Supplementary memorandum submitted by
AquaFed
INTRODUCTION
AquaFed submitted a written memorandum in response
to the Inquiry Press Notice and was subsequently invited to give
evidence to the first evidence session on 30 November 2006. This
session was attended by Jack Moss. During his evidence he offered
to provide additional material and was also invited by the Chairman
to reflect on the proceedings and communicate any additional ideas
or information that appeared pertinent.
The purpose of this memorandum is to respond
to this request. It contains three sections. The first two respond
to the specific issues on which we agreed to provide additional
information. The third contains some reflections that we believe
may be useful to the inquiry, based on what we have observed so
far. The main points of these three sections are resumed below.
RESUME OF
KEY POINTS
Performance of private operators serving the poor
— Contracts often do not contain
specific pro-poor requirements, and it is frequently difficult
for Public Authorities to define and monitor such clauses.
— Even in the absence of pro-poor
contract requirements, operators have made significant progress
in segmenting their customer base and devising appropriate procedures
to ensure that needs, including those of the poor, are met.
— Private operators have made
significant improvements in the numbers of people connected on
their contracts, generating vitally important public health, economic
and environmental benefits for poor communities.
— Best results are achieved when
public authorities and operators work together to find and maintain
practical field-based solutions.
Numerical targets to ensure results
— Since the MDGs are set at the
global level, there is a need to define related goals at the appropriate
national and local decision-making levels.
— Data and targets are essential
to drive action forward. An "access to water" policy
cannot succeed by chance and needs quantitative targets. These
targets should be measured in numbers of people and not in "dollar"
spending.
— To strengthen its water policy,
every country should conduct a detailed analysis, based on field
survey, to determine the numbers of people on its territory that
benefit from the various water service levels.
Separating Governmental and operational responsibilities
— Aid agencies can strengthen
sector performance by assisting to develop governance structures
that create clarity and reinforce effectiveness by separating
governmental from operational roles.
— Water and sanitation services
can only be delivered effectively when both the governmental and
operational activities are coordinated in a practical, mutually
supporting and consistent way.
— Given the scale of the problem,
all available operational tools need to be mobilised and ideologies
set aside.
Suggestion for additional evidence to be taken
— Authors of the Camdessus and
Gurria "Financing Water for All" reports should be requested
to provide evidence to the Inquiry.
Catalysing change management
— Change management is an issue
that impacts both the governmental approaches and operational
aspects. Even the partial presence of the private sector in a
country can be an effective catalyst or vehicle for change.
1. PERFORMANCE
OF PRIVATE
OPERATORS SERVING
THE POOR
In Q29 the Chairman suggested that the private
sector has not been particularly successful in delivering coverage
to the urban poor and indicated that often this might be due to
there not being any contractual requirements for operators to
do so.
Mr Moss commented that Public-Private Partnership
contracts have often not included specific targets for supplying
the poor. This does not mean that operators have not supplied
water to poor people. He contested the supposition that the private
sector had not delivered benefits for poor populations.
We would now like to elaborate on these two
positions, which are to some extent related. In spite of the impression
created by certain parties, the private sector has been effective
in providing new and improved services to the urban poor, including
in the developing world.
1.1 Public-private partnerships contracts
Many of the water contracts to date do not include
requirements to make special efforts to connect poor communities.
Public operators often do not have any specific instructions to
target poor populations either. The reasons for this include the
non-recognition of the issue by the public authorities, their
inability to identify or define the poor, giving priority to upgrading
existing systems before undertaking new expansion, and in some
cases deliberate policies to deny access to the poor, or to recognise
the existence of poor communities. The most common contractual
target in PPP contracts is for a specific increase in service
coverage irrespective of the wealth of the people to be connected.
Despite this situation, private operators have
developed special programs that enable them to overcome the challenge
and to make progress in connecting the poor, particularly in slum
areas. (See for example pages 67-68 of the article in Annex 1
that relate to Manila water, and which compliment the information
given in section 2 of the memorandum submitted to the inquiry
by United Utilities[40]).
In some cases, such as Buenos Aires or Jakarta, they have had
to convince governments to adopt new tariff structures in order
to adapt them to the financial realities of poor people. In other
situations such as the Philippines or Morocco, they have found
ways to overcome the poor populations' lack of property title
or land tenure and even the public authorities' non-recognition
of certain categories of population.
In a number of cases solutions have required
changes to formal elements of the existing contracts. The case
of the introduction of the SUMA as a variation to the contract
in Buenos Aires is an example.
The original contractually determined tariff
system made new water and sewerage connection charges practically
impossible for the poor. The connection charges set by the Public
Authorities in the contract were completely beyond the ability
of most people in poor areas to pay. These charges were $600 for
a water connection and $1,000 for sewerage. People living on incomes
of less than $2 per day rarely have any savings and therefore
find it impossible to meet such charges. However, they usually
can afford to pay a volume related consumption charge and realise
real cost reductions compared to using alternative sources by
doing so. The new tariff system drastically reduced the individual
water and sewerage connection charges and introduced two "solidarity
charges" in the price of water consumption: the SU for water[41]
and MA for sewerage.[42]
The SUMA is essentially a mechanism for spreading
the costs of new connections over all water-users in a way that
benefits the poorer people. The original connection charges were
reduced to a level that was affordable for poor people. In this
way there was a cross subsidy effect that meant that the barrier
to access caused by the high connection fee was removed. These
solidarity charges have allowed the private operator to connect
over two million people, most of them being poor, to the water
and sewerage networks. This brought very major public health benefits
as well as reducing the costs of water to the poor and improving
the environment. The success of this solution depended on political
support and technical and contractual changes that could only
be achieved by close co-operation between the operator, the government
and the regulator.
In other cases solutions remain informal arrangements.
The situation for many of the small operators
is different. Their contracts are often with smaller urban centres
that are effectively the "windfalls" that have been
neglected by larger public sector operators. In these cases, state-wide
national operators or major city water and sanitation service
undertakings have not attempted, or have not been able, to provide
services to parts of their service areas or to secondary towns
and cities. Small formal operators, sometimes with contracts,
but not always, have stepped into the void. This is the case in
Uganda where small private operators now have contracts in some
50 small towns. A similar situation is found in much of West Africa
where examples of these situations are documented in a recent
study by BPD.[43]
While the individual numbers of people served by each of these
contracts are often small, the cumulative numbers are significant.
Private operators are also engaged in forms
of contract where they are not able to claim that they have made
additional connections directly, but where indirectly they have
made a material impact on improvement in service coverage. These
include the technical services and management type of contracts.
Here the private sector is reinforcing the capacities of the public
operator and transferring technology to the local public sector.
In this way, the private sector has contributed to the rapid connection
and improvement of service to millions of people in a number of
countries.
1.2 Disaster response
Private operators also make major contributions
in times of both natural and man-made disasters through supplying
water and other support to distressed populations. In Guyana,
for instance, Severn Trent Water International, as part of its
management contract to assist with the management of the public
water authority, was instrumental in ensuring that poor people
received bottled water during a national flood emergency which
contaminated normal water supplies. It also took action to reduce
the risks of toxic chlorine gas leaks in slum housing areas.
1.3 Numerical performance
Enumerating poor people connected to (or to
be connected to) water services or sanitation is more complicated
than one might imagine. The difficulties noted above combine to
make accurate statistics very difficult to produce. Operators
gradually improve the accuracy of the information as they ameliorate
their customer databases and billing systems. These are usually
of very doubtful accuracy at contract takeover. Through working
with this kind of data, private operators have been able to generate
and justify figures for new population provided with access to
water. Some examples are:
— Argentina—Aguas Argentinas—Buenos
Aires The private water operator provided access to water to 2.1
million people.
— Philippines—Manila Water
and Maynilad—East and West parts of Manila—3.4 million
people have gained access to water.
— Gabon—200,000 people connected
to water.
— Indonesia—Palyja—West
Jakarta—over one million people gained access to water.
— Senegal—over 1.6 million
people have been connected to drinking water networks
While these figures do not systematically separate
rich from poor, the use of tariff band information gives a clear
indication that in many cases a very significant proportion of
the new connections are in the poorer communities. The figures
from West Jakarta (Annex 2) demonstrate this. They show very clearly
that while the total number of active connections has increased
by 151,207 or 76% since the beginning of the contract in 1998,
the increase in the K2 social tariff band has been 51,436 or 537%.
This has allowed the proportion of "social" customers
to rise from 5% to 17% of the total number of customers served.
Recognising that the rate of progress is as
important as the actual numbers, one of AquaFed's members, Suez
Environment, has attempted to compute the absolute number of new
connections and the rate of increase in coverage on its contracts.
It has compared these with the rates of progress in certain of
the countries where it is working. This exercise shows that the
average annual increase in coverage rate achieved by this company
through private connections on its contracts is far higher than
the average rates for the other urban areas of the countries concerned.
The detailed figures are shown in Annex 3.
1.4 Section Summary
— Contracts often do not contain specific
pro-poor requirements, and it is frequently difficult for Public
Authorities to define and monitor such clauses.
— Even in the absence of pro-poor contract
requirements, operators have made significant progress in segmenting
their customer base and devising appropriate procedures to ensure
that needs, including those of the poor, are met.
— Private operators have made
significant improvements in the numbers of people connected on
their contracts, generating vitally important public health, economic
and environmental benefits for poor communities.
— Best results are achieved when
public authorities and operators work together to find and maintain
practical field-based solutions.
2. NUMERICAL
TARGETS TO
ENSURE RESULTS
2.1 Background
In the verbal evidence session, Richard Burden
asked:
"Q50: As to the issue of numerical targets
which you proposed in your submission for connections as far as
indicators are concerned for meeting the MDGs, I would like to
get a sense from you on how you would think that would work."
We undertook to provide additional written material
to compliment our verbal reply.
In the AquaFed Memorandum we included the following
paragraph:
17. We believe that to improve progress
in the field, donors should encourage individual national governments
to set specific numerical targets for the number of water and
sanitation connections that need to be achieved for the country
in question. Clear numerical targets at country level can only
come from aggregating local data. This approach would enable:
— Local governments to see that
they are involved in the process and clearly articulate their
needs.
— National governments to declare
credible targets at the global level and show their progress in
meeting them.
— Donor governments and aid agencies
to allocate resources to specific objectives against which they
can measure progress and thereby justify to their home constituencies
the effectiveness of their actions.
— UN agencies to have a clear and
accurate picture of the challenge and progress towards meeting
it.
2.2 Antecedents of the suggestion
As indicated in the evidence session, the idea
behind this suggestion was developed by the business delegation
to the World Summit on Sustainable Development that took place
in Johannesburg in 2002. The BASD (Business Action for Sustainable
Development) which is a joint exercise between the International
Chamber of Commerce (ICC) and the World Business Council for Sustainable
Development (WBCSD) tabled two related papers on water and sanitation.
Of these, the most relevant is Exhibit 1, which is reproduced
below. Exhibit 2 is less directly relevant to this inquiry and
is therefore included in Annex 4.
Exhibit 1 Supplement to "Water
and Sanitation of the Business Case", submitted to the Secretariat
of the WSSD in Johannesburg in August 2002 during the multi stakeholder
dialogue session on water.
It is interesting to note that the Camdessus
panel report of March 2003, and the Gurria panel report of March
2006, as well as the UN Secretary General's Advisory Board on
Water and Sanitation, "The Hashimoto Action Plan" of
March 2006 all make similar suggestions.
For example, the Hashimoto Action Plan states:
— "National governments
are urged to measure and report on an annual basis the number
of people obtaining access to water/sanitation by access category
in their countries;
— Countries with Poverty Reduction
Strategy Papers (PRSPs) are urged to incorporate in them a target
for the number of people who will be provided with access to water
services in a specific timeframe;
— the number of people who have
been provided with access to water and sanitation through capital
projects sponsored by them;"
2.3 Rationale
The rationale behind the BASD suggestions was
the need to move from talk to action. The perception of business
was that, for the MDGs to be met, it was essential that the targets
should have both political commitment and operational ownership.
To be meaningful, targets need to be set at a level where those
responsible for achieving them can identify them clearly and where
their progress towards meeting them can be measured effectively.
The "global" targets that comprise
the MDGs are all set at the level of the world. In the view of
business, this is not the appropriate level for action. The goals
at this level are good for setting an overall political agenda,
but are too remote to stimulate engagement and action.
Local level targets on their own are also insufficient.
Their effectiveness depends on them being integrated into strong
policy at national level. Success depends on the existence of
a clear national "access to water" policy with appropriate
national targets that are based on the realities and requirements
of the local communities within the country.
Business believes that a successful "access
to water" policy cannot be achieved by chance and needs quantitative
targets. For a country to achieve its contribution to the MDGs,
these targets should be measured in numbers of people benefiting
from the various levels of service not in dollars.
Data and targets are essential to drive action
forward. Insufficient or unreliable data is one of the root problems
that underlie the global water and sanitation crisis. In numerous
countries throughout the world, nobody knows how many people are
served by water and sanitation services. It is even more difficult
to identify how many are not served. This makes it extremely difficult
to allocate efforts and resources to the sector in any meaningful
way. It also means that in those countries measuring real progress
is impossible.
For these reasons, business advanced the suggestion
that every country should conduct a detailed analysis, based on
field survey, to determine the numbers of un-served people on
its territory. A survey of this kind would highlight to both national
and local politicians the real predicament of their people as
far as water and sanitation services are concerned. Compiling
such a survey could only be done by collecting field evidence
at a local level. This approach would therefore automatically
bring the focus to the local government level, where in many cases
action has to take place. Creating locally-based targets in this
way would automatically strengthen political will towards the
water and sanitation sector. With the global targets to support
them, it would be extremely difficult for national and local politicians
to turn their backs on the objective that has been set at the
world level.
Having once established local and national targets,
and with strengthened political will, the probability of sustained
effort to meeting the targets would increase significantly. Moreover,
there would be a substantial basis against which to measure and
report the progress that was being made on the ground in each
country.
The existence of meaningful objectives and progress
measures of this sort would be useful to donors, the international
financial institutions and the United Nations itself. They would
help donors and aid agencies to focus their efforts on the places
where the needs are greatest, and to gauge how effective their
aid actions are being. They would also confirm the real size of
the challenge to the United Nations organisations and enable them
to keep track of progress made by aggregating all these national
targets.
This would also enable aid budgets to be targeted
more precisely. It would permit donor countries and donor agencies
to make meaningful engagements to the number of people that they
are going to assist and therefore their contribution to meeting
the overall Millennium Development Goals. They would also enable
them to measure the impact and effectiveness of their aid activities
in precise terms and to report these publicly. In this way the
whole credibility of the Millennium Development process would
be enhanced.
We understand that a small number of countries
have adopted this kind of procedure with promising results, eg
Senegal with its approach to a national sanitation plan, or Morocco
for the development of access to water in rural areas. We are
also aware that the French donor agency AFD and the Rural Water
Supply Initiative led by the African Development Bank are measuring
the impact of their aid programmes in terms of numbers of people
served with water and sanitation in relation to the MDGs.
We believe that there is considerable scope
for both donor and recipient countries to work together in this
kind of process and that doing so would greatly enhance the probability
of the targets being met.
2.4 Section Summary
— Since the MDGs are set at the
global level, there is a need to define related goals at the appropriate
national and local decision-making levels.
— Data and targets are essential
to drive action forward. An "access to water" policy
cannot succeed by chance and needs quantitative targets. These
targets should be measured in numbers of people and not in "dollar"
spending.
— To strengthen its water policy,
every country should conduct a detailed analysis, based on field
survey, to determine the numbers of people on its territory that
benefit from the various water service levels.
3. ADDITIONAL
COMMENTS
We continue to believe that this inquiry is
of the greatest importance. There continues to be a massive challenge
of delivering water and sanitation services in a sustainable way
to such a large proportion of the world's population. AquaFed
and its members are highly motivated to make a contribution to
meeting this challenge. At the same time we approach it with the
humility that such an enormous and complicated set of problems
requires. Having looked through the written and the verbal evidence
submitted so far we venture to highlight the following points.
3.1 Separation of roles and institutional
structures
We would like to reinforce the distinction that
we made in our written evidence between "governmental"
and "operational" issues. (Paragraphs 6, 11-14, and
20)
In our view a recurrent difficulty in the water
and sanitation sector is the constant blurring of activities and
responsibilities between these areas. We believe this creates
an atmosphere of confusion and counter orders. This makes it very
difficult to define and maintain consistent policies on the one
hand, or robust service delivery programmes on the other. The
essential "public service" nature of water and sanitation,
together with a very large number of stakeholders involved makes
this a difficult task.
We believe that aid agencies can and should
help developing country governments at all levels to define and
implement governance structures that recognise these institutional
challenges and separate the "governmental" (policy and
regulation) tasks from the "operational" ones within
as clear a framework as possible. A good example is that of the
2003 Water Act in Kenya, where regional Water Service Boards with
performance-based contracts with service operators were created.
Within the "governmental" area of
responsibility, it is necessary to recognise the imperative of
having a genuinely political policy setting processes. They should
include such items as defining priorities for service coverage,
setting standards, and allocating resources as well as setting
tariff, taxation and other cost recovery policies realistically.
It is also important for government to establish
and maintain effective oversight, monitoring and regulatory functions
that can assure that policies are carried out and standards maintained.
Activities of this kind can only be carried
out by governments at the appropriate level, which usually requires
an interaction of national, regional and local government. A key
consideration here is that if the private sector is to make any
substantial investment in water services, it will often look for
a robust system of oversight, monitoring and regulation that can
be relied upon to react fairly and impartially.
These "governmental" roles are important
enablers and drivers of "operational" performance for
all service providers, public, private or mixed.
"Operational" activities are all those
"quasi-industrial" processes that need to be carried
out to convert the government's policy decisions into effective
and sustainable services. Several major sets of processes can
be identified as follows:
— Routine operation of water and
waste water systems, including water harvesting, treatment, transport
and distribution, as well as collection and treatment of waste
water and storm water.
— Capital works needed to build
and extend the infrastructure and fixed assets.
— Maintenance and repair to ensure
the continued life and efficient operation of the assets.
— Relationship management with
other stakeholders, other public services and public authorities.
All of the "operational" activities
can be carried out effectively by a range of operators that can
come from the communities themselves, the public sector, mixed
economy structures or the private sector. The value chain can
also be broken down so that parts are carried out by organisations
from different economic backgrounds. It is important to recognise
that these processes are inherently "industrial" and
operations are best run as such.
Whilst this clear separation of roles is important,
it is also crucial to recognise that the governmental and operational
functions must be conducted in harmony. Successful and sustainable
services can only be delivered when the functions are performed
in a practical, mutually supporting and consistent way.
3.2 Use all available "operational"
tools
Numerous witnesses have stressed the need to
mobilise all the delivery vehicles available in order to meet
the MDG challenge. There is a wide variety of solutions that can
fulfil the operational component of water services. In the face
of the size and urgency of the problem none should be discounted.
In this context the sterile "debate"
about public entities versus private entities and the regular
emotive and inaccurate use of the word "privatisation",
with all of the stigmas that certain parties have built-up around
this, are totally counter-productive.
The great majority of the difficulties that
face the "operational" parts of the service delivery
"value chain" affect all operators irrespective of whether
they come from the public, private, mixed or even informal sectors.
We believe that it is much more important to concentrate efforts
on identifying and solving these problems, for the good of all
operators and the customers they serve, than to continue endlessly
to oppose water professionals one against the other.
We note with regret that certain parties continue
to push ideological points of view aiming at discrediting private
operators, both in the Inquiry and elsewhere. This of course means
that AquaFed and its members are obliged to divert some of their
energies away from the main issues in an attempt to counter this
continuing propaganda. We believe that a similar wasted effort
is also created among aid agencies, donors and IFIs.
3.3 Links between financing needs, good governance
and regulation
In the evidence that we have seen so far, there
appears to have been relatively little importance given to the
links between the financing needs, good governance and regulation
of the sector. A good deal of the work done in recent years on
improving the performance of the water sector points to the links
that exist, or need to be developed, between financing mechanisms,
good governance procedures and regulations. These all contribute
to long-term confidence in the sector and therefore improve the
flows of finance to it. We believe that it could be beneficial
to the inquiry to call for evidence from experts, who have worked
on these issues in projects such as the Camdessus and Gurria panels.
3.4 Initiating change management
An important question was raised by Mr Bayley
(Q161), when he asked:
"Why have public water utilities proved
so difficult to reform in the past? Why have they been so inefficient
and is there any reason to believe that they can be reformed and
made more efficient in the future?"
As many commentators have indicated there is
no inherent reason why public operators should be inefficient.
Some of the causes for inefficiency are due
to externalities beyond the operators' control. We have indicated
some of them above. A number of these are the result of political
deficiencies, conflicts of objectives and limitation on resources.
This highlights the need for continued efforts on the political
front.
Other reasons relate to the difficulty of instituting
change management and the ability of vested interests and the
"status quo" to resist change. Indeed, whereas
an incumbent public sector body is invariably mired in the inertia
caused by resistance to change, a private sector body brought
in as part of a change management programme has change as its
focus and as a key performance indicator.
It is worth noting that in many countries the
existence of a viable private sector has provided the means for
Public Authorities to effect change management successfully. This
has been achieved through a wide range of different mechanisms
that include:
— Long-term operating contracts.
— Creation of public private joint
ventures.
— Technical assistance and management
contracts.
— Outright privatisation.
— Water Operators' Partnerships.
— Emulation of private sector
practices, for example through corporatisation.
— The employment of managers with
private sector experience, background and training.
There are concrete examples that show how any
of these mechanisms can stimulate change of behaviour and improve
performance in the water sector. All of them are reversible, and
all of them can be used to reinforce the fundamental political
responsibilities that the provision of essential public services,
such as water and sanitation, implies. This choice seems to us
to be important and worth preserving.
3.5 Section Summary
— Aid agencies can strengthen
sector performance by assisting to develop governance structures
that create clarity and reinforce effectiveness by separating
governmental from operational roles.
— Water and sanitation services
can only be delivered effectively, when both the governmental
and operational activities are coordinated in a practical, mutually
supportive and consistent way.
— Given the scale of the problem,
all available operational tools need to be mobilised and ideologies
set aside.
— Authors of the Camdessus and
Gurria "Financing Water for All" reports should be requested
to provide evidence to the inquiry.
— Change management is an issue
that impacts both the governmental approaches and operational
aspects. Even the partial presence of the private sector in a
country can be an effective catalyst or vehicle for change.
CONCLUSION
We trust that this additional information and
observations are useful to you. There are many other aspects of
water and sanitation provision that we have not been able to touch
on. We therefore remain available to try to answer any other questions
that you may have.
40 Ev 315. Back
41
Servicio Universal (Universal Service) which provides a general
levy to subsidise connections for poor people. Back
42
Mejora Ambiental (Environmental improvement charge), which is
a similar general levy to protect the environment by providing
easier access to sewerage and sewage treatment. Back
43
Access through innovation: expanding water service delivery through
independent network providers. B Valfrey-Visser, D Schaub-Jones,
B Collignon and E Chaponnie"re-November 2006. Back
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