WATER GLOBAL PRACTICE Citywide Inclusive JUNE 2019 Water Supply Smita Misra and Adopting Off-Grid Solutions to Bill Kingdom Achieve the SDGs 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 at @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; the Bill & Melinda Gates Foundation; The Netherlands’ Ministry of Foreign Trade and Development Cooperation; Norway’s Ministry of Foreign Affairs; the Rockefeller Foundation; the Swedish International Development Cooperation Agency; Switzerland’s State Secretariat for Economic Affairs; the Swiss Agency for Development and Cooperation; Irish Aid; and the U.K. Department for International Development. Please visit us at www.worldbank.org/gwsp or follow us on Twitter #gwsp. Citywide Inclusive Water Supply Adopting Off-Grid Solutions to Achieve the SDGs Smita Misra and Bill Kingdom © 2019 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. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Please cite the work as follows: Misra, Smita, and Bill Kingdom. 2019. “Citywide Inclusive Water Supply: Adopting Off-Grid Solutions to Achieve the SDGs.” World Bank, Washington, DC. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights​ @­worldbank.org. Cover photos (left to right): Karyi Yeap / Shutterstock.com; World Bank; nitinut380 / Shutterstock.com Cover design: Jean Franz, Franz & Company, Inc. Contents Acknowledgments v Summary vii Chapter 1 Urgent Need for Safe, Accessible, and Affordable Water Supply for Rapidly Expanding Urban Areas 1 Urban Water Utilities’ Struggle to Meet Demand for Piped Supplies 1 Governments Prefer Subsidizing Customers of Piped Services 4 Necessity of Changing Single-Minded Focus on Piped Water 5 Institutional Arrangements and Services for Provision of Off-Grid Water 6 Quality, Quantity, and Affordability Issues Facing Off-Grid Water 11 Problems Specific to Types of Urban Off-Grid Customers 11 Challenges of Scaling Up Piped Services to Urban Off-Grid Customers 12 Providing Safely Managed Water to People in Periphery of Urban Areas 13 Notes 14 Chapter 2 Urban Off-Grid Solutions for Moving Up the Ladder to Safely Managed Services  15 Improving Policy and Regulations, Institutional Arrangements, and Affordability 16 Improving Quality, Quantity, and Availability of Water Supply 18 Enhancing Off-Grid Service Provision 20 Comparison of Capital Expenses for Three Water Service Delivery Models 22 Reconsidering the Use of Public Subsidies 23 Note 24 Chapter 3  Reimagined Approach to the Urban Water Supply Crisis 25 Commitment to Change Strategies and Policies 25 Managing Change Responsibly 26 Major Questions to Be Debated and Addressed 26 Next Steps Toward Initiating Complementary Off-Grid Approach 27 Note 28 References29 Appendix A Range of Capex Costs for Piped and Off-Grid, Stand-Alone Water Systems 31 Citywide Inclusive Water Supply iii Boxes 1.1 JMP Ladder and Key Role of Off-Grid Services 2 1.2 Success of Pro-Poor Policy-Driven Water Service Improvement in Kampala 8 1.3 Private Utility Partners with the Community in Manila 9 1.4 Public Utility and CBO Partnerships in Tanzania 10 2.1 International NGO Activity in Providing Safe Water Supplies 17 2.2 Water Kiosks 19 Figures B1.1.1 JMP Ladder for Urban Household Drinking Water 2 B1.1.2 Magnitude of the Problem to Meet SDG 6.1 3 1.1 Share of Off-Grid Urban Customers with Unimproved Water in 75 Low-Income Countries in Africa, Asia, and Latin America, by Quintile 4 1.2 Share of Piped Access and Dependence on Off-Grid Services in Urban Areas, 2000–15 5 1.3 Estimates of Piped Access and Off-Grid Networks in Selected Low-Income Countries by 2030 6 1.4 Institutions, Treatment Technologies, and Distribution Mechanisms of Off-Grid Water Market 7 2.1 Strategic Scenarios for Meeting SDG 6.1 15 2.2 Proposed Off-Grid Service Delivery Models Compared with Fully Piped Grid Model 20 2.3 Comparison of Water Service Delivery Models 22 2.4 Potential Savings of Off-Grid Scenarios 23 A.1 Capex Costs, Fully Piped Water Supply Projects, and Off-Grid Stand-Alone Water Systems 31 Table 1.1. Challenges of Providing Safe Piped Water to Urban Off-Grid Populations 13 iv Citywide Inclusive Water Supply Acknowledgments The authors would like to acknowledge comments and advice by Richard Damania, Michael Haney, Alex Bakalian, Iain Menzies, Josses Mugabi, and Berta Macheve from the World Bank. Data and analysis have supported by Amrit Pandurangi (Independent Consultant) and Ankush Sharma (Crescent Ideas, been ­ .crescentideas.com). Contributions by Martin Gambrill, Gerard Soppe, Lizmara Kirchner, Paul www​ Kriss, and Nishtha Mehta at various stages of preparation are acknowledged. This report has also bene- fitted from several discussions and consultations with Utilities, NGOs, and Private Service Providers, including case studies on Haiti and Durban. Further input was also provided by colleagues at a Workshop at the World Bank Water Week, 2019. Citywide Inclusive Water Supply v Summary Today about 676 million urban residents, many of them poor, do not have access to the Joint Monitoring Programme (JMP) definition of “safely managed” water supplies. They receive an off-grid water supply service that is not safely managed, accessible, or affordable, and thus not compliant with Sustainable Development Goal (SDG) 6.1. If the rate of providing piped supplies over the last 15 years continues for another 15 years, and the urban population increases as projected by 1.2 billion, then the current 676 million will be joined by a further 300 million by 2030. Therefore, by 2030, nearly 1 billion individ- uals, primarily in South Asia and Sub-Saharan Africa, will be forced to rely on off-grid supplies that are not safely managed. These troubling numbers exclude the significant population classified as rural but live on the periphery of urban areas and have urban characteristics and aspirations. Not only are off-grid customers increasing but they are also concentrated in the poorer segments of society. An analysis of 75 low-income countries (LICs) in Asia, Africa, and Latin America shows that more than 68 percent of these customers come from the bottom two wealth quintiles (the poor and the poorest). Within these regions, many countries (24 of these 75 countries) have more than 80 percent such off-grid users from poor and poorest categories.1 The sector’s single-minded focus on piped service delivery is insufficient to meet the challenges of providing safe water supplies due to endemic governance, efficiency, and financing challenges. These problems, coupled with policy, land tenure, and related issues in the broader urban environment, all conspire to leave poor households without access to piped water supplies—a problem that will continue. A laissez-faire attitude prevails in the sector, leaving off-grid customer to fend for themselves. Traditional (piped) solutions alone will not achieve SDG 6.1 by 2030 in providing safely managed water that is accessible at the household level and is affordable to customers. It is critical to re-examine the traditional focus on adding piped connections. Policy makers and others in the sector should explore how off-grid solutions could be “reimagined” as a complementary solution. This report proposes a mindset shift that accepts off-grid supplies as an equal partner to piped supplies in meeting the SDGs. If broadly accepted, then a set of next steps can be envisaged. With support from the international community, eventually all urban dwellers will receive an affordable service that meets basic needs and is safely managed. These steps include: •• Preparing programs and policies to promote a shift toward SDG 6.1 compliant service as the govern- ment’s end goal—irrespective of the method of service delivery. •• Analyzing data on the costs, charges, service standards (quality and quantity), and ­ affordability asso- ciated with off-grid services. •• Revisiting subsidy policies to develop a more equitable model to help facilitate investment in afford- able off-grid solutions that are SDG 6.1 compliant. •• Exploring institutional models to improve off-grid services. Citywide Inclusive Water Supply vii •• Rethinking regulation and regulatory approaches to off-grid service providers. •• Applying innovative technical solutions that can provide adequate quantities and qualities of water to households and households to safely manage that water on-site. Note 1. WHO/UNICEF JMP database, accessed in 2017, https://washdata.org. viii Citywide Inclusive Water Supply Chapter 1 Urgent Need for Safe, Accessible, and Affordable Water Supply for Rapidly Expanding Urban Areas Coverage with piped water services is declining as traditional utilities fail to keep up with rapid urban growth. Without a change in service provision and financing programs, off-grid services will remain unable to deliver sufficient safe and affordable water to hundreds of millions of urban residents. Meeting the many challenges starts with a shift in mindset that accepts off-grid supplies as an equal partner to piped supplies in meeting the SDGs. Today, an estimated 676 million urban dwellers rely on off-grid water supplies that are not safe, accessible, and reliably available close to home and thus not compliant with the “safely managed” standard of SDG 6.1 (box 1.1). The number of urban dwellers who rely on off-grid supplies that are not safely managed has increased rapidly in the last 15 years and will continue to increase to 2030. About 277 million people have entered this category since 2000, with more than half (185 million) in South Asia and Sub-Saharan Africa. If the rate of providing piped supplies over the last 15 years continues, and the urban population increases projected by 1.2 billion, then the current 676 million will be joined by a further 300 million by 2030. as ­ Thus, by 2030, nearly 1 billion people will come to rely on off-grid water supplies that do not meet the JMP) definition of “safely managed.” These troubling numbers exclude the significant population classi- fied as rural but that live on the periphery of urban areas and have urban characteristics and aspirations. segments of ­ Not only are off-grid customers increasing but they are also concentrated in the poorer ­ society. Among 75 LICs in Africa, Asia, and Latin America, more than two-thirds (68 percent) of off-grid custom- ers come from the poor and the ­ poorest categories (bottom two wealth quintiles) (figure 1.1). Within 24 of countries, the percentage is even higher (more than 80 percent), including Bangladesh, Bolivia, these 75 ­ Cambodia, Colombia, Mozambique, Peru, Rwanda, Thailand, and Vietnam (WHO/UNICEF 2017). The objective of this study is to better understand the scale of the off-grid challenge, the difficulties in providing off-grid services, and to set out some possible options for how to build off-grid services that are SDG 6.1 compliant. At its heart this is a scoping study that can provide the foundation for follow-on work that would lead to “reimagined” off-grid service delivery arrangements that complement piped systems—not as a suboptimal solution but as an acceptable alternative that will ensure all urban resi- dents have “equitable access to safe and affordable drinking water.” Urban Water Utilities’ Struggle to Meet Demand for Piped Supplies Water utilities in rapidly urbanizing LICs have been unable to keep pace with urban growth. Around the world, piped access fell from 85.2 percent to 82.9 percent between 2000 and 2015. This decline is even more pronounced in some rapidly urbanizing and poorer regions such as urban Sub-Saharan Africa Citywide Inclusive Water Supply 1 BOX 1.1. JMP Ladder and Key Role of Off-Grid Services To measure progress on drinking water goals, the JMP has a new ladder of baselines for household drinking water services (WHO/UNICEF 2017). The JMP ladder captures the number of urban residents receiving each level of service, including through off-grid solutions, as shown in figure B1.1.1. Nearly all those with limited, unimproved, or surface water services rely on off-grid solutions. FIGURE B1.1.1. JMP Ladder for Urban Household Drinking Water 2015 2015, o -grid (urban (urban population, population, millions) millions) Drinking water from an improved source is located Safely on premises, available when needed, and free of 3,374 managed fecal and priority chemical contamination. Drinking water from an improved source provided Basic collection time is not more than 30 minutes for a 3,782 495 roundtrip including queuing Drinking water from an improved source where Limited collection time exceeds over 30 minutes for a 73 73 676 million roundtrip to collect water, including queuing urban people depend on o -grid Drinking water from an unprotected dug well solutions Unimproved 96 96 or unprotected spring Surface Drinking water collected directly from a river, 12 12 water dam, pond, stream, canal, or irrigation channel Total urban population 3,963 676 Source: Off-grid data derived from WHO/UNICEF JMP database, accessed in 2017, https://washdata.org. Note: It is likely that a small percentage of these 676 million off-grid users have safely managed water because they may have improved off-grid source on premises providing adequate quality water. Similarly, a small percentage of users with piped water on premises may lack water that meets the JMP definition of “safely managed.” These numbers are likely to be small and are difficult to estimate; thus, the global off-grid numbers are used for the analysis. JMP = Joint Monitoring Programme. The sector’s challenge is whether all 676 million people with off-grid supplies in 2015—plus those added through 2030—can be lifted to the safely managed level by 2030, either through piped systems or improvements in the off-grid arrangements. Unfortunately, the outlook on providing access to piped system does not look promising due to the population demands (figure B1.1.2). The off-grid population has increased rapidly by 277 million people in the last 15 years and is projected to increase even further by 2030. Therefore, the quality and quantity of off-grid supplies need to be strengthened. box continues next page 2 Citywide Inclusive Water Supply BOX 1.1. continued FIGURE B1.1.2. Magnitude of the Problem to Meet SDG 6.1 Population (in millions) to be provided safely managed water to meet SDG goals Service level Definition 2015 2030 Sefely Drinking water from an improved source Current 676 million urban managed is located on premises, available when people to be moved up the needed, and free of faecal andpriority ladders to ensure chemical contamination. “safely managed water” Basic Drinking water from an improved source Additional provided collection time is not more 1.2 billion than 30 minutes for a roundtrip urban people 495 including queuing. due to urbanization, 2016–30 Limited Drinking water from an improved source where collection time exceeds over 30 minutes for a roundtrip to collect water, including queuing. 73 Unimproved Drinking water from an unprotected dug well or unprotected spring. 96 No service Drinking water collected directly from a river, dam, pond, stream, canal or 12 irrigation channel. Source: WHO/UNICEF JMP database, accessed in 2017, https://washdata.org. Note: SDG = Sustainable Development Goal. (down from 66.8 percent to 56.3 percent) and urban South Asia (down from 71 percent to 66.3 percent). The declining trends of piped access are more pronounced in certain countries. For example, in Indonesia, the share has fallen from 37 percent to 25 percent; in Nigeria, it has fallen from 17 percent to less than 12 percent. (WHO/UNICEF 2017) Water utilities and governments have not only been unable to sustain or improve levels of piped access but they have also not considered how to improve off-grid solutions. Figure 1.2 shows the declining trends in access to piped connections, highlighting several regions—including Sub-Saharan Africa and Central and Southern Asia—where there has been a steep decline in piped access, often from an already low base. One reason is that city boundaries are expanding to include the fast-growing peripheral (peri-urban) areas and adjoining towns while the boundary of the incumbent water utility Citywide Inclusive Water Supply 3 FIGURE 1.1. Share of Off-Grid Urban Customers with Unimproved Water in 75 Low-Income Countries in Africa, Asia, and Latin America, by Quintile 60 Richest, 6% Rich, 10% 50 Poorest, 43% Middle, 16% 40 Population (%) 30 Poor, 25% 20 10 0 Poorest Poor Middle Rich Richest Wealth quintile Central Asia and South Asia Western Asia and Northern Africa Sub-Saharan Africa Latin America and the Caribbean East Asia and Southern East Asia Source: WHO/UNICEF JMP database, accessed in 2017, https://washdata.org. Note: Data in the circle graph show the totals of urban customers for all regions with unimproved water. remains fixed. Such instances are evident in greater metropolitan areas such as Bangalore and Chennai, India, Buenos Aires, Argentina, Jakarta, Indonesia, Lagos, Nigeria, Lima, Peru, and Nairobi, Kenya. These peripheral areas are often unable to access piped supplies of the core urban area and must rely instead on off-grid solutions, yet city governments have not developed solutions that address this service gap (appendix A). Meanwhile, piped access is projected to fall sharply in some LICs by 2030 (figure 1.3, panels a and b).1 Governments Prefer Subsidizing Customers of Piped Services Paradoxically, while piped access is declining and the urban population without adequate water services is increasing, governments and utilities continue to focus their limited capital only on expanding pipe net- works. From 2000 to 2015, LICs spent around US$2.5 billion per year on investments in urban water supply (Goksu et al. 2017). This is a substantial amount, although insufficient for the investment needs of the sector. At the same time, only piped customers receive subsidies. It typically costs around US$265 per capita to pro- vide a piped supply to a household, including abstraction, treatment, transmission, storage, and distribution (source to tap). Governments typically provide financing to utilities as a grant, which results in an equivalent annualized subsidy of US$25.60 per person for the capital investment. Added to this are the operational 4 Citywide Inclusive Water Supply FIGURE 1.2. Share of Piped Access and Dependence on Off-Grid Services in Urban Areas, 2000–15 748 778 815 100 100 100 563 734 884 80 80 320 385 446 80 Coverage (%) Coverage (%) 763 802 836 60 60 968 Coverage (%) 661 60 811 40 40 444 553 628 215 40 20 20 125 168 15 24 21 0 100 179 223 268 0 20 66 77 84 80 0 2000 2008 2015 2000 2008 2015 Coverage (%) 60 2000 2008 2015 295 201 247 40 North 20 22 24 27 100 America Eastern Asia Central and and Europe 0 80 Southern Asia Coverage (%) 60 104 131 157 2000 2008 2015 145 97 121 Northern Africa and 40 302 201 252 Western Asia 20 0 2000 2008 2015 Southeastern Asia Sub-Saharan Latin America and Africa 485 the Caribbean Oceania (excl. 100 367 430 Australia and New 80 Zealand) Australia and Coverage (%) 397 456 507 60 New Zealand 40 20 29 26 22 0 100 100 18 21 24 2000 2008 2015 80 100 132 1.6 1.8 2.0 168 80 23 25 Coverage (%) 206 20 80 60 Coverage (%) Coverage (%) 106 160 60 60 40 66 365 40 40 198 274 1.9 2.2 2.5 20 20 2 2 2 20 0.4 0.4 0.4 IBRD 44481 | JUNE 2019 0 0 0 2000 2008 2015 2000 2008 2015 2000 2008 2015 Trendline showing percentage urbanization. The number on the trendline refers to population in millions. Trendline showing percentage of urban population catered by piped network. The number on the trendline refers to population catered by piped network in millions. Trendline showing percentage urban population catered by o -grid systems. The number on the trendline refers to population catered by o -grid systems in millions. Source: WHO/UNICEF JMP database, accessed in 2017, https://washdata.org. subsidies provided to city and government utilities in many LICs, which amount to a further US$16.60 per capita per year. Thus, while an individual with access to a piped connection gets an average annual subsidy of US$42, the unconnected—generally poor households—receive no or almost no subsidy. This situation will only get worse. Going forward, these countries will end up spending an increasing level of subsidies over the next several years. They must not only continue to subsidize existing piped users but also subsidize new piped users who will be accessing the system. Necessity of Changing Single-Minded Focus on Piped Water Despite the declining access to piped supplies, urban utilities and their government owners have generally ignored the increasing numbers of off-grid households. The sector is dominated by a bias toward piped service delivery, although it has failed to keep up with urban growth—and will continue to fail—because Citywide Inclusive Water Supply 5 FIGURE 1.3. Estimates of Piped Access and Off-Grid Networks in Selected Low-Income Countries by 2030 a. Piped b. O -grid 100 100 169 75 23 172 80 34 80 103 26 29 23 22 21 5 Coverage (%) Coverage (%) 60 389 60 7 27 295 18 40 26 35 135 40 10 40 399 17 7 11 10 5 12 35 5 20 20 8 32 3 12 7 0 0 2015 2030 2015 2030 India Nigeria Algeria Indonesia Iraq Tanzania x Population (millions) Philippines Ukraine Kenya Source: WHO/UNICEF JMP database, accessed in 2017, https://washdata.org. of endemic governance, efficiency, and financing challenges within the sector. These problems, coupled with policy, land tenure, and related issues in the broader urban environment, all conspire to leave poor populations without access to piped water supplies. A laissez-faire attitude prevails in the sector, leav- ing off-grid customer to fend for themselves (with some exceptions, such as a public utility’s efforts in Nairobi and a private utility’s in Manila, the Philippines). Within this laissez-faire approach, different institutional arrangements for off-grid water service provision have evolved (see following section). Nevertheless, new roles, institutional arrangements, technologies, and financing mechanisms are needed. Institutional Arrangements and Services for Provision of Off-Grid Water Arrangements for the provision of off-grid water services cover a wide spectrum, such as one neighbor selling to another; local and internationally supported NGOs and small private providers; or substantial private providers that distribute water to the end user and have committed source arrangements. While the share of each urban water service provider (public utilities, NGOs, private players—small and large) is difficult to estimate globally, and the business models are too varied to summarize, about 550 million to 560 million people are getting serviced by small private service providers (SPSPs) and another 10 mil- lion by NGOs.2 Sub-Saharan Africa, South Asia, and Southeast Asia account for the bulk of these customers. While each region has its own variation of these arrangements, public and private utilities and local ­ governments play almost no role in providing or supporting services to off-grid urban residents, whether these are poor consumers in core urban slum-like settlements or nonpoor peri-urban residents. The number of incidences of the public sector playing any significant role in off-grid water services is limited. 6 Citywide Inclusive Water Supply The level of service provided to the off-grid users varies widely, from very good service (particularly by NGOs) to very poor service (particularly when there are unregulated private vendors, water short- ages, and inefficient public services). Variation in service could be in quality (for example, from com- pletely untreated water by unregulated private truckers to highly treated drinking water standards by global NGOs); quantity (from limited rationed amounts to unlimited amounts); and affordability (highly priced drinking water to much more reasonably priced neighborhood supplies). In many cit- ies, poor residents buy limited quantities of water from private players for drinking and cooking and depend on untreated water from nearby streams and rivers for other purposes. Figure 1.4 presents a simple picture of the institutions involved in the full value chain, distribution mechanisms, and treat- ment technologies in the off-grid market. In practice, operators often use multiple mechanisms and FIGURE 1.4. Institutions, Treatment Technologies, and Distribution Mechanisms of Off-Grid Water Market Treatment and Extraction Treatment distribution Public (utility, Public (utility, Utility-owned govt. authority) govt. authority) truckers/tanker carriers Privately owned truckers/tanker Large private Large private carriers (utility) (utility) Street vendors/ Water caterers/cycle Consumer source NGOs/CBOs/ water carriers Private/ small private local extraction players Carts/cycles Kiosks Untreated Cans/bottles • No treatment (typically ground water is extracted and distributed) • Sand filtration (mostly by utilities if supplying bulk water) • Chlorination (mostly by utilities if supplying bulk water) • Reverse osmosis (by some NGOs at kiosks) • Ultraviolet treatment (by some NGO at kiosks) Note: CBO = community-based organization; NGO = nongovernmental organization. Citywide Inclusive Water Supply 7 multiple technologies. These are described in the background document of this paper (Misra and Kingdom 2019). There is no direct relation between the role played by government and quality of service received by off- grid customers. The experience ranges from a high government role, small off-grid market, and high quality of service (Durban, South Africa) to the other extreme of a low government role, high off-grid market, and poor quality of service (Port-au-Prince, Haiti). These are described in the background document of this paper (Misra and Kingdom 2019). ­ Public Utilities Notwithstanding well-established water policies, institutions, and trained staff, governments and pub- lic utilities have typically not played a major role in serving those who are off-grid. They have always considered serving people with piped water as their goal. Since they are struggling to do even that, it is not surprising that they have ignored off-grid service. Even while having policies to expand cover- age and improve the service, most governments, cities, and water utilities do not specifically formu- late detailed operation-level plans to service the underserved or the unserved and rarely measure or monitor services to those not connected to the pipe network. In a very limited number of cities (Delhi, India, Kampala, Uganda, and Nairobi), public utilities have attempted to supply water off-grid by arranging for water tankers in the slums. The experience in Kampala demonstrates that when the water utility has a framework and makes a commitment, it can lead to a very positive impact (box 1.2). In a few limited cases, a public utility has focused not only on high coverage but also on better ser- vices. For example, the eThekwini Water & Sanitation Department (EWS) in Durban provides water in an inclusive manner. Private Utilities Public-private partnerships have not focused on improving services to off-grid users. Most of these part- nerships have primarily sought access to financing, the creation or extension of piped assets, BOX 1.2. Success of Pro-Poor Policy-Driven Water Service Improvement in Kampala In 2006, the Government of Uganda updated its 2014 policy to target 100 percent coverage for water supply in Kampala City by 2015. The National Water Service Company (NWSC) set up a Pro-Poor Unit and implemented the Affordable Connection Policy by lowering the cost of connection fee to 50 percent for anyone living close to mains (50 meters), implemented a “pro-poor tariff policy” with a differentiated tariff structure, and rolled out a “pro-poor targeting project” to subsidize water supply connections in poor settlements. Kariuki et al. (2014)—a World Bank study paper—note that “on the whole, the pro-poor policy and program have led to a rapid expansion of services to poor households. Specifically, 2,405 new yard taps and 663 [public work projects] serving an estimated 81,000 people were realized.” Source: Kariuki et al. 2014. 8 Citywide Inclusive Water Supply improving efficiencies and financial performance, and reducing NRW. No specific terms are included in the long-term contracts to obligate or incentivize the private player to achieve improved water ser- vice for off-grid users. Neither the transaction advisers who design the contracts nor the public utility staff who negotiate the contracts clearly identify or define the relevant off-grid service parameters. As a result, they do not give adequate flexibility in the contracts for private operators to innovate the service delivery models to reach those off-grid households. There have been some exceptions, such as in Manila, where private operators have expanded services to poor populations and the periphery areas in innovative ways (box 1.3). These examples clearly show that utilities and governments have always considered their duty as expand- ing the piped network, rather than service provision to all. Communities in unpiped areas are therefore left to fend for themselves until piped services can be provided, rather than being serviced by better orga- nized, financed, and regulated off-grid providers, which would deliver a much better and affordable service than would otherwise be provided. Off-Grid, Informal Small Service Providers In the absence of adequate service provision by traditional utilities, local private service providers have sprung up to start a business of providing water to off-grid customers. These are found in such coun- tries as Argentina, Bolivia, India, Cambodia, Ghana, Kenya, and Mozambique. Small-scale private service providers (SPSPs) play a big role in the off-grid market, which itself is a significant part of the overall urban market. Private providers serve an extremely useful purpose of filling the service gap in many LIC cities, serving the urban poor or unserved in peri-urban areas. Most off-grid supplies of water in the urban areas in LICs of Africa, South Asia, Southeast Asia, and Latin America, which account for about 482 million of the 568 million unpiped improved water users globally, are serviced by off-grid SPSPs. While the overall market share of SPSPs is not known due to the absence of detailed research, Kariuki and Schwartz (2005) estimate that “up to a quarter of the urban population in Latin America and nearly half BOX 1.3. Private Utility Partners with the Community in Manila Manila city water services were concessioned to two private companies in 1997 in what is now considered a successful privatization. The Manila Water Company, which operates the east zone (1,400 square kilometers; 6.1 million people) has an inclusive business model, Tubig Para Sa Barangay (TPSB) for Water for Poor Communities. The TPSB forms partnerships with local government units and CBOs through formal Memorandums of Agreements (MoAs), taking on responsibility to build and provide infrastructure, but letting the communities determine levels of participation, contributions, meter management, and self-monitoring. High community ownership helps reduce pilferages, improves upkeep, lowers costs, and ensures a responsive service delivery and quality of water. Source: World Bank. Citywide Inclusive Water Supply 9 of urban dwellers in Africa rely on SPSPs for at least a portion of their water supply.” In some countries, such as Cambodia, SPSPs’ market share is significant (as high as 50 percent). Similarly, in some cities, SPSPs’ market share is quite high (such as Asuncion, Paraguay, Karachi, Pakistan, Ky Cham, Cambodia, and Dar es Salaam, Tanzania). Scale is an issue for the sustainability. SPSPs tend to serve a small number of households, from as few as 50 to as many as 3,000. Often, they are the main service providers, given that the users are not con- nected to piped networks of the utilities and do not have off-grid service from local utilities. However, sometimes SPSPs are the aggregators or intermediaries between the utilities and the users, particularly when they source water from the utilities. They operate broadly as on-grid or off-grid providers under various licensing arrangements, including without licenses and illegally. According to Kariuki and Schwartz (2005), “in Latin America and the Caribbean, where urban coverage is high, SPSPs more fre- quently take the form of piped water systems, mainly peri-urban, small town, and rural; in South Asia, SPSPs seem to focus on gap-filling activities, with many tankers operating in various cities.” These SPSPs operate as for-profit enterprises, looking at water supply as one more business in their port- folio. Though there is inadequate research into understanding the people behind these operations, available research suggests they are usually local operators; the businesses are small in scale; they oper- ate asset-light businesses with minimal investments; and they are risk takers, taking on regulatory, pay- ment, water source, and business disruption risks. In many Latin American cities, private players dominate off-grid markets. While most are stand-alone businesses, some private providers source water from utilities and distribute it to the unserved. Nongovernmental Organizations Local NGOs, in a small way, have become active in providing water to the urban poor, particularly focus- ing on drinking water after treating the water sourced from nearby ground or surface sources (see ­ background document, Misra and Kingdom 2019). Box 1.4 describes a partnership between public utili- ties and community-based organizations (CBOs) in Tanzania. BOX 1.4. Public Utility and CBO Partnerships in Tanzania In Tanzania, CBOs have partnered with public utilities to make drinking water more accessible in underserved areas of Dar es Salaam, known for chronic water shortages, unreliable water supply, and poor infrastructure. The Dar es Salaam Water and Sewerage Corporation has not been able to supply water to the entire city. Therefore, small-scale CBOs bridge the gap between customers and the utility. Major successes include (a) the construction and maintenance of secondary pipes, which enable organizations to connect households and private water vendors for a fee; (b) improvements in service delivery compared to the utility’s previous direct supply; and (c) opportunities for the utility to delegate operational responsibilities. Source: Extracted from Adams, Sambu, and Smiley 2018. 10 Citywide Inclusive Water Supply Large NGOs work at national and sometimes multinational levels with local CBOs and NGOs in sourc- ing, producing, distributing, and selling water of an acceptable quality. They are usually referred to safe water enterprises (SWEs) because they invariably sell treated water, unlike many small private operators, who distribute available water whether treated or not. Generally, these take the shape of procuring (often for a price) treated water in bulk from the public utility and distributing the water, sometimes with further treatment, to poor households in an affordable manner and with convenient services. Many of these receive funding from philanthropy and impact funds to set up and scale up their operations. The global consultancy Dalberg’s (2017) study of 10 SWEs emphasizes their strongly driven social commitment to take safe water to the underserved and unserved poor.3 The report estimates that, collectively, they cater to about 3 million people, with an average SWE serving 200,000 people, ranging from 25,000 to 800,000 people. Some, such as Water For People, Malawi (box 1.2), and Sarvajal, India (box 2.1), serve both rural and urban users, while others, such as Water Point, India, serve predominantly rural users. Most SWEs cater to poor communities, but not necessarily the poorest ones, because they believe in recovering their operating costs to the extent possible to remain financially sustainable. They cater to those poor and low-income users who can afford to pay the small tariffs. Even with this approach, many need support to recover their operating costs. Some international water NGOs work with local NGOs or private service providers to bridge the gap, though the scale of such operations is invariably limited. Water and Sanitation for the Urban Poor (WSUP), WaterAid, and Safewater Network are just a few examples of such international orga- nizations that collaborate actively with local NGOs. All keep their costs low and many have received grants or support from philanthropic organizations or investors. Invariably, they educate their users on safe water-health linkages and engage with the user communities extensively. All have desig- nated points of sales for distributing water and some have adopted home deliveries. The background document (Misra and Kingdom 2019) provides the profiles of a few select NGOs active in water ser- vices in LICs. Quality, Quantity, and Affordability Issues Facing Off-Grid Water Notwithstanding the range of delivery models, off-grid services suffer from serious quality, quantity, and affordability issues. Studies have shown that 30 percent to 75 percent of off-grid supplies are not free from fecal contamination. Most off-grid suppliers in Latin American, African, and Asian cities charge rates much higher than the utility tariffs, thus making the water less affordable to poorer people—at least if they were to purchase some basic quantity considered sufficient for a household. These high rates are not usually a result of price gouging, but simply that the service delivery method is inefficient, lacks scale, and does not benefit from subsidies given to piped customers. Problems Specific to Types of Urban Off-Grid Customers Categorizing customers of off-grid water in urban and peri-urban areas will help in understanding issues in servicing them. For convenience, the customer side can be split into two groups:4 Citywide Inclusive Water Supply 11 •• Bottom-of-the-ladder customers do not have any improved water at all (that is, those directly access- ing surface water or unimproved water), as per the JMP ladder (108 million people). •• Middle-of-the-ladder customers receive limited or basic services, as per the JMP ladder (568 million people). The typical urban customer at the bottom of the ladder lives on the periphery of towns and lacks off- grid suppliers. These customers cannot afford to buy even untreated water from distant suppliers. Most are concentrated in a few countries, with 16 countries accounting for 80 percent of such cus- tomers.5 For such customers—mainly poor households—lack of formal land title, absence of nearby piped networks, and low affordability are issues that must be addressed if they are to be moved up the ladder. The middle-of-the-ladder customers who receive some off-grid services face a different set of challenges. Most reside in urban and peri-urban areas in low-income, rapidly urbanizing countries of Africa, Asia, and Latin America. A significant share of these customers (around 40 percent), or 225 million, are in the poor quintile.6 Another 10 percent to 15 percent (about 50 million to 60 million) are estimated to be non- poor who are residing mostly in peri-urban areas with no piped networks close by. Challenges of Scaling Up Piped Services to Urban Off-Grid Customers Understanding why it has not been possible to deliver piped services to off-grid customers is a useful reminder of the challenges to be faced when attempting to provide safe, accessible, and affordable SDG 6.1 compliant off-grid services. There are many reasons and not all will apply, given the vastly dissimilar situations around the world. Some of the more critical and prevalent underlying causes include inap- propriate policies, poor utility governance with low accountability, weak capacity, poor regulations, and lack of political will to reform. Utilities face poor financial viability because of inefficiency (including high nonrevenue water (NRW), low energy efficiency, poor collections) and low tariffs. This situation adds to the problem of service exclusion for the unserved (those without network access) and the under- served (those with access but poor services or quality). Ultimately, there is not enough funding to provide universal coverage with piped supplies. Those at the bottom of the ladder—whether in the core urban slum settlements or peri-urban areas—have unique and complex characteristics that make it difficult to extend piped water services to them as their numbers grow. For example, peri-urban areas could be extensions of existing cities as people settle in the peripheries, which have less expensive real estate compared to unaffordable core areas (for exam- ple, outside of Jakarta, Manila, Mumbai, India, and Nairobi). Very often, smaller towns near a bigger city get absorbed into the larger urban agglomeration, thus becoming peri-urban areas of a large city (such as in Bangalore, Buenos Aires, Jakarta, Lagos, and Lima). In all these situations, the institutional, policy, and financial challenges of urban service delivery are extremely complex. Other challenges for off-grid include the short-term horizon of providers due to uncertain operating environment, lack of economies of scale, and the need to recover all costs through the tariff. 12 Citywide Inclusive Water Supply TABLE 1.1. Challenges of Providing Safe Piped Water to Urban Off-Grid Populations Challenges Aspect of the safely managed standard that is affected Land tenure/outside Results in denying access and service, because most governments or utilities insist on excluding poor people if they cannot jurisdiction limits show land ownership. If people live adjacent to the city but outside the boundaries, city utilities will exclude them from service delivery. Budgetary constraints and Peri-urban areas do not get priority in extending piped networks due to budget limitations. Even the piped connected inefficiencies of the utility households get limited hours of supply, resulting in lower quantity due to inefficiencies of utilities. Capital costs to connect Distant areas on the periphery of cities, or those with low population densities, do not get included when planning service extensions, due to high unit cost. Affordability to buy water Affordability issues to access services and buy water from higher-priced off grid service providers means that they end up buying much smaller quantities, typically for drinking and cooking purposes only. Lack of political influence In many cities, poor populations are politically weak and thus lack “sponsors” to put pressure on utilities to include them in services. Urban poor households in overcrowded core slums or similar settlements have unique issues. For exam- ple, these settlements have complex local situations not easily amenable to standard solutions: Favela do Moinho in São Paulo, Brazil, Khayelitsha in Cape Town, South Africa, Kibera in Nairobi, and Orangi in Karachi. Thus, business models of providing piped water to all cannot be the solution. The major challenges to moving the unserved and underserved up the ladder to the safely managed category can be broadly classified, as shown in table 1.1. Unfortunately, city planners typically underestimate water needs when they prepare long-term master plans. Peri-urban growth areas are ignored, or their scale is underestimated, leaving water planning to the utility. However, the utility may have not been part of the original planning process and thus is at a disadvantage in meeting those needs. In a few cases when the peri-urban areas have relatively better-off people, private developers provide water systems for small townships or colonies, such as in Gurugram, adjoining Delhi. Providing Safely Managed Water to People in Periphery of Urban Areas In addition to the approximately 1.9 billion urban dwellers who must be moved up the JMP ladder and be provided with safely managed water (see box 1.1), a significant population resides on the periphery of urban areas, have urban characteristics and aspirations, and need to be provided with safely managed water. The services the rural-urban interface population currently receives are similar to those received by the urban population at the bottom of the ladder. Based on a rapid assessment of six to seven cities, the rural-urban interface population can safely be assumed to be about 20 percent of the current rural population. On this basis, an additional 677 million rural people in the rural-urban interface population need to be moved up the JMP ladder and provided safely managed water by 2030 to meet SDG 6.1. Even if the current rural-urban interface population were absorbed in future urban areas and were rural-­ accounted for in the urban population, lack of safely managed water to such ­ urban interface areas will always be a dynamic issue. This is because people residing just outside the urban jurisdictions will have similar levels of urban characteristics and aspirations and are a crucial population while consid- ering the magnitude of the increasing unserved and underserved population. Citywide Inclusive Water Supply 13 Notes 1. WHO/UNICEF JMP database, accessed in 2017, https://washdata.org. 2. Estimates reported on websites of large global NGOs. See, for example, Water For People, https://www.waterforpeople.org/; Safe Water Network, .1001fontaines.com/en; Jibu https://www.safewaternetwork.org/; Piramal Sarvajal, http://www.sarvajal.com/; 1001fontaines, https://www​ .sopar-balavikasa.org/; and Naandi Community Rwanda, https://jibuco.com/rw/; dloHaiti, https://dlohaiti.com/; SOPAR-BalaVikasa, http://www​ services-ltd/. Water Services, http://www.naandi.org/naandi-community-water-​ 3. See Dalberg’s website, https://www.untapped-inc.com/safe-water-enterprises.html. 4. See the JMP website, https://washdata.org/monitoring/drinking-water. 5. WHO/UNICEF JMP database, accessed in 2017, https://washdata.org. 6. WHO/UNICEF JMP database, accessed in 2017, https://washdata.org. 14 Citywide Inclusive Water Supply Chapter 2 Urban Off-Grid Solutions for Moving Up the Ladder to Safely Managed Services If the off-grid sector can be reimagined to be SDG 6.1 compliant, then the following options could play an ­ ervices. Although city plan- important role in moving at-risk populations up the ladder to safely managed s ners and city managers have generally ignored off-grid options, this report has analyzed three key stra- tegic scenarios to achieve the SDG goals: •• Piped aggressive scenario. Assumes all customers in urban areas are given piped access to safely man- aged water by rapidly increasing piped coverage rate with a high level of investment. •• Limited piped scenario. Assumes that some percentage of the unserved population in urban areas are given piped access to safely managed water while the remainder are covered by safely managed off- grid solutions. (30 percent piped and 70 percent improved off-grid). •• Off-grid aggressive scenario. All existing unpiped customers in urban areas and incremental urban population are given safely managed water through improved (reimagined) off-grid services. Each scenario has advantages and challenges, and the strategy will likely be modified to meet national and local needs. Figure 2.1 presents strategic scenarios for a decreasing set of people who are steadily given either piped connections (panel a), improved off-grid services (panel c), or both (panel b). In all three scenarios, the existing piped network is assumed to perform well without any additional invest- ment requirements; hence, no rehabilitation of the existing network is assumed. FIGURE 2.1. Strategic Scenarios for Meeting SDG 6.1 a. Piped aggressive scenario b. Limited piped scenario c. Off-grid aggressive scenario 2,000 2,000 2,000 1,800 1,800 1,800 Urban population (millions) Urban population (millions) Urban population (millions) 1,600 1,600 1,600 1,400 1,400 1,400 1,200 1,200 1,200 1,000 1,000 1,000 800 800 800 600 600 600 400 400 400 200 200 200 0 0 0 2015 2020 2025 2030 2015 2020 2025 2030 2015 2020 2025 2030 Piped Improved o -grid Unimproved o -grid Source: World Bank. Note: The piped aggressive scenario (panel a) assumes 100 percent piped by 2030; the limited piped scenario (panel b) assumes 30 percent piped and 70 percent off-grid by 2030; the off-grid aggressive scenario (panel c) assumes 100 percent off-grid by 2030. Citywide Inclusive Water Supply 15 Most utilities may default to the piped aggressive scenario because they have always believed their goal is to keep expanding the piped network. It is their view that when people get piped access, customers’ service levels go up. Unfortunately, the experience on the ground does not support this position. ­ As emphasized, simply trying to extend the piped connections does not necessarily lead to improved services. This option also ignores opportunities to leverage existing private and NGO off-grid initiatives and markets that could help bridge the SDG gap. Based on experience this option (a) is very expensive and therefore rarely gets executed due to shortage of funds; (b) is generally inefficiently and incom- pletely implemented due to poor capacity to plan, design, and execute; (c) has huge built-in delays due to lack of availability of required land, slow approval processes, and poor quality contractors, among others; and (d) often results in poor services to the customer, with intermittent supplies and low quality of water that do not meet SDG 6.1. The limited piped scenario blends ongoing utility plans to provide piped access to a portion of uncon- nected customers and leverages existing informal private and NGO off-grid providers to service the remainder. By improving (reimagining) the services provided by these actors, the off-grid users, par- ticularly poor households and peri-urban populations, could move up the ladder to receive safely managed water. The off-grid aggressive scenario might be achieved, for example, by having utilities retain control of the extraction, treatment, transmission, and storage processes, as well as existing piped networks. Utilities would need to let off-grid providers manage distribution of water to the unconnected. The limited pipe approach that adds off-grid solutions to complement on-grid solutions is the most practical and achievable strategy and would entail less investment to provide safely managed water to all customers by 2030. Further, allowing the private sector to have a complementary role with the public sector would add to the capacity to scale up the services. The optimal mix of on-grid and off-grid supplies should be assessed based on budgetary limits of the government and cities, as well as the affordability to the customers. See box 2.1 for examples. Improving Policy and Regulations, Institutional Arrangements, and Affordability To facilitate a larger role for off-grid service provision, governments will need to consider (a)  policy and regulatory implications; (b) institutional arrangements for service provision and oversight; and (c) issues of affordability. Details are described below. Policy and Regulatory Implications Establishing off-grid distributors as a regulated and dependable market segment would entail enhancing the performance of off-grid sectors. For this to happen governments must recognize the role of private providers and build their capacity to perform better in the distribution space. However, private players currently prefer asset-light strategies—partly as a result of regulatory uncertainty and lack of finance— and while they have been active in the off-grid distribution space, they will need encouragement by governments if they are to complement public utilities. 16 Citywide Inclusive Water Supply BOX 2.1. International NGO Activity in Providing Safe Water Supplies In African and South Asian LICs, several global NGOs are very active in promoting and providing safe water supplies to urban poor households and rural users. They work collaboratively with local community-based organizations (CBOs) and NGOs—and occasionally with local public utilities—in setting up and running safe water distribution businesses. Collectively, they serve several million poor people in urban and rural areas. Safe Water Network (SWN), cofounded by actor Paul Newman in 2006, is very active in Ghana and India. With 111 stations in Ghana, including peri-urban areas of Greater Accra, and 209 stations in India, more than a million people have received access to safe water supplies, mostly in rural areas. SWN estimates that safe water enterprises in Ghana can (a) provide reliable, affordable safe water access on a sustainable basis to underserved off-grid communities; and (b) provide access to 3.2 million of the 8.3 million people (2,304 of 9,216 communities) who lack access to basic water services, without subsidies, at US$35 per person; and (c) provide access to additional 1.6 million people with subsidies. Waterlife, a global NGO established about 10 years ago, operates in 12 Indian states with about 4,000 outlets in villages and urban centers. Waterlife neighborhood retail outlets provide 20-, 10, and 1-liter high-quality drinking water jars and bottles at affordable prices.  In Nigeria, Technoserve and Unilever have set up Sunlight Water Centres (SWCs) in eight peri- urban areas of Nigeria. The SWCs combine a borehole and a retail kiosk selling clean water. Water For People, an NGO, operates across nine countries in Latin America, Asia (India), and Africa (Malawi, Rwanda, and Uganda). Water For People works in more than 30 districts with 4 million urban and rural people in the water supply and sanitation sector. Its Malawi operations focus on three regions: two rural and the third in peri-urban areas of Blantyre City (a city of 730,00 population with 70 percent living in informal, low-cost housing). In Blantyre, Water For People works with all stakeholders: the Blantyre Water Board and the city assembly, civil society, and the private sector. Its theme of “Everyone Forever” underlies its efforts to support, at present, 10 water user associations (WUAs) to manage water kiosks and other managerial, financial, technical, and human resource aspects. Sources: Reports and websites of the NGOs mentioned above. However, without adequate policy and regulatory certainty, private providers are unlikely to scale up and may remain fringe players. Hence, any scenario that emphasizes off-grid delivery arrangements would need to include policy and regulatory reforms. Water polices need to be updated to focus on ser- vice provision rather than piped service delivery. The exact roles of all actors need to be clearly defined, considering strengths of the private sector and what it is willing to shoulder (for example, risk-taking ability, capacity, and access to finance). The aim would be to facilitate the growth of an SDG 6.1 compli- ant off-grid service market. Citywide Inclusive Water Supply 17 Institutional Arrangements Capacities of regulatory and monitoring institutions should be improved to focus on services from off-grid private service providers, and public utilities should play a complementary role. The role of the public util- ity with respect to off-grid providers can be explored, but governments and utilities will have to accept that their roles change significantly. When designing institutional arrangements, policy makers should consider experience from the ground. There are good examples of public utility oversight of off-grid providers (Kampala, Nairobi), formal arrangements between utility and off-grid providers (Manila, Delhi), and the more chaotic and unappealing laissez-faire approach by the utility in off-grid services (Port-au-Prince). Affordability Addressing issues of affordability requires a fundamental review of the financing of the sector and the allo- cation of subsidies between piped and off-grid services. Tariffs for piped customers range from 0.5 percent to 3 percent of household incomes, while tariffs for the poorest off-grid customer are much higher: from 5 percent to 25 percent. This disparity typically occurs because piped customers receive a highly subsi- dized service—whether through capital subsidies when the systems are built, or through operational subsidies when systems are operational—but are unable to recover costs through user tariffs. Off-grid providers must recover all capital and operating costs from the tariff charged to customers. The result is that the unit cost (cost per cubic meter) of unsubsidized off-grid water is several times that of the subsi- dized unit cost (cost per cubic meter) of piped supplies. Thus, for the same “affordable” monthly bill, the result is low levels of consumption in the off-grid household and a higher level of consumption for the piped household. In other words, if a basic level of consumption is assumed for all households, the cost to the off-grid consumer would be prohibitively expensive, while that of the piped household would be significantly less and affordable in almost all cases, assuming technology remains the same. These disparities need to be addressed. Improving Quality, Quantity, and Availability of Water Supply In a reimagined off-grid model, governments must ensure adequate water quality standards, regulations, and monitoring. This is especially true when multiple parties are involved in the full-service delivery chain. Water Quality This is a big issue in the off-grid market in many LIC cities, because the water supply is typically untreated or partially treated. While there is no guarantee that water is of acceptable quality when it comes in the pipes, particularly intermittently, public utilities can at least be held accountable for poor quality— unlike that of off-grid providers. Most of the private service providers with their own sources depend on groundwater as their major source. Perhaps less than 10 percent of small private providers use surface water if the city happens to be near a clean river or lake. Thus, a significant proportion of water supplied by small informal private players is untreated and unsafe, except where they can draw on water from utilities. 18 Citywide Inclusive Water Supply When water is sold through kiosks, water is treated or partially treated (see box 2.2). Typically, kiosks run by local or international NGOs treat the water using RO or other water purification techniques, depending on water conditions. Kiosks run by private informal providers either do not treat the ground- water at all or source the water from local city utilities that supply treated water. Most cities with a thriving off-grid market lack adequate monitoring or regulation of water quality. Therefore, off-grid providers may treat the water only if it is required to make it “look clean.” Off-grid water supplied by local or global NGOs is almost always treated, given that health benefits is one of their main aims and selling points. However, when water for off-grid provision is taken from public or private utilities, then these utilities need to be responsible for their product’s reliability and quality. Thus, detailed technical codes and manuals must be established to optimize the capacities, improve account- ability, and strengthen monitoring at the interface of the utility and the off-grid provider. Water Quantity Quantity of affordable water provided to customers will be crucial if there is to be an improved off-grid ser- vice arrangement that meets SDG 6.1. Off-grid water is generally priced higher than that of public utility water or a nearby, unimproved river, lake, or well. The higher charges for off-grid provision typically result in relatively modest per capita amounts of water delivered to customers. While there is almost no reliable information on water provision quantities from off-grid providers, most practitioners would likely agree that the amount supplied is not sufficient for daily water use at the household level. Most off-grid water is used by consumers first for drinking and cooking (5–10 liters per capita per day) before putting it to any other limited use. In many countries, poor households buy just one or two 20-liter cans or buckets per day (15–20 liters, typically). Ensuring that sufficient water is available at the household level through off-grid provision will likely entail two complementary initiatives: BOX 2.2. Water Kiosks Water kiosks, or water ATMs, as they are known in countries such as India and Kenya, are a popular mode of providing drinking water service to the urban poor households. Some are managed by NGOs, while others are operated by local private operators such as franchisees or sole practitioners. They typically sell 20-liter plastic water cans on pay-as-you-collect basis. Some are primarily based in rural areas and have recently started operating in peri-urban areas. Typically, they source water from utility tankers or groundwater and treat the water with different techniques, including in some cases reverse osmosis (RO). In India, Sarvajal’s water ATMs (anytime water machines) are automated water dispensing units, which provide communities with nonstop, safe water access. They are solar powered and cloud connected, thus enabling remote tracking of the water quality and of each pay per use transaction. They source the water when feasible from Delhi Jal Board, the public water utility. Sarvajal serves almost half a million rural and urban people.a a. Sarvajal, http://www.samhita.org/water-for-all/. Citywide Inclusive Water Supply 19 Investment in newer or innovative technology by off-grid service providers. Providers could move away from hand-pushed barrows of dirty plastic containers, which physically constrain the amount of water that can be delivered to households, and instead invest in more robust solutions that allow delivery of adequate amounts of water from clean containers, and which are then stored in clean containers at the household level. Financing for off-grid solutions that will encourage such investment. This may mean improved access to microfinance or through other mechanisms such as subsidies to off-grid providers, either directly or through customers. If off-grid providers received the level of subsidy given to piped providers, then a different off-grid subsector would appear, assuming that the policy and regulatory environment were supportive. Water Availability The next element of SDG compliance, water availability, would require sufficient storage at or close to the household. This will be important given that delivery of off-grid water is periodic rather than continuous (as is the case for safely managed piped supplies). Ensuring availability of adequate supplies at the household level (even if there were adequate storage) is linked to the issue of delivering sufficient quan- tity by the service providers. As such, it would require an enabling environment that facilitates house- holds to invest in adequately sized and maintainable storage facilities. Enhancing Off-Grid Service Provision Three broad institutional models for enhancing off-grid service provision might be considered: stand- alone, complementary off-grid, and integrated off-grid. Figure 2.2 presents the institutional options for FIGURE 2.2. Proposed Off-Grid Service Delivery Models Compared with Fully Piped Grid Model Public Public storage/distribution/customer service storage/distribution/customer service utility utility Extraction/transmission/treatment/ Extraction/transmission/treatment/ Oversight Service entity contract Extraction/ Extraction/ treatment/ treatment/ Public O -grid provider storage storage utility Bulk sales O -grid provider O -grid provider Distribution/ Distribution/ Distribution/ Distribution/ customer service customer service customer service customer service to connected to nonconnected to connected to nonconnected Fully piped grid model Stand-alone o -grid model Complementary o -grid model Integrated o -grid model 20 Citywide Inclusive Water Supply off-grid service provision, namely integrated, complementary, and stand-alone models and compares them with the existing situation of the fully piped model. In all these models, the overall service delivery and tariff regulation will be the responsibility of the government (or an independent regula- tor, if established). In the stand-alone off-grid model, providers would be licensed and regulated from source to tap to ensure good quality of water supply and of service. This would reflect current arrangements in many parts of many cities, but with enhanced oversight coupled with improved financial arrange- ments, which might allow subsidy payments to the off-grid provider to support the delivery of safely managed water in sufficient, affordable quantity. In the complementary off-grid model, off-grid providers would be responsible for distribution in those areas without piped connections, and the utility would be responsible for ensuring availability of suffi- cient quantity and quality of water in convenient locations for the off-grid providers. This would reflect some of the arrangements in cities today in which the utility provides supplies to tankers and to local distributors. The off-grid providers would be subject to enhanced oversight by an appropriate agencies (the government or independent regulator) and benefit from more balanced financing arrangements that direct some public subsidies toward them. In the integrated off-grid model, the utility would enter into service contracts with the off-grid provid- ers for the delivery of services to those without a piped connection. The off-grid activities would be a part of an integrated set of service provision arrangements for which the public utility is responsible. Again, some rebalancing of public subsidies toward the off-grid provider would be expected. This is rarely seen today—except perhaps in the case of Manila and Durban (referred to in the background document, Misra and Kingdom 2019) and to a limited extent in Nairobi. ­ The complementary and integrated off-grid options have several advantages over the stand-alone model: •• Efficiencies and innovations are leveraged to enhance the capacity to serve the unserved or under- served in the off-grid market. •• The high amount of flexibility in last-mile connectivity and customer servicing make it possible to reach difficult to reach poor users. •• Existing utilities can focus on upstream activities in which they have comparative advantage and demonstrated experience, releasing them from complex and difficult delivery to the final consumer. •• Public investment requirements decrease because investments are focused on upstream infrastruc- ture (source, treatment, and transmission) and less so on the more extensive and costly distribution networks. •• Public investment can go further in terms of opening opportunities for enhanced, SDG 6.1 compliant off-grid service delivery or make available funds for subsidies. •• Subsidies can be much more accurately targeted to ensure improved equity and affordability to end users. Citywide Inclusive Water Supply 21 Comparison of Capital Expenses for Three Water Service Delivery Models The three water service delivery models are (a) fully piped system; (b) combined piped and off-grid sys- tem; and (c) stand-alone, off-grid system. Capital expenses (capex) costs are highest for the fully piped systems (US$265 per capita, average) and significantly lower for the stand-alone systems (US$32 per capita, average). The combined systems are a mix of the two and have midrange capex costs (US$132 per capita, average). Sensitivity analysis shows that even the higher range of capex costs for stand-alone systems is still 60 percent of the cost for fully piped systems. See figure2.3 and appendix A, table A.1, of this report1. As dependence on piped systems is reduced, capex and operating expenditures (opex)—and hence subsidies—could be reduced. Depending on the extent of the off-grid focus, as shown in figure 2.4, ­ the total savings from reduced expenditure—capex and opex—over the period 2016−30 would range from US$140 billion to US$466 billion and would reduce the government’s subsidy requirement. FIGURE 2.3. Comparison of Water Service Delivery Models 800 714 700 600 Capex range (US$/cap) 500 400 300 265 200 145 132 100 119 107 67 32 14 0 Fully piped O -grid 1: O -grid 2: system complementary system stand-alone system Average value Min/max range +/– 15% range Sources: Hutton and Varughese 2016 more than 100 data points, fully piped system; complementary); SWN India sector studies in India and Ghana (more than two data points, off-grid 2; complementary); World Bank estimates (complementary). Note: capex = capital expenses. 22 Citywide Inclusive Water Supply FIGURE 2.4. Potential Savings of Off-Grid Scenarios 1. Piped 2. Limited o -grid 3. Equal piped/ 4. Limited piped 5. O -grid aggressive scenario o -grid scenario scenario aggressive scenario (70% piped and (50% piped and (30% piped and scenario (100% piped 30% o -grid 50% o -grid 70% o -grid (100% o -grid by 2030) by 2030) by 2030) by 2030) by 2030) capex (US$) Per capita 266 226 199 172 132 140 Savings from reduced capex 233 and opex (US$, billions) 326 466 Source: World Bank. Reconsidering the Use of Public Subsidies Rebalancing the currently distorted subsidy regime is needed so that capital and operational subsidies are more equitably allocated to attain the SDG goal of an affordable price for basic services regardless of service delivery method. In an ideal scenario, the subsidy regime should: •• Equitably allocate subsidies to attain a goal of an affordable price for basic service regardless of ser- vice delivery method. •• Target subsidies to poor households that cannot afford market rates and subsidize them to the extent that they get the essential quantum of water. Citywide Inclusive Water Supply 23 •• Incentivize service providers to improve their efficiencies and charge only the efficient costs optimize capital costs, reduce operating and maintenance costs, reduce NRW, increase billing and (­ collection efficiencies, and reduce overhead). •• Ensure a smooth flow of subsidies with minimal overhead to administer them and limited scope for leakages. Subsidies can be targeted better in the off-grid option if the subsidies can be given directly to poor con- sumers, rather than to the inefficient utilities that currently service households with piped supplies. Governments can give direct subsidies to poor consumers and ask them to pay market prices to the private water provider or NGO. Giving a subsidy directly to poor households and giving them the choice to choose any available supplier from the market will enhance competition and deliver better services. If prices charged by the private off-grid providers can be better regulated and poor consumers are given targeted subsidies by government, it may be feasible to make the monthly off-grid water bill much more affordable while still delivering a basic level of service that is SDG compliant (safe, accessible, and affordable). Note 1. These figures are based on limited data and will need to be further refined during subsequent activities. They will depend on many factors including, for example, the extent to which piped networks are designed to provide bulk potable off-take arrangements around a city for off-grid suppliers. 24 Citywide Inclusive Water Supply Chapter 3 Reimagined Approach to the Urban Water Supply Crisis Given the growing number of off-grid households in urban areas, their poverty levels, the poor quality of service, and the almost complete lack of financial or institutional support from governments, it is critical that governments, utilities, and policy makers reexamine the traditional focus on adding piped connections and instead consider how off-grid services could provide complementary solutions toward ­ achieving SDG goals by 2030. This would mean addressing: •• Major administrative and institutional challenges currently facing off-grid services. Fragmented respon- sibilities coupled with inadequate planning, legislative and regulatory issues, land tenure issues, issues concerning the quality and reliability of the water source, and distributional inefficiencies. •• Financial constraints. Access to finance for off-grid providers, subsidies, affordability for basic amounts of water. •• Technical constraints. How to efficiently deliver adequate quantities of water and have it safely stored at the household level. An off-grid approach that mixes off-grid distribution with utilities providing bulk, potable supplies would make sense for countries striving to achieve the SDGs. Capital is limited and so are subsidies. This report suggests that a combined approach mixing utility bulk provision with off-grid distribution1 would cost US$132 per person, compared to the on-grid cost of US$265 per person. While most on-grid costs are covered by public funds, off-grid costs could include a mix of public and private funds, thus mobilizing additional sources of funding into the sector. Subsidy policy is complex, but reconsidering use of public subsidies to promote the provision of basic water service to households (as opposed to a piped service to households), using the most appropriate service delivery method, may help to target subsidies to poor consumers, who are mostly off-grid. This combined approach would leverage the private sector and bring in complementarity between public and private sectors. The approach envisages a vertical separation of the water services’ value chain. Public utilities would handle the upstream activities of abstraction, transmission, and treatment and then sell bulk treated water to private providers. These providers would be responsible for the downstream off-grid distribution arrangement. The precise on-grid and off-grid solution would be determined on a case-by- case basis. This approach requires significant shifts in mindsets on all stakeholders and includes capacity ­ ublic good. building of traditional utilities and private providers to work together for the p Commitment to Change Strategies and Policies This change in mindset goes against the historic approach and entrenched interests of many stakeholders. These include (a) governments and donors that traditionally support piped network expansions; (b) utilities whose main interest is expanding piped supplies from source to tap; (c) private entrepre- neurs who are unregulated; (d) activists who believe that governments are shirking their responsibility Citywide Inclusive Water Supply 25 when they deliver services using private sector intermediaries; (e) large global NGOs that believe that private sector exploits the demand-supply gap resulting in high prices; and (f) champions of poor com- munities who believe there is no reason why they should not be given piped water when the rich house- holds are already getting it. While the concerns and criticisms are valid, they ignore the situation and experience on the ground that public and private sector complementarity can work for the benefit of poor households or the unserved. This requires that institutions are better designed; policies are more clearly articulated with clear objec- tives; regulations and checks and balances are put in place and implemented in letter and spirit; the necessary capacity is built; and the entire process of rolling out is executed with proper change management. Managing Change Responsibly Change management is crucial if these ideas and models are to succeed. There are multiple vested interests both for and against this paradigm shift. The challenge is so great that all actors will need to work together if the goal is to be achieved. Government. Along with acceptance of the changed role of the conventional utilities, some of the more important steps that the governments must undertake include: •• Rewriting policies to make them oriented toward service delivery rather than piped networks. •• Recognizing private players, formalizing their role, and supporting them to professionalize. •• Recognizing legal barriers, such as land tenure and jurisdiction boundary issues, and removing hurdles. •• Designing and implementing a targeted direct subsidy mechanism and giving choice to the consumer. Traditional providers. Capacity building is needed for traditional providers, both piped and unpiped, so they can understand the new mindset and approach and work together to the meet public good. Activists and champions of poor households. Local leaders, activists, and other individuals involved in improving the lives of poor households can be engaged in the process of buy-in. Successful approaches may include collecting community-appropriate language and images to mass media campaigns, in-­ person training on how to access direct subsidies and choose the best options, as well as training local leaders to explain the benefits of accessing a clean water supply, not just water that “looks clean.” Major Questions to Be Debated and Addressed Making the move from a policy that will fail to deliver SDG 6.1 (continuing a focus on extending piped sup- plies) to one that has the potential to deliver on SDG 6.1 (a combination of piped and off-grid solutions) will require responses to multiple challenges. These complex issues need to be considered, debated, and addressed in moving toward this mixed approach. These relate to: •• Policy. How should the governments define their programs and priorities with respect to grid and off- grid solutions? 26 Citywide Inclusive Water Supply •• Legal and regulatory considerations. Are existing laws adequate to support new policies? If not, what changes or new laws are required? Who will set the standards and monitor adherence to standards? Who will regulate and what will they regulate: licensing, service quality, pricing, and so on? •• Institutional issues. What should the roles and responsibilities of the public and private sector be in service provision with respect to off-grid supply? What roles should NGOs play? How can competition be introduced in the market? •• Technical issues. How should governments ensure that water is treated appropriately for distribution by off-grid providers? How can water quality be ensured at the household level? •• Innovation. How can innovation deliver better and more efficient ways of distributing and storing water at the household level? How can donkey carts and push carts filled with dirty jerry cans be replaced with modern equipment that delivers and stores adequate amounts of safe water? •• Capacity issues for water suppliers. What capacity building support is required to increase profession- alism in the sector? How can support be provided to help the government, utilities, and citizens to accept their changed roles and responsibilities? •• Financing. Who will finance capex required by private players? Who bears the recurring opex? Who will get the subsidy, and how should the subsidies be targeted? How should recurring subsidies be financed? How can technology and institutions make it easier for the users to buy water or get subsidies? •• A key element in the challenge is rebalancing the distorted subsidy regime that currently directs subsidies to the relatively wealthy households who have piped supplies. For example, in the off-grid option, could subsidies be targeted better and given directly to the poor users, rather than to the inefficient utilities that predominantly service the better off? Giving a subsidy directly to poor households and giving them the choice to choose any available supplier from the market would enhance competition and improve services. Meeting the challenges starts with accepting off-grid supplies as a partner to piped supplies in meeting the SDGs. If that idea can be broadly accepted, then a set of next steps as set out in the next section can be envisaged—supported by the international community—leading to a future in which all urban dwell- ers will receive an affordable service that meets their basic needs and is safely managed. Without such changes in service provision and financing models, off-grid services will remain non- compliant with SDG 6.1. They will be unable to deliver sufficient quantity, quality, availability, or afford- ability to hundreds of millions of people in low-income urban and peri-urban areas around the world without access to piped supplies. Next Steps Toward Initiating Complementary Off-Grid Approach Government planners and donor agencies need to improve the evidence base, tools, and models that will support the complementary off-grid approach set out in this report. They can do this through a series of steps as outlined below and leading to pilot implementation at city scale. Citywide Inclusive Water Supply 27 Step 1: Deep-dive assessment in six to seven cities to provide an improved evidence base. •• Hold discussions with off-grid providers to gather data to better understand the costs, charges, ser- vice standards (quality and quantity), and affordability associated with off-grid services. •• Conduct city-level situational assessments in six to seven cities to get a representative mix with differ- ing situations of off-grid supply and differing roles played by public and private providers with respect to policy, institutional, financing, and the regulatory environment for off-grid implementation. •• Investigate innovative technical solutions that can provide adequate quantities and qualities of water to households and for households to be able to safely manage that water on-site. Step 2: Development of analytical tools, models, and templates. •• Develop specialized analytical tools to assess the current situation in different cities to gather base- line data and design a changed system. •• Refine the indicative institutional models presented in this report as illustrations of different approaches. •• Propose policy text to capture a shift toward SDG 6.1 compliant service delivery as the government’s end goal, not just provision of piped services. •• Rethink regulation and regulatory approaches to off-grid providers. •• Revisit subsidy policy to develop a more equitable model that will facilitate investment in SDG 6.1 compliant, affordable off-grid solutions. •• Explore innovative technical solutions that can provide adequate quantities and qualities of water to household and for households to be able to manage that water safely on-site. •• Prepare templates to transition from the current situation to a new model based around a combina- tion of bulk potable water provision by the utilities complemented by off-grid distribution. Step 3: Pilot implementation in two to three cities. regulatory docu- •• Work closely with off-grid service providers to prepare model contractual and ­ ments to promote a vibrant, competitive market for private providers, especially those active in the distribution area, to pilot the proposed model in a city. •• Implement the model at scale in select cities. Note 1. At 40 liters per capita per day for off-grid provision, compared to 100 liters per capita per day for a piped system. 28 Citywide Inclusive Water Supply References Adams, Ellis, Daniel Sambu, and Sarah L. Smiley. 2018. “Urban Water Supply in Sub-Saharan Africa: Historical and Emerging Policies and Institutional Arrangements.” International Journal of Water Resources Development. doi:10.1080/07900627.2017.1423282. Goksu, Amanda, Sophie Trémolet, Joel Kolker, and Bill Kingdom. 2017. “Easing the Transition to Commercial Finance for Sustainable Water and Sanitation.” Working Paper, World Bank, Washington, DC. Hutton, Guy, and Mili Varughese. 2016. “The Costs of Meeting the 2030 Sustainable Development Goal Targets on Drinking Water, Sanitation, and Hygiene.” Technical Paper, Water and Sanitation Program, World Bank, Washington, DC. Kariuki, Mukami, and Jordan Schwartz. 2005. “Small-Scale Private Service Providers of Water Supply and Electricity: A Review of Incidence, Structure, Pricing, and Operating Characteristics.” Policy Research Working Paper 3727, World Bank, Washington, DC. Kariuki, Rosemary Mukami, Midori Makino, Samuel Dawuna Mutono, Claude Guillaume Patricot, and Rosemary Chepkirui Rop. 2014. “Do Pro-Poor Policies Increase Water Coverage? An Analysis of Service Delivery in Kampala’s Informal Settlements.” Water and Sanitation Program, World Bank Group, Washington, DC. Misra, Smita, and Bill Kingdom. 2019. “City-wide Inclusive Water Supply: Refocusing on Off-Grid Solutions for Addressing Sustainable Development Goals, Global Study.” Background paper, World Bank, Washington, DC. http://documents.worldbank.org/curated/en/68050156​ 0925586713/Refocusing-on-Off-Grid-Solutions-for-Addressing-Sustainable-Development-Goal-6-1-Global-Study. WHO/UNICEF (World Health Organization/United Nations Children’s Fund). 2017. Progress on Drinking-Water and Sanitation: 2017 Update and SDG Baselines. New York: United Nations. http://www.unwater.org/publications/whounicef-joint-monitoring​ -program-water-supply​ -​sanitation-hygiene-jmp-2017-update-sdg-baselines/. Citywide Inclusive Water Supply 29 Appendix A Range of Capex Costs for Piped and Off-Grid, Stand-Alone Water Systems FIGURE A .1. Capex Costs, Fully Piped Water Supply Projects, and Off-Grid Stand-Alone Water Systems SWN, India Average 14 Kenya, Naivasha 15 reference projects Stand-alone Kenya, Kiberia 21 SWN, Ghana 30 Mauritania, Nouakchott 38 Indonesia 42 Cambodia 67 China 107 India 131 Brazil 154 Indonesia 161 Mexico 161 Global piped system reference Nigeria 190 Pakistan 201 Bangladesh 255 Philippines 263 Egypt, Arab Rep. 276 Argentina 276 Colombia 285 South Africa 306 Thailand 346 Congo, Dem. Rep. 391 Vietnam 419 Algeria 624 Venezuela 714 0 100 200 300 400 500 600 700 800 US$/cap Sources: Dalberg, https://www.untapped-inc.com/safe-water-enterprises.html; Hutton and Varughese 2016; SWN India sector studies in India and Ghana. Note: Piped Supply references for countries with greater than 25 million urban population. capex = capital expenses; SWN = Safe Water Network. Citywide Inclusive Water Supply 31 W19029