Output-Based Aid for Water and Sanitation in Africa (learning points from three GPOBA pilots) World Bank Water Week 27 February 2007 1
Agenda 1. The GPOBA pilot in Uganda - Water supply in Small Towns and RGCs 2. The GPOBA pilot in Tanzania - Water supply in Secondary Towns 3. The GPOBA pilots in Egypt - Improved access to sewerage services in Gharbeya and Alexandria 4. Assessing willingness and ability to pay - revealed preferences 5. Assessing willingness and ability to pay - stated preferences 6. The importance of the existing institutional set-up 7. The contractual framework for private sector participation 8. The GPOBA implementation set-up and funds flow 9. Key learning points from the three OBA pilots 2
The OBA pilots Uganda - Water supply in Small Towns & RGCs - 1 Point of departure: 65 small towns with 16 private operators under well functioning 3 year operations contracts Limited risk transfer High investment costs Low affordability Project scope: Improving access to affordable safe water in 6 Small Towns (extension projects) and 4 RGCs (greenfield projects) 3
The OBA pilots Uganda - Water supply in Small Towns & RGCs - 2 Source of project finance: 65-90% GPOBA investment grant released upon verification of output Remaining part of the investment is paid mainly by users through the water tariff Tendering and contracting: DBFO contract with full responsibility for extending/ establishing the system and operating it Extended contract length (5 years in Small Towns and 7-10 years in RGCs) Selection criteria is lowest subsidy required per connection The tariff level is fixed in tender docs and contract 4
The OBA pilots Tanzania - Water Supply in Secondary Towns Point of departure: Limited and little experience with private operators High UFW in some towns Project scope: OBA combined with PSP in 5 towns OBA for incumbent public operators contingent on improved performance Source of project finance: 80-90% GPOBA with remaining part of the investment is paid by users through the water tariff Tendering and contracting: Performance based (details to be agreed) 5
The OBA pilots Egypt - Improved access to sewerage services - 1 Point of departure: Low income village and periurban households are deterred from connecting to existing WWTPS by the access costs Institutional set-up is complex Sector receives significant operational subsidies Project scope: Affordable access to sewerage services Alexandria is periurban and linked to the Bank's Alexandria Growth Pole Project squatter/slum upgrading component Gharbeya is rural and intended as pilot for the Bank's rural sanitation strategy implementation 6
The OBA pilots Egypt - Improved access to sewerage services - 2 Source of project finance: Fixed GPOBA capital subsidy for each new working connection + (Gharbeya only) O&M subsidy (to be bid) per m3 collected and treated to predetermined standards Tendering and contracting: Performance-based contracts for new connections + (Gharbeya only) private operation of wastewater systems 7
Assessing willingness and ability to pay - 1 Revealed preferences - Case Uganda Source of water Cost per Jerry Can (UGX) % of Household Income Catch Collect directly at the spring/well/pump 0 0% Involves time, distance, conflicts, security issues and fixed fee Own individual connection 25 6% Connection cost 50,000 UGX Public Water Point (Kiosk) when regulated 25-33 6% Public Water Point (Kiosk) when unregulated 50 12% Neighbor's individual connection 50-100 12%- Vendor when there is power and wet season 100-200 Vendor (no power or during dry season) 200-300 In Uganda, a combination of revealed preferences, interviews and generally applied rules on affordability showed that non-connected households in general were willing and able to pay the piped water tariff for general water use and up to the double for more limited amounts of drinking water. 8
Assessing willingness and ability to pay - 2 Stated preferences - Case Egypt Application of SP techniques for subsidy determination in Egypt's two pilot OBAs showed significant differences in WTP for connection to joint WWTP This was traced to differences in both income, quality of the current water supply services and current cost of evacuation 9
The importance of the existing institutional set-up In Uganda, operations cost coverage has been achieved and several years of experience with private sector participation enabled the shift towards longer and more advanced PPP contracts under the OBA project. In Egypt, the sector policy does identify private sector participation as a longer term goal but the immediate policy objective is moving towards cost recovery. This facilitates a private sector based solution but limits the scope for risk transfer. In Tanzania, private sector participation is still in its infancy in the water sector and the proposed OBA project will pilot private sector participation on a DBO basis in a five towns with low risk extension projects. Hence, the existing institutional set-up is an important determinant in structuring the OBA and the (possible) parallel PPP transaction. Piloting a new aid modality such as OBA and simultaneously piloting advanced PPP will be a very challenging process. 10
The GPOBA implementation set-up and funds flow - Case Uganda Memorandum of Understanding (MoU) MoWE DWD Implementing Agency Monitoring and Verification Function Implementation Agreement Grant Agreement GPOBA Performance Contract Small Town RGC Local Water Authority DBO Agreement Fiduciary Agent Funds Administration Agreement Funds Disbursement Agent Private Sector Private Operator Contracts Service provision Water users Control Funds 11
Key learning points from the three OBA pilots 1. The status and policies on Private Sector Participation in the sector and country will be an important determinant on the feasible level of ambition for risk transfer to the private sector under the OBA pilot 2. The 'right' longer term solution on tariffs may require national policy changes which are beyond the reach of the individual OBA pilot 3. A few committed officials at the beneficiary who fully understand the OBA concept can accelerate project development and approval significantly 4. The shift from input to output based specifications means new challenges for both the public contracting authorities and the private sector operators/contractors and may necessitate capacity development at both 12