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Institutional Development Network Newsletter No. 8 January 1999 Thank you for responding to the request in IDRN 7 to reconfirm your interest in being part of this network. The numbers receiving this informal newsletter have fallen from 220 to 80 as a result. Most importantly three people have volunteered to share something of their research output. Thanks to Guillermo Yepes, Jarmo Hukka and Mike Webster. This has meant that we are able to circulate a newsletter after six months rather than the usual year between editions. Promises have already been made for the next edition. Considering the future, this research network is one output of the global applied research network of the Collaborative Council. The Council also hosts the Institutional and Management Options working group which has many overlapping interests with the Institutional Development topic group. The Government of the Netherlands has recently agreed to partly fund the IMO Working Group through the Collaborative Council with Maarten Blokland of IHE, Delft taking over from Frank Hartvelt of UNDP as co-ordinator. With Maarten and I working in adjoining offices we see excellent potential to bring together these two activities to the benefit of all. The Institutional Development Network has been running for seven years without formal funding, thanks to the generosity of WEDC, Loughborough and IHE, Delft. I am very pleased that we will be able to refocus our work in the future, particularly as the quantity of published material on institutional issues and its availability over the Internet has increased so dramatically. It is not clear how the two activities will be developed but if you have any ideas or suggestions please let me know. We are continuing with the paper based version of the newsletter at present to ensure those without web access are not disadvantaged. Richard Franceys IDRN Co-ordinator IMO News Maarten Blokland writes . . Objectives and Activities for the Coming Years
In more detail, the activities will cover some of the gaps left in describing and analysing institutional options for water supply and then embark on a thus far uncovered field, that is the institutional options for wastewater and sanitation. The working group also intends to make a start with the description of change processes and the experiences with reform and lastly, to ensure the dissemination of information on institutional options and change to those that participate in the reform processes. Concerning the gaps left in the options for water supply, these concern the corporatized utility, i.e. the parastatal Authorities, Boards and Corporations that were formed worldwide in the nineteen seventies and that still prevail in a large number of developing countries, and the direct public management mode where water supplies are operated by government departments. The latter form, and particularly the one under direct municipal management continues to be successful and popular in many industrialized and industrialising countries, and became the dominant mode for water supply in Middle European countries in the nineteen nineties. Proposed for inclusion in the work of the IMO-WG is a study of the institutional options for water supply provision to the urban poor, where there may be an array of options involving a mix of utility and community management. Mapping of the institutional options for sewerage and sanitation has to be started up. The range of options needs to be inventoried, after which the more detailed description and analysis of a number of options may be taken up. The Council Secretariat has further suggested the need to study the enabling environment, that is the areas of legislation and regulation. Partnership for Implementation IMO Workplan Current or recently completed Institutional Development Research by Institutions Private Sector Participation: Realising Social and Environmental Objectives, IIED, London Small-scale independent providers to the urban poor, IRC for UNDP/World Bank Rethinking decentralisation in developing countries, PREM Network, World Bank Role of Government in Urban Water Supply:, Zimbabwe, India, Bolivia, recently completed by IDD and IHE/WEDC for DFID Management of water supply - the delegated public management model - IHE for IMO, WSSCC Contracting Out of Water and Sanitation Services – WEDC/IHE for DFID Pricing and service differentiation of watsan utility for the urban poor, WEDC/IHE for DFID
CREATING THE INCENTIVES FOR PRODUCTIVE BENCHMARKING OF WATER SUPPLY SERVICES In the late 1970s, American companies became acutely aware that they were loosing market share to overseas competitors and decided to do something about it; benchmarking was the tool that helped them turn the situation around (Camp, 1989). More recently, benchmarking is becoming widely accepted in the water and wastewater industry. Regulators and utilities in industrialized as well as in developing countries are beginning to make extensive use of this tool to compensate for market failure in this predominant monopolistic industry. Several studies have documented that benchmarking works when incentives to improve are present (AWWA, 1997). The main incentive in the private sector, but not necessarily the only one, is the "bottom line"; failure of a firm to sell its products and to achieve adequate returns to investors will eventually drive it out of business. However, market share and financial profitability are likely to be less powerful incentives, if at all, in the public water and sanitation sector. After all, many water and wastewater public utilities in developing countries still do not pay adequate attention to the market as evidenced by low coverage and poor services or have been, for years, operating at a financial loss. Benchmarking encompasses benchmarking metrics and benchmarking processes. The former, based on comparable indicators, provides the information to quantitatively assess the performance or benchmark gaps that a particular water utility faces. Availability of relevant indicators and comparison with other utilities makes possible to answer relevant performance questions: how wide is the gap; where in the organization is the problem and why this gap exists. In a benchmarking process relevant indicators are collected and analyzed by the utility, which then proceeds to identify other leading utilities that have been able to demonstrate consistent good results in the areas of concern, and to document their practices and processes to achieve outstanding results. In the process of closing the performance gap the concerned utility searches for ways to improve knowledge, practices and processes. Another powerful use of metric benchmarking is the assessment of sector performance on a country or regional basis. Recent work on benchmarking in an Andean country gave access to the author to performance indicators of all the water utilities in this country. The analysis of this information proved very useful in the identification of common performance gaps and in the search for explanations of this behaviour. In this country, water supply coverage in urban areas is about 71 percent; however, in fifty percent of the utilities water coverage is bellow the national average. Quality of service, as measured by the availability of a 24 hour water supply, as shown in Table 1, also leaves much to be desired. The working ratio (wr = operational expenses [without depreciation and debt service] / operational revenues), shown in Table 2, also shows that most of the public water utilities in this country are in a troublesome financial situation. Twenty five percent of the utilities do not generate adequate operational revenues to cover operational costs (wr >1). This is also of concern as these utilities are neglecting maintenance due to the critical financial position they are in, thus aggravating quality of service problems. In addition, 94 percent of the utilities show an inadequate working ratio ( 0.6 > wr < 1.0). Therefore, most of these utilities are also hard pressed to cover debt service obligations and consequently are not able to fund, from their own resources, service quality improvement programs. The unsatisfactory performance of many of the water supply utilities, as measured by these two indicators –hours of service and working ratio- , clearly shows that these performance problems are not isolated but country wide. Moreover, performance of these utilities has changed little since a new central regulatory agency became operational some three years ago. A more detailed analysis of explanatory factors for this dismal performance points in the direction of inadequate policies, and in particular to Inadequate (implicit or explicit) subsidy policies that favour new investments, particularly the development of additional supplies, but discourage maintenance or better operation of existing assets (e.g. reduction of water losses). Lack of a cost recovery focus. Bellow costs tariffs leave the utility in a fragile financially position and without the needed resources to improve maintenance and services. The problem is compounded by misguided cross-subsidization policies that fail to provide incentives to the utility to bill and/or collect from many users at the low end of the tariff spectrum, thus aggravating cash flow problems often associated with a high working ratio. Moreover, unrealistic high rates to industrial and commercial users force them to look for alternative supplies, thus reducing market share and, in the process, exacerbating the cross-subsidy problem. Most water supply practitioners agree that sector development policies that foster sustainable and efficient services for all of the population are the engines that drive performance and outcomes of public water utilities. If these policies are in place, then performance indicators and benchmarking can be useful tools to develop and encourage surrogate competition among water supply utilities to benefit consumers. Last but not least, a successful bench-marking process also requires a clear managerial commitment to achieve stated goals. This commitment extends to the motivation and participation of the utility’s staff in the whole improvement program and to the allocation of needed resources. Bibliography:
INSTITUTIONS, ORGANIZATIONS AND VIABLE WATER SERVICES: A CAPACITY DEVELOPMENT MODEL FOR DRINKING WATER PROVISION AND PRODUCTION. About 1,000 million people in developing countries have inadequate water services. The impact of waterborne diseases is huge, especially on children and the poor. Diarrhoeal diseases kill more than 3 million people annually and cause about 900 million cases of illness. The infrastructure of many developing countries is inadequate to support economic growth. Furthermore, water scarcity threatens development in many regions. In Kenya, the Government intends to provide almost 30 million people improved water services by the year 2010, i.e. water systems should be built for about 17 million new consumers. Financial difficulties and other persistent institutional deficiencies, such as poor revenue management, are threatening this ambitious programme. In addition, the mixture of formal rules—mainly the "bureaucratic de-concentrated" regime, poor transparency and accountability, and lack of proper incentive structures—and informal constraints, such as opportunistic codes of behaviour in the public sector, have facilitated the evolvement of a "self-sustaining problematique" in water services provision and production. Non-viability of water services has negative impacts on economic development, poverty alleviation, health conditions and environmental sustainability. The main objective of the study is to foster the provision and production of safe, sufficient and affordable drinking water services. Thus, a hypothetical future model was constructed to serve as a universally viable institutional instrument for capacity development of water services. The empirical data and model innovation are derived from the Kenyan context. The dynamic model is based on a core vision—an evolutionary hypothesis—of a system required to develop the capacity of water supplies. The comparison of the model with reality is aimed to provoke a debate about the institutional changes needed in the water sector to meet its objectives in the long-term, and about their implementation to foster the self-reliance of the economic infrastructure in Kenya. The soft systems methodology originally developed by Checkland for tackling ill-structured problems in societal systems is used in this study. Mannermaa has modified this methodology into a direction more suitable for futures research. The analysis regarding the problem situation—non-viability of water systems and its causes in Kenya—is carried out based on the documentation review, and on the questionnaire on viability and the major problems encountered at the district level which is responsible for the development and operational management of water supplies. In addition, the performance of public and community water supplies in Western Kenya is assessed. The core vision is a conceptualized perception of a system, which is needed to foster viability and to prevent the formation of a nonviable water infrastructure. A capacity development model—a human activity system—is formulated on the basis of the perception and comparative analysis. The primary task of this innovative model is to minimize the number of nonviable drinking water supplies. This model should be introduced as a minimum groundbreaking agenda even before the initiation of more radical institutional reforms. The findings reveal that the improvement of billing and collection practices and water rates setting would make both public and community water supplies financially self-sustaining while enabling them to produce affordable water to the customers. Furthermore, based on experiences from all over the world, three-tiered polycentric governance is recommended for the water sector as a policy measure. The central government's role should be merely to promulgate the enabling institutional framework; the autonomous water basin’s role should comprise policy enforcement and monitoring the performance of water systems, and the local authority or user group—the water undertaker—should manage the core competencies in actual production of services. The role of private entrepreneurs in the provision of auxiliary services should be strengthened. The donor community should support this institutional change by pursuing innovative management arrangements and focusing more on the formulation of and compliance with proper formal institutional framework. This approach should be strengthened with complementary research, education and training co-operation which would enhance sound management structures and practices—the good governance—in the water sector.
EFFECTIVE DEMAND FOR RURAL WATER SUPPLY IN SOUTH AFRICA (The Executive Summary of an unpublished Master’s Thesis, September 1998. Note figures are based on literature of May 1998)
The Department of Water Affairs and Forestry (DWAF) has responded to this challenge by proposing to supply a ‘basic level of service’ to all South Africans within the next ten years. There is serious doubt as to whether this aim will be realised and as to the sustainability of the existing and proposed projects. The problem The policy and practice of DWAF is resulting in projects being implemented in a supply-driven approach. Supplying a fixed level of service is not enabling consumers to choose the level of service for which they are willing to pay. This is resulting in inappropriate design and projects not allowing for upgrading. Many communities aspire to a higher level of service i.e. a private connection, and systems are being crippled by unauthorised connections. Institutional arrangements for rural water supply are also inadequate. Towards better solutions The ‘demand-responsive approach’ is an integrated approach to water provision -influencing social, technical, financial and institutional aspects - believed to improve project sustainability. The primary measure of ‘demand responsiveness’ is the degree to which consumers have choices over their level of service. Services should be based on these consumer preferences and charges set to recover actual costs. Designing to meet demand
Demand assessment
The contingent valuation method is the most commonly used direct valuation method for water supply projects. It uses carefully designed surveys to ask people to choose the amount they are WTP between different supply options. It is useful to inform policy regarding cost recovery and levels of service but does not seem to have broad application for small rural projects. The link between eliciting WTP from the survey and setting tariffs related to actual costs of supply is not clear. It is expensive and time consuming to conduct and attempts to estimate demand to an accuracy inappropriate to small projects. Community participation in the planning, design and implementation of projects will contribute significantly to demand-responsiveness. Demand assessment attempts to predict initial demand for an improved service, however what seems to be more important in the South African context is for projects to be able to respond to demand over the entire project life. Technical implications
Design will also be influenced by the choice of peak factors, estimations of ‘unaccounted for water’, and design guidelines. The designer needs to model the sensitivity of these different assumptions to the average daily water consumption. Designing for a mixed level of service, in effect, adds another factor to this set of assumptions. In order to design bulk and distribution infrastructure, an average per capita daily demand is needed to calculate the capacity required from the system. In a mixed supply, instead of designing for 25 l/c/d (or 60 l/c/d), this figure will need to be estimated from the average consumption of the different levels of service. Different system components need to be designed for different projected demands e.g. distribution needs to be designed for future demands whereas source and storage can be increased incrementally as demand increases. The capacity of the system to cater for households upgrading from a standpipe supply to an individual connection over the project life is a key design feature of a mixed level of service. Financial implications
Facing the reality
Dr Richard Franceys Email: rwf@ihe.nl The Institutional Development Network News, No8, January 1999 Updated 03/03/03 |
