economic conse- quences of COVID-19, then these figures are likely to be underestimates. Despite these large and grow- ing numbers, the sector has largely been overlooked in the efforts to achieve citywide inclusive water supply and make progress toward meeting Sustainable Development Goal (SDG) 6.1 The COVID-19 pan- demic has provided an alarming illustration of the importance of ensuring a universal supply of safe, affordable water that considers environments, such as urban slums and refugee camps, while also underlining the need to “build back better” from the crisis with cost-efficient solutions that help build resilience. In the past, the SSP sector has been informal and highly fragmented, often delivering inadequate and expensive supply. It has been stuck in a low-level equilibrium trap consequent on an unconducive or sometimes hostile policy, institutional, regulatory, and financial (PIRF) environment. Through policy makers recognizing and committing to the SSP sector, its potential to contribute to providing safe, affordable water to the world’s poorest households and helping make rapid progress toward SDG 6.1 can be realized. For a successful international response to the SSP challenges, this study identifies three key actions: •• Accept responsibility for providing service to nonutility customers. Acknowledge that current arrangements are inadequate and that governments, utilities, and donors need to cooperate and ­ collaborate to proactively improve the quality and affordability of such services. •• Create a conducive operating environment for off-utility provision. Amend the supportive framework at the national and/or city level to reduce SSP business risks, improve affordability for better ser- vices, and create incentives to deliver better services to the nonutility households. •• Develop and demonstrate models at scale. This will simplify transactions and oversight costs for cities, utilities, governments, and development partners; deliver professional services with better quality and affordability; and be replicable at scale. Once the right enabling environment is in place, and the political will for change has been mobilized, there is potential to build on alternative, entrepreneurial solutions to deliver affordable, high-quality 80 Citywide Inclusive Water Supply water to all households. New models exploiting economies of scale and scope in the SSP sector, when supported by evolving regulatory and policy frameworks and financing, can complement the provision of water by utilities to ensure that all households have access to a clean and affordable water supply. This is critical: Development partners and governments want models that don’t have heavy transaction costs, can be substantial in size, and will deliver large numbers of beneficiaries. If such a model can be successfully demonstrated, then the SSP sector will become a viable part of the water service delivery mix in urban areas. The study highlights the importance of, and processes to, improve SSP services at scale. However, the technical delivery of services cannot be seen in isolation from the global development perspective. In this regard, the improvement of SSP services also supports the broader development agenda regarding jobs and green, resilient, inclusive development (GRID)—areas in which the World Bank, development partners, and clients can collaborate to deliver more benefits than those that flow just from improved off-utility water services. Citywide Inclusive Water Supply 81 Appendix A The Accountability Challenge for Engaging SSIPs in Displacement Settings Source: Day, Forster, and Schweitzer 2020. The size of populations in settings for displaced people is unpredictable, with large numbers remaining in such settings for decades. When many are not citizens of a country, responsibility from national gov- ernments already trying to achieve access for their own citizens becomes increasingly challenging. Services instead are often provided by humanitarian agencies (for example, the United Nations High Commissioner for Refugees [UNHCR]) and charitable organizations, not just in the emergency situa- tions but for many years to come. The accountability challenge extends to the service delivery model. In an emergency, there is often little time to install robust, permanent infrastructure. Sustainable solutions require •• Full engagement with, and support from, host governments; •• Coordinated planning by humanitarian agencies, especially for the transition from emergency and postemergency activities; •• Transition plans for handing over ownership, management, and oversight of assets to national entities; •• Support to national government institutions to support ongoing management; •• Deeper understanding of costs to serve, willingness to pay, and long-term funding options; and •• The engagement of recipients, including host communities, in planning and decision making. In eastern Bangladesh, there is no single coordinated plan to provide water in the enormous camps con- taining about one million refugees from Myanmar. Dozens of humanitarian agencies, including interna- tional and national nongovernmental organizations (NGOs), United Nations agencies, and local authorities have installed thousands of boreholes and dozens of water supply systems using different technologies. There are attempts to rationalize the number of operators (some have contracted private companies). It is unclear how these systems will transfer from emergency to postemergency operation, and the role of local and national institutions is unknown. In Gambella, Ethiopia, the more than 300,000 refugees from South Sudan who started arriving in 2014 were initially supplied by water tankers, organized by many international NGOs. The ensuing high costs led to a new approach involving the upgrading of the water supply of nearby Itang Town to extend to the camps. Water is pumped from boreholes into reservoirs in and around the camps. Although the supply of 15 liters per person per day is below the UNHCR’s postemergency standard of 20 liters, it exceeds that 82 Citywide Inclusive Water Supply available in Gambella to the resident Ethiopian population. A new Itang water utility was tasked with managing the system as humanitarian agencies stepped back, with planning and financing handed to the Ministry of Water, Irrigation, and Energy. Perhaps unsurprisingly for a new utility, the transition has not been without problems. Funding is difficult, salaries were much lower than those provided by inter- national NGOs, and training was inadequate for the low initial capacity. This has resulted in much reduced water quantities and quality. Furthermore, relationships among customers, the utility, and the newly established local regulatory authority (Ethiopia has a highly decentralized regulatory system) were weak and resulted in mistrust. Zaatari Camp, in northern Jordan, hosts more than 76,000 of the estimated 745,000 Syrian refugees in the country. Various humanitarian organizations and NGOs have collaborated in the supply of water services, moving from emergency to postemergency responses. Mobile water tankers initially supplied water tanks, but these are now supplied by boreholes that supply a water supply network that includes private tanks. High demand from refugees has led to a more centralized system coordinated by the United Nations Children’s Fund (UNICEF), in collaboration with the government of Jordan, that focuses more on the household level rather than communal services. Virtually all households are connected to the piped network. Water supply is free, which means operations remain fully subsidized. Without a right to work in Jordan, the inability to earn an income makes charging customers difficult. Jordan’s geography makes water supply a challenge, so UNICEF has required NGOs and refugee-owned busi- nesses to pay for water delivered by tankers and introduced water conservation programs. Although the Ministry of Water and Irrigation and other government entities are the regulating authorities, and the network is operated by a private contractor, the government has appeared reluctant to take overall con- trol of the water supply system from UNICEF. This is understandable because of the drain on financial resources. UNICEF and other NGOs are still called upon to address issues. Eastern Nepal has hosted communities of refugees from Bhutan since the late 1980s, supported by the government of Nepal. Over time, resettlement programs have significantly reduced the populations to less than 10,000. Water supply networks have been expanded to include boreholes, storage tanks, dis- tribution networks, and community access points. The Water Resource Act 1992 and Drinking Water Regulation 1998 allow private operators and water user committees to operate water supply networks, setting delivery standards and allowing the collection of tariffs. Water user committees, comprising rep- resentatives of households (refugees are not citizens and therefore have no voting rights in decision making), manage systems in three refugee camps and employ a small number of technicians. All assets have been transferred from UNHCR to the local municipality, which has the mandate to supply water to the refugee and host communities. The two entities agreed on a memorandum of understanding, set- ting out the responsibilities and requirements for service sustainability. Citywide Inclusive Water Supply 83 References Adank, M. 2013. Small Town Water Services: Trends, Challenges and Models. New York: IRC International Water and Sanitation Centre. Ahlers, R., V. Perez Guida, M. Rusca, and K. 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