Water and SanitationWater and SanitationHow to improve access and How to improve access and

service quality?service quality?

Guang Z. ChenGuang Z. ChenSector Manager Sector Manager

Urban and Water UnitUrban and Water UnitLatin America and the Caribbean RegionLatin America and the Caribbean Region

The World BankThe World Bank

Lima, PeruLima, Peru1111--12 July 2008 12 July 2008

OutlineOutline

The state of water and sanitation in The state of water and sanitation in LAC: Achievements and challengesLAC: Achievements and challengesPerspectives: The way forwardPerspectives: The way forwardHow the World Bank assists countries How the World Bank assists countries in achieving their objectivesin achieving their objectives

AccessAccess

200

250

300

350

400

450

500

550

600

1990 2004

Population withaccess to improvedwater supply

Population withaccess to adequatesanitation

Total population

Access has improved significantly…

… but the number of those unserved remains high

Poor service qualityPoor service qualityIntermittent supply is common in many cities in Intermittent supply is common in many cities in LAC: LAC: –– Only two countries Only two countries –– Chile and Uruguay Chile and Uruguay –– provide provide

continuous supply to all their cities.continuous supply to all their cities.–– In Peru, the average supply is 17 hours per dayIn Peru, the average supply is 17 hours per day

Households spend high amounts on householdHouseholds spend high amounts on household--level storage to cope with intermittent or no supplylevel storage to cope with intermittent or no supplyIn most cities drinking water quality is often In most cities drinking water quality is often considered poorconsidered poor

SanitationSanitationThe United Nations has declared 2008 The United Nations has declared 2008 ““The International Year of The International Year of SanitationSanitation””The investment needs are higher for sanitation than for water yeThe investment needs are higher for sanitation than for water yet t willingness to pay for sanitation services are lowerwillingness to pay for sanitation services are lowerBut it has large positive externalities!But it has large positive externalities!Large investments in secondary network have not brought about Large investments in secondary network have not brought about expected benefits: utilities have not managed to effectively conexpected benefits: utilities have not managed to effectively connect nect households to networkhouseholds to networkPromotion of sanitation and hygiene is a highly effective healthPromotion of sanitation and hygiene is a highly effective healthintervention, yet not systematically applied.intervention, yet not systematically applied.

Wastewater treatmentWastewater treatmentOverly stringent and uniform effluent regulation imposes high costs

Technology selection biased by some financing sources

This reduces availability of funds for sewerage investments

Many wastewater treatment plants are not operating effectively due to inadequate operation and maintenance

However, the share of treated wastewater has increased significantly….from 10% of WW treated on 1990 to 28%

in 2006; but at 28% remains lower than other regions (e.g. 52% in China)

Low EfficiencyLow EfficiencyNon-Revenue Water (%)

202530354045505560

ChileBrazil

PeruColombia

Mexico

UruguayJamaic

a

Non-Revenue Water in the region is about 40%, i.e. 40% of the water produced does not reach the customer or is not being billed

Good practice is around 25% NRW

About one third of customers are not metered

Source: World Bank compilation of national regulator and utility data

Service provisionService provision

Fragmented sector:Fragmented sector:–– More than 8,000 formal More than 8,000 formal

urban providersurban providers–– Tens of thousands Tens of thousands

informal providers in informal providers in rural and marginal rural and marginal urban areasurban areas

> 90% of users served > 90% of users served by public service by public service providersproviders

Type of formal urban service Type of formal urban service providerprovider

NumberNumber

Municipalities (direct service Municipalities (direct service provision)provision)

> 6000> 6000

MunicipallyMunicipally--owned utilitiesowned utilities > 1,000> 1,000

CooperativelyCooperatively--owned utilitiesowned utilities 990990

Municipal private Municipal private concessions (incl. mixed concessions (incl. mixed companies)companies)

~250~250

Regional public utilities Regional public utilities 4747

Regional private utilitiesRegional private utilities 1919

National National utilitiesutilities 1212

TotalTotal > 8,300> 8,300

Investment (1)Investment (1)

Annual average Annual average investment of US$ investment of US$ 3.7bn in 13 countries 3.7bn in 13 countries 19971997--2004 2004 (US$8/capita)(US$8/capita)Investment needs are Investment needs are at least US$ 12/capitaat least US$ 12/capitaSubstantial differences Substantial differences between countriesbetween countries

Per capita investments (US$/year, various years)

0

5

10

15

20

25

ChileMexic

oUruguay

BrazilA rg en tinaColomb ia PeruN icara

guaPanama

HondurasC . R

icaEcuador

Source: World Bank compilation of national regulator and utility data

Investment (2)Investment (2)Very limited selfVery limited self--financing by utilities (except for financing by utilities (except for Brazil and Chile)Brazil and Chile)Most financing is domestic through grants from Most financing is domestic through grants from national and statenational and state--level governments, even for level governments, even for funds contracted by governments as external debtfunds contracted by governments as external debtUtilities have not tapped much into domestic Utilities have not tapped much into domestic capital markets (again except for Brazil, Chile and capital markets (again except for Brazil, Chile and to some extent Mexico)to some extent Mexico)Investments are volatile, affected by economic Investments are volatile, affected by economic cycles and policy changes that determine the cycles and policy changes that determine the amount of grant funds availableamount of grant funds available

PublicPublic--Private PartnershipsPrivate PartnershipsThe objective is to improve the operational efficiency and The objective is to improve the operational efficiency and service quality of the sector, not just for attracting private service quality of the sector, not just for attracting private investmentinvestmentPPP is not just about private PPP is not just about private concessioningconcessioning, but also , but also include management contract, BOT, mixed companiesinclude management contract, BOT, mixed companiesSchemes that combine public and private financing, with Schemes that combine public and private financing, with significant public money available upfront to allow the significant public money available upfront to allow the private operator to quickly turn around the utility (e.g., private operator to quickly turn around the utility (e.g., Colombia Model of mixed companies) Colombia Model of mixed companies) There are public utilities that have proven that they can There are public utilities that have proven that they can be efficiently run and have access to private investment be efficiently run and have access to private investment through listing in stock exchange (e.g., SABESP)through listing in stock exchange (e.g., SABESP)

Water utility PPPs: number of Water utility PPPs: number of projects active, expired and projects active, expired and

terminated by regionsterminated by regions--

85% of PPPs awarded for water utilities since 85% of PPPs awarded for water utilities since 1991 are still active, only 8% were terminated 1991 are still active, only 8% were terminated earlyearly

The way forwardThe way forward

Increasing financing is essential, but not Increasing financing is essential, but not sufficientsufficientHow much scope is there to increase cost How much scope is there to increase cost recovery?recovery?Better management models are needed to Better management models are needed to provide goodprovide good--quality services, including to quality services, including to the urban poor and rural areasthe urban poor and rural areasBoth public and private management worksBoth public and private management worksImproved regulation and better efficiency Improved regulation and better efficiency are neededare needed

Current tariff levels and affordabilityCurrent tariff levels and affordability

Share of water expenditures in total expenditures

(poorest decile - 1999)

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%

BrazilColombia

Bolivia

PeruNicara

guaParaguay

Source: Soares et al. (2002), Revista Panamericana de Salud Pública

• The poor connected to the network spend about 2.5% of their expenditures on water, which is below the 5%-maximum “rule of thumb”

• The poor without access usually spend much more for water provided in tanker trucks, or walk long distances in rural areas

Cost recoveryCost recovery

In most countries, revenues are barely sufficient to In most countries, revenues are barely sufficient to recover operation and routine maintenance costsrecover operation and routine maintenance costsIn times of increased cost of living, tariff increase In times of increased cost of living, tariff increase are not normally adjusted for inflation, leading to are not normally adjusted for inflation, leading to reduction of tariff in real termsreduction of tariff in real termsWhen the cost recovery is not sufficient to cover When the cost recovery is not sufficient to cover O&M, it is not a sustainable trend, given a choice, O&M, it is not a sustainable trend, given a choice, it is better for the government to subsidize access it is better for the government to subsidize access rather than O&Mrather than O&Mtransparency of public funding/subsidy is criticaltransparency of public funding/subsidy is critical

Financing mechanismsFinancing mechanisms

Investment Subsidies (prevalent today):Investment Subsidies (prevalent today):–– Matching grants (Mexico 50:50)Matching grants (Mexico 50:50)–– Central government and municipal transfers to Central government and municipal transfers to

utilities (Colombia)utilities (Colombia)Debt and equity (more in the future):Debt and equity (more in the future):

–– Using pension funds (FNTS in Brazil)Using pension funds (FNTS in Brazil)–– Commercial financing (Chile)Commercial financing (Chile)–– Stock exchange (Brazil)Stock exchange (Brazil)

Bank activities Bank activities –– How to reach the How to reach the poorpoor

Lima experience: A Lima experience: A combination of lowcombination of low--cost technology, cost technology, community community participation and participation and hygiene education hygiene education has resulted in has resulted in 100% connection to 100% connection to networks in networks in challenging challenging topographical topographical environment environment

Bank activities Bank activities –– How to reach the How to reach the poorpoor

PSP in Colombia: National matching grants PSP in Colombia: National matching grants have attracted the local private sector to turn have attracted the local private sector to turn around smallaround small--town utilities resulting in town utilities resulting in important improvements in coverage and important improvements in coverage and service qualityservice qualityParaguay: OBA subsidies have allowed the Paraguay: OBA subsidies have allowed the local private sector to finance the local private sector to finance the construction and operation of water systems construction and operation of water systems in rural semiin rural semi--arid areas.arid areas.

Bank activities Bank activities -- FinancingFinancingSubSub--national financing facility: The Bank is national financing facility: The Bank is supporting the decentralization process in some supporting the decentralization process in some countries in the region through financing sector countries in the region through financing sector investments (e.g. a commercial bank would lend investments (e.g. a commercial bank would lend to local governments using national transfers as to local governments using national transfers as collateral)collateral)Ecuador: IncentiveEcuador: Incentive--based subsidies: Based on based subsidies: Based on water provider performance and governance water provider performance and governance structure, national grants are made available to structure, national grants are made available to small townssmall towns

Thank You Thank You