WATER P-NOTES ISSUE 12 JUNE 2008 44734 Town Water Supply and Sanitation: Challenges, Solutions, and Guidelines I n Africa, Asia, and Latin America, the number Our guidance note on the principles of town of towns and their populations are expected to WSS provides a methodology for setting targets and double within 15 years, and again within 30. Al- mobilizing resources to achieve those targets. The ready, one-third of Africans and Asians live in towns key activities proposed include: clarifying key actors' of 2,000 to 200,000 people. This rapid urbaniza- roles, consulting with users, defining service levels tion makes improving water supply and sanitation based on user preferences and willingness to pay, (WSS) services central to economic growth and to confirming investment sources, phasing in invest- achievement of the Millennium Development Goals. ments incrementally to reflect demand, analyzing But sustainable provision of these services, particu- costs and revenues realistically, identifying profes- larly in small towns, presents challenges that may sional support, establishing systems for monitoring require new approaches to planning, financing, and progress, and allowing for periodic review and revi- service delivery. sion of the business plan. The challenges and the proposed Oversight arrangements and approach management models Towns of 2,000 to 50,000 merit particular attention The first activity is to clearly separate key func- because they fall within a management gap: neither tions--policy making, regulation, ownership, cor- the community-based management models effective porate oversight, and operations--and clarify who in rural areas, nor the utility models that work in ur- is responsible for each. The five functions are dis- ban centers are likely to work. cussed briefly below. The many towns in this range are widely dis- Policy making and regulation. Policies for cost persed. Growth rates are unpredictable, income recovery, service levels, and public financing are levels are low, and the paucity of large industrial generally set by national governments. Regulations and commercial consumers limits possibilities for provide instructions for implementing these policies cross-subsidies. Centralized utility models tend not and specify service standards and monitoring pro- to produce viable services in towns, but decentral- cedures. Central government may delegate regula- ized models leave management without adequate tion to local government, but small towns are often technical and financial resources. What is needed unequipped for the job. Local authorities should at are management models and technical solutions least monitor performance on a regular basis as a tailored to each town. step toward accountability. This note reports key messages and findings from Principles of Town Water Supply and Sanitation, by Nick Pilgrim, Bob Roche, John Kalbermatten, Cathy Revels and Mukami Kariuki (Washington, DC: World Bank, 2007). The publication and its accompanying Guidance Manual and Training Modules are avail- able for download in PDF format from www.worldbank.org/water. WATER P-NOTES Ownership, corporate oversight, and opera- Appropriate design and financ- tions. Decentralization may give towns responsibility ing arrangements for WSS services, but local governments sometimes cannot raise sufficient investment finance or charge Urban WSS systems in the past have been designed adequate fees for service. These issues should be to set standards centrally to accommodate demand addressed in the business planning process and in as far as 25 years into the future. Too often the policy dialogue with national governments. result is an overdesigned system that provides ser- An appropriate management model should vices at a cost that poor households cannot afford. separate corporate oversight and operation from A better design concept is to meet current demand each other and from policy making and regulation. at acceptable prices, while allowing for modular Among the models now found in small towns are expansion and upgrades of some system compo- the folowing: nents. Limiting costs by linking investments to cur- rent demand frees funding for other uses, promotes · Community water user associations (WUAs) financial sustainability, and reduces the need for are typically cooperatives serving rural or peri- subsidies. urban settlements that lack their own public administration. Government or donors may The modular model is not appropriate for all subsidize investments, but the WUA is expected components. Reservoirs and water-intake systems, to recover operation and maintenance (O&M) for example, should include excess capacity, as fu- costs. The WUA may employ operating staff or ture land availability and water rights are uncertain. contract a private operator. In contrast, the water supply network and storage tanks do not enjoy significant economies of scale · Municipal water departments provide services and can be extended when and where demand ma- under the direct oversight of a municipal coun- terializes. cil. Funds and staff may be commingled with those of other departments, making manage- Towns may face several problems when intro- ment and accountability difficult. This model ducing piped water and sewerage systems: low has not been satisfactory. initial revenues (even well-designed systems re- cover costs slowly); resistance to change; inability · Water boards are used in towns with local au- of users to pay connection fees or bills. Research thorities. Ownership and oversight are vested and promotions in target communities can help in the board, which often includes stakeholder assess and stimulate demand, engage the com- representatives. The board may employ staff or munity, and encourage behavioral change during contract a local operator implementation. Understanding cultural prefer- · Small, independent, private water supply com- ences is critical in planning such efforts. Low-cost panies often operate in towns. Most are owner- methodologies for assessing demand include focus managed and autonomous. The board may groups and simple surveys. Those who cannot af- employ operations staff directly or contract a ford an individual household connection should local private operator. Service terms are negoti- have the option of multi-household taps or buying ated directly with users or specified by license. from neighbors. · Nationally or regionally owned utilities some- Even if initial investments are limited to those times operate in small towns. They are ex- justified by existing demand, towns may be unable pected to service their debt and recover O&M to finance the full cost of investments upfront and costs. They are most viable when established may require grants from the central government or as a corporation with an autonomous board donors. Once established, however, WSS systems and a performance contract. Significant im- should require no support to cover ongoing O&M, provements have resulted when managers in renewal and replacement of assets, and system small towns work under delegated manage- expansion over time. Any external financing should ment or performance contracts. This model be conditioned on behavior that promotes self-suf- can render local representatives voiceless, but, ficiency. A phased approach is also recommended, it makes cross-subsidies from large cities to with funding provided only after appropriate prepa- smaller towns possible. rations have been made. ISSUE 12 · JUNE 2008 There are other ways to finance WSS services. few full-time staff can handle routine WSS services As decentralization intensifies, local governments in-house in towns of 2,000 to 50,000 people, while will receive more central government funding--and more specialized professionals are available on the authority to raise local revenues. Subsidiz- contract to handle less routine matters (table 1). ing connections for low-income households can increase water sales to the point of offsetting the Alternately, all operations may be contracted subsidy. In some countries, funds to provide grant out to private firms. As capacity develops, local financing or commercial loans to WSS services operators might handle some specialized tasks in- have been established by governments and do- house, but still get external support for tasks that nors. They should be used to promote rather than can be performed more efficiently by contractors. inhibit commercial financing. As local financial External support comes in many forms, includ- markets develop, private financing should become ing: more accessible. Regardless of source, the terms of loans should match utilities' ability to pay, allowing · Consulting engineers, financial advisors, and grace periods and repayments that increase with management consultants hired on a retainer revenues. basis or through contracts. · Umbrella organizations that provide specialists in M&O and other services for a fee. Estonia's Contracting professional support Eesti Veevärk is an example. · Larger utilities. Water supply and sanitation Most small operators in towns cannot afford to hire utilities in large cities may provide services to specialists--and often they do not need to do so. A small-town operators for a fee. Table 1. Routine vs. specialized tasks in the management of town WSS utilities Task category Routine (specialists not required) Specialized (specialists required) Economic regulation Reviewing operator's reports on service Design of reporting requirements, quality and financial performance. Ensuring formats, and procedures. that connection and tariff charges are of performance targets. Tariff reviews. consistent with regulations or contract. Public health Reviewing reports of water and wastewater Periodic water and wastewater quality regulation quality. Issuing warnings in the event of testing and auditing of operator's contamination. reports. Customer protection Handling customer complaints not Contract arbitration. resolved by the operator. Business planning Information and inputs based on routine Preparation of business plan. reports and day-to-day experience. Adoption of business plan. Operations Meter reading, billing and collection, Problem solving and major repairs. accounting, routine O&M, new connections, Design and implementation of efficiency monitoring production and water quality, improvements, such as training staff, responding to customer complaints. reduction of unaccounted-for water, optimization of power and chemical use, and collection performance. Expansions Participation in and approval of plans, Engineering design, management of financing arrangements, procurement, procurement, construction supervision. and supervision. WATER P-NOTES · Private operators. Full-service private water marketing, the business plan should include a pro- supply operators generally avoid small towns fessional-support strategy and a plan for financial unless they can achieve economies of scale by management and reporting. providing services in many towns. An option is the franchise arrangement, whereby a local The plan should be revised every three to five franchisee receives support from a full-service years and updated annually between revisions. Pre- private franchisor for a fee. paring and reviewing budgets in the context of the business plan ensures consistency with the longer- · Professional development programs. A central term plans of the utility. help desk in Nigeria provides training for op- erators in 250 towns through short courses on all aspects of service administration, operations, Conclusions and maintenance. Contracts for support should be short (two to The modular approach to town WSS services re- five years) and allow for adjustments. Remuneration quires changes in the way donors and governments should include performance incentives, such as bo- plan and finance services. It requires new oversight, nuses for specified outcomes. management, and professional-support models that develop capacity at the town level. The payoff would be better-managed, more-reliable, and fi- The business plan nancially viable services for the growing numbers of people living in towns. Traditionally, water supply systems are designed and To accomplish these changes, sector policies built by central governments and handed over to a must change at the national level and within aid town. The business planning process is often over- circles. Revised policies should ensure that decen- looked. tralization is accompanied by the authority to make Business planning is an iterative process involv- decisions and raise revenues. Towns should be ing financiers, regulators, the town, the oversight allowed a choice of management models. Legal body, the operator, and customers. It checks service foundations should be laid for the aggregation of levels against regulations, consumer demand, and towns into larger, more economical service areas. willingness to pay. The results of these checks help Financial assistance should be extended only to to determine investment needs, guide operations efforts that promote financial viability. Technical and staffing plans, and underpin financial projec- standards should encourage modular approaches tions. If the cost exceeds the predetermined willing- and sequential upgrading. Steps should be taken to ness to pay, the utility will be financially unviable, promote the use of private operators and special- and plans may have to be scaled back. ized support organizations, accompanied by guide- lines for business planning and for contracting with In addition to performance targets and plans operators and consultants. for investments, financing, operations, staffing, and The Water Sector Board Practitioner Notes (P-Notes) series is published by the Water Sector Board of the Sustainable Development Network of the World Bank Group. P-Notes are available online at www.worldbank.org/water. P-Notes are a synopsis of larger World Bank documents in the water sector. THE WORLD BANK | 1818 H Street, NW | Washington, DC 20433 www.worldbank.org/water | whelpdesk@worldbank.org