WATER P-NOTES ISSUE 2 JUNE 2008 44739 Consumer Cooperatives for Delivery of Urban Water and Sanitation Services T o find the optimal delivery model for urban water supply and sanitation (WSS) services, one Box 1. What makes a cooperative? must look beyond ownership structures to the practices and designs that support good perfor- Structure mance. Consumer cooperatives are often attractive · Cooperatives are open to all who can use institutional models. This note focuses on a Bolivian their services and are willing to accept cooperative that is one of the most successful water responsibilities. cooperatives in Latin America. · Members set policies, serve as representatives, and have voting rights. · Members contribute equitably, and capital is common property. Surpluses are usually Cooperative characteristics plowed back in to the cooperative. · Cooperatives are self-help organizations Cooperatives are autonomous associations of mem- controlled by members. bers who unite to meet common needs through a jointly owned and democratically controlled enter- Practices prise (box 1). The members may be legal or physi- · Cooperatives provide education and training cal persons. Today some 800 million producers, to members and employees. consumers, and workers are members of 740,000 · They work together through local, national, regional, and international structures. cooperatives in 93 countries. · Their goal is sustainable community Members are simultaneously owners and cus- development. tomers of the cooperative. As owners, they seek to protect their assets by ensuring that the coopera- tive recovers its costs. As customers, they seek the lowest possible prices. Profits are generally rein- How do cooperatives differ from vested--members cannot withdraw or reallocate in- vestments. The only way to capture value is by using other models? the service. There are several differences between coopera- The cooperative's managers generally come tives and traditional investor-owned utilities. In- from within the membership and so are users of its vestors in private utilities, organizations charged service. Managers therefore have a built-in motiva- with maximizing owner profits, have no relation- tion to benefit the cooperative's members. ship with the organization beyond equity, which This note reports key messages and findings from "Consumer Cooperatives: An Alternative Institu- tional Model for Delivery of Urban Water Supply and Sanitation Services," by Fernando Ruiz-Mier and Meike van Ginneken, published by the World Bank in 2006 (Water Supply and Sanitation Working Note 5). Readers may download the complete paper from www.worldbank.org/water. WATER P-NOTES is transferable. In cooperatives, profits are not Structure pursued; if realized, they are generally reinvested in the cooperative. Members cannot withdraw and SAGUAPAC is owned and controlled by its custom- reallocate investments; good service at low cost is ers. Membership is open to individuals and organi- what they seek. zations connected to the network. It is structured on Public utilities also have the mission of provid- the classic cooperative model (figure 1). Every two ing good service. But public utilities can be swayed years, members elect representatives to a district by political pressure, whereas, in cooperatives, the board and to the delegate assembly, which meets members' dual role as owners and customers helps annually. The delegate assembly selects members to maintain priorities. serve on the administrative board and the oversight board. Board members serve six-year terms, with a Ownership patterns differ substantially among third of each board elected every two years. cooperatives, private utilities, and public utilities. A cooperative is governed by a board of owner­mem- District boards promote member participation bers, each with one vote, regardless of production or and represent members before the administrative consumption levels. In investor-owned utilities, votes board, which defines policies, approves budgets, ap- are proportional to shares held. In public utilities, the points the general manager, sets salary scales, over- state is the owner. sees bidding processes, and informs the delegate assembly. It meets twice a month. Majority vote rules. WSS services are a natural monopoly. An in- The oversight board acts as a corporate controller, dependent external regulator is needed to prevent focusing on accounting and financial control and the owners of WSS services, public or private, from ensuring legal compliance. It meets monthly. Here, charging excessive prices or otherwise acting in a too, majority vote rules. The manager of the admin- manner inconsistent with the public interest. Coop- istrative board appoints the utility's general manager eratives, by contrast, achieve the same goal through (GM), who serves at the discretion of the board. self-regulation. Since 1979 SAGUAPAC has had just four GMs. Lessons from a successful Success factors; limitations cooperative The Cooperativa de Servicios Publicos Santa Cruz SAGUAPAC's success is partly attributable to the Limitada (SAGUAPAC) provides water and sewer- cooperative structure, which helps deflect attempts age services in the city of Santa Cruz, Bolivia. at political interference, eliminates cumbersome Established in 1979, it has been in business for procedures, and keeps the utility focused on con- almost 30 years, during a period of rapid popula- sumers. But three other success factors stand out as tion growth. The city is sparsely populated, with 1.2 well: million inhabitants spread over 36,300 hectares of · SAGUAPAC's governance structure gives tropical flatland. Their geographic isolation from members a sense of direct participation and the rest of Bolivia has bred habits of self-reliance ensures that elected members are truly repre- and civic-mindedness. sentative. Elections are closely scrutinized and SAGUAPAC, serves 750,000 people, draw- board members closely monitored--key drivers ing its water from deep wells. Over the years, of officer integrity. Term limits and staggered performance has been very good by international terms ensure balanced representation of mem- standards. Water is available 99.92 percent of ber districts. the time. Only 17 percent of water cannot be ac- · SAGUAPAC's corporate culture is notable for counted for--a low percentage. There are 3.1 em- employee loyalty and a strong service ethic. ployees per 1,000 connections. Some 97 percent This ethic has been created by a strong and of connections are metered. Collection efficiency is continuous management. 95 percent. · A final success factor is an external one. As noted, Santa Cruz's isolation has meant lim- ISSUE 2 · APRIL 2008 Figure 1. SAGUAPAC's governance structure and election process District 1 District 2 District 9 Coop. Members Coop. Members Coop. Members Election rocessP District District 1 District 2 District 9 Board (5) Board (5) Board (5) District 1 District 2 District 2 Delegates (3) Delegates (3) Delegates (3) Delegates Assembly (27) Wide Structure Administration Oversight op.- Governance Board (9) Board (6) Co General Manager ited central government presence, resulting in larger ones. Relations between members a self-reliant population and a well-organized and management are more direct in smaller civic movement--an environment favorable to coops. cooperatives. · Cooperatives seem to work better where the But SAGUAPAC also has limitations, and some state has not provided the services needed, and of these are related to its cooperative structure. the population has organized to provide for Compared with public utilities, SAGUAPAC has lim- itself. ited access to concessional multilateral financing. SAGUAPAC has never expanded beyond its original · The willingness of members to serve is essential service area, and extension of the sewer system has for an effective cooperative, and a strong civic been slow. Some critics believe that leadership has culture encourages participation. Where civic balked at expansion because the costs might make culture is weak, a cooperative may be subject it necessary to raise tariffs without creating new to political interference or capture by interest benefits for current members. groups. The cooperative's design is specified in its by- laws. The procedures for electing the board are The keys to successful consumer particularly important. Successful cooperatives en- cooperatives courage the selection of technically capable mem- bers and ensure that members feel well represented, Consumer cooperatives work best when external which fosters participation. Open, transparent pro- conditions are favorable, when the cooperative is de- cedures minimize the possibility of manipulation and signed properly, and when it follows certain practices. encourage the election of appropriate directors. Among the external conditions, three are key: Human resources policies are also important. a small population, the absence of the state, and a Appointment procedures should be clear and trans- strong civic culture. parent. The administrative board should be empow- ered to hire and fire the general manager. Hiring · Population size is important because smaller from within and performance-based promotions cooperatives generally perform better than and salaries strengthen the bond with staff. WATER P-NOTES We have observed that the most successful Good personnel practices can lead to increased cooperatives are those with a high rate of member efficiency. Cooperatives usually combine traditional participation. Member participation depends not public employment practices (job security and good only on the prevailing civic culture, but also on salaries; promotions based on longevity) with in- the cooperative's internal structure; that is, on how centive-based, private-sector approaches. Effective board members and managers are elected and on cooperatives achieve low staff turnover through mar- the effectiveness of member-feedback mechanisms. ket-based salaries, performance evaluations, and Growth in the membership may weaken identifica- performance-based promotion and salaries. tion with the cooperative and dilute incentives to participate. A two-tier representative system can Successful cooperatives focus on building in- help members feel that their input is heard. ternal technical and managerial capacity. Most are leaders in technical and organizational innovation. Finally, the design of a cooperative should help They monitor operations, standardize processes deflect political interference. A cooperative captured where possible, engage in business planning, and by politicians usually embraces objectives other clearly define responsibilities. Management uses than providing good services. Excluding active poli- benchmarking to assess performance gaps. Out- ticians from the board, rotating elected members, sourcing is normally low, because the incentive of and incorporating other checks and balances keep secure employment is stronger than the potential political influence at bay. An alert, politically aware savings to be had from outsourcing. However, membership is also essential for shielding the coop- because cooperatives are not bound by public erative. procurement procedures, contracting can be done Good practices may proceed from good design quickly when needed. or be introduced by effective leadership. Over-de- pendence on a particular leader, however, should be avoided. Institutionalization of good practices, Using the cooperative model for by contrast, particularly in financial management reform and planning, makes the cooperative more inde- pendent. Fortunately, the accountability inherent in The cooperative model can be introduced by creat- cooperatives encourages sound financial manage- ing a new utility from scratch, or through transfor- ment practices and information systems that focus mation of an existing public utility. Starting up a on cost control and performance. new utility cooperative is indicated in cases where no services are currently provided. Most new utility The members' dual role as owners and custom- cooperatives start small--for example, in unserved ers facilitates balanced decision making. For ex- pockets of a city. Over time these small coopera- ample, members can balance the need for service tives can be aggregated with or subsumed under quality against pressure to keep tariffs low. The no- larger utilities to achieve economies of scale. Trans- tion of increasing profits is not part of the equation. forming an existing utility into a cooperative is well- Members' sense of inclusion can be further en- suited for improving performance but less suited to hanced through customer service improvements and the goal of expanding service. In other words, it is by accessible information about available services, indicated where the existing utility has high cover- billing, disconnection, and complaint processes. age but performs poorly. 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