Policy Issues for the Water and Sanitation Sectors

Given the importance of water and sanitation loans in the Bank's portfolio of infrastructure projects and the significance of the measures that are underway throughout the region, this discussion paper aims to identify those particular features of the water and sanitation sector which distinguish it from other infrastructure services and which will consequently merit special attention by countries engaging in such reforms. Included are a discussion of institutional problems facing state-owned providers of public services and policy responses to three key economic issues: optimal sector structure, the scope for privatization, and the redesign social policy.Water management, Water Supply and Sanitation, Public Utilities, water supply & sanitation, LAC, water sector, water policies

Does infrastructure reform work for the poor? A case study on the cities of La Paz and El Alto in Bolivia

From 1994 onward, Bolivia undertook a major reform of its infrastructure sectors. The authors examine the impact of the reforms from the perspective of poor households in the adjacent cities of La Paz and El Alto, particularly in terms of access to services. Different policies adopted across the infrastructure sectors led to diverging outcomes. In the water and sewerage sector, the concessionaire was placed under legal obligation to meet connection targets in low income neighborhoods, while customers were given the facility to spread payment of connection charges over a two year period and opt for a lower cost"condominial connection."As a result the rate of expansion of services increased by 70 percent relative to the pre-reform period. In the telecommunications sector, fixed and cellular services tell very different stories. On the one hand, fixed line services remained inaccessible to the poor due to the membership fee of US$1,500 charged by the cooperative, or the alternative nonmember option of paying a US$23 monthly rental fee. On the other hand, cellular coverage increased tenfold from 1996-99 as the advent of competition led to huge reductions both in connection and calling charges, while the introduction of prepayment cards greatly facilitated the control of expenditure The expansion that took place did not bypass the poor. While first quintile households saw barely any improvement in access to utility services in the period leading up to the 1994 reforms, in the five years that followed coverage rates for these households rose by more than 20 percentage points for water and sewerage, and more than 10 percentage points for electricity and telephones. Overall, 80 percent of new water and sewerage connections and 65 percent of new electricity and telephone connections went to residents in the poorest neighborhoods of La Paz and El Alto.Decentralization,Sanitation and Sewerage,Enterprise Development&Reform,Public Sector Economics&Finance,Health Economics&Finance,Town Water Supply and Sanitation,Urban Water Supply and Sanitation,Sanitation and Sewerage,TF030632-DANISH CTF - FY05 (DAC PART COUNTRIES GNP PER CAPITA BELOW USD 2,500/AL,Public Sector Economics&Finance

Is cost recovery a feasible objective for water and electricity ? The Latin American experience

Given the relatively small segment of the population that faces genuine affordability problems in Latin America, there appears to be a promising case for using targeted subsidies to reconcile the cost recovery objective with social protection concerns. Social tariff schemes of various kinds are already widespread in Latin America, but they suffer from a number of design flaws. Increasing block tariff (IBT) structures are the most prevalent form of social tariffs in the region. These are likely to be more successful in the electricity sector than in the water sector because the correlation between consumption and income is much stronger in the case of electricity than water. Moreover, IBT structures in electricity tend to be much better designed than in the case of water, with lower fixed charges, lower subsistence blocks, and steeper gradients. A number of more sophisticated social tariff schemes are also being applied that combine consumption criteria with some form of socioeconomic screening. These are generally found to perform better than IBTs, although they also present significant room for improvement.Infrastructure Economics,Town Water Supply and Sanitation,Public Sector Management and Reform,Regional Governance,Urban Governance and Management

Ethiopia's infrastructure: a continental perspective

Infrastructure contributed 0.6 percentage points to Ethiopia's annual per capita GDP growth over the last decade. Raising the country's infrastructure endowment to that of the region's middle-income countries could add an additional 3 percentage points to infrastructure's contribution to growth. Ethiopia's infrastructure successes include developing Ethiopia Airlines, a leading regional carrier; upgrading its network of trunk roads; and rapidly expanding access to water and sanitation.The country's greatest infrastructure challenge lies in the power sector, where a further 8,700 megawatts of generating plant are needed over the next decade, implying a doubling of current capacity. The transport sector faces the challenges of low levels of rural accessibility and inadequate road maintenance. Ethiopia’s ICT sector currently suffers from a poor institutional and regulatory framework. Addressing Ethiopia's infrastructure deficit will require a sustained annual expenditure of $5.1 billion over the next decade. The power sector alone requires$3.3 billion annually, with $1 billion needed to facilitate regional power trading. That level of spending represents 40 percent of the country's GDP and a tripling of the$1.3 billion spent annually in the mid-2000s. As of 2006, there was an annual funding gap of $3.5 billion. Improving road maintenance, removing inefficiencies in power (notably underpricing), and privatizing ICT services could shrink the gap. But Ethiopia needs a significant increase in its already proportionally high infrastructure funding and careful handling of public and private investments if it is to reach its infrastructure targets within a reasonable time.Transport Economics Policy&Planning,Infrastructure Economics,Public Sector Economics,Banks&Banking Reform,Town Water Supply and Sanitation

ECOWAS's infrastructure : a regional perspective

Infrastructure improvements boosted growth in the Economic Community of West African States (ECOWAS) by one percentage point per capita per year during 1995-2005, primarily thanks to growth in information and communication technology. Deficient power infrastructure held growth back by 0.1 percent. Raising the region's infrastructure to the level of Mauritius could boost growth by 5 percentage points. Overall, infrastructure in the 15 ECOWAS countries ranks consistently behind southern Africa across many indicators. However, there is parity in access to household services -- water, sanitation, and power. ECOWAS has a well-developed regional road network, though sea corridors and ports need attention. Surface transport is expensive and slow, owing to cartelization, restrictive regulations, and delays. There is no regional rail network. Air transport has improved despite the lack of a strong hub-and-spoke structure. Safety remains a concern. Electrical power, the most expensive and least reliable in Africa, reaches 50 percent of the population but meets just 30 percent of demand. Regional power trading would bring substantial benefits if Guinea could become a hydropower exporter. Prices for critical ICT services are relatively high. Recent panregional initiatives have improved roaming. New projects are underway to provide access and improved services to unconnected countries. Completing and maintaining ECOWAS's infrastructure will require sustained spending of $1.5 billion annually for a decade, with one-third going to power. Although the necessary spending is only 1 percent of regional GDP, some countries'share is between 5 and 25 percent of national GDP. Clearly, external assistance will be needed.Transport Economics Policy&Planning,Airports and Air Services,Infrastructure Economics,Transport and Trade Logistics,Roads&Highways

Sierra Leone's infrastructure : a continental perspective

Infrastructure development in Sierra Leone contributed about half a percentage point to the economy's per capita growth rate in 2003-07. But if Sierra Leone could upgrade its infrastructure to the level of the best performer in Africa, per capita growth rates could be boosted by more than three percentage points. After nine years of peace, economic activity is flourishing at every level in Sierra Leone. But the 11-year civil war destroyed the country's infrastructure, and rebuilding the road network and ports while improving the electrical, water, and telecommunications infrastructure is proving difficult. Looking ahead, expanding electrification is a top priority because current access levels, at only 1-5 percent of the urban population and 0 percent in rural areas, are impeding other development. The water and sanitation sector faces similar challenges, as only 1 percent of the rural population has access to piped water. Sierra Leone has been spending about $134 million annually on infrastructure in recent years. About$66 million is lost each year to inefficiencies. Comparing spending needs against existing spending and potential efficiency gains leaves an annual funding gap of $59 to$278 million per year. If savings from greater efficiency could be fully captured, Sierra Leone would not meet its posited infrastructure targets for another 30 years. Sierra Leone needs to make difficult decisions about the prioritization of infrastructure investments and must think strategically about bundling and sequencing investments for maximum returns.Transport Economics Policy&Planning,Infrastructure Economics,Energy Production and Transportation,Town Water Supply and Sanitation,Public Sector Economics

Zambia's infrastructure : a continental perspective

Infrastructure improvements contributed 0.6 percentage points to Zambia's annual per capital GDP growth over the past decade, mostly because of exponential growth in information and communication services. The power sector, by contrast, pulled the growth rate down by more than 0.1 percentage points. Improving Zambia's infrastructure endowment could boost growth by up to 2 percentage points per year. Zambia's relatively high generation capacity and power consumption are accompanied by fewer power outages than elsewhere in the region. But Zambia's power sector emphasizes the mining industry, while household electrification is about half that in other resource-rich countries. Zambia's power tariffs, among the lowest in Africa, are less than half the level needed to accelerate electrification and keep pace with mining sector demands. In power as in just about every other aspect of infrastructure, rural Zambians lag well behind their African peers. In a country where 70 percent of the population depends on agriculture for its livelihood, this represents a huge drag on the economy. Zambia would need to spend an average of $1.6 billion a year over the decade 2006-15 to develop the infrastructure found in the rest of the developing world. This is equivalent to 20 percent of Zambia's GDP and about double the country's rate of investment in recent years. Closing the country's annual infrastructure funding gap of$500 million requires raising more funds, looking for more cost-effective ways to meet infrastructure targets, and eliminating the inefficiencies that cause the loss of $300 million annually.Transport Economics Policy&Planning,Infrastructure Economics,Energy Production and Transportation,Town Water Supply and Sanitation,Banks&Banking Reform

Nigeria's infrastructure : a continental perspective

Infrastructure made a net contribution of around one percentage point to Nigeria's improved per capita growth performance in recent years, in spite of the fact that unreliable power supplies held growth back. Raising the country's infrastructure endowment to that of the region's middle-income countries could boost annual growth by around 4 percentage points. Among its African peers, Nigeria has relatively advanced power, road, rail, and ICT networks that cover the national territory quite extensively. Extensive reforms are ongoing in the power, ports, ICT, and domestic air transport sectors. But challenges persist. The power sector's operational efficiency and cost recovery has been among the worst in Africa, supplying about half of what is required, with subsequent social costs of about 3.7 percent of GDP. The water and sanitation sector has inefficient operations, with low and declining levels of piped water coverage. Irrigation development is also low relative to the country's substantial potential. In the transport sector, Nigeria's road networks are in poor condition from lack of maintenance, and the country has a poor record on air transport safety. Addressing Nigeria's infrastructure challenges will require sustained expenditure of almost $14.2 billion per year over the next decade, or about 12 percent of GDP. Nigeria already spends about$5.9 billion. It is well placed to raise the funds needed for infrastructure, given the strength of the national economy, abundant oil revenues, and efforts at electricity cost recovery and other improvements to operations and management.Transport Economics Policy&Planning,Infrastructure Economics,Public Sector Economics,E-Business,Town Water Supply and Sanitation

Angola's infrastructure : a continental perspective

Infrastructure made a net contribution of around 1 percentage point to Angola's improved per capita growth performance in recent years, despite unreliable power supplies and poor roads, which each holding back growth by 0.2 percentage points. Raising the country's infrastructure endowment to that of the region's middle-income countries (MICs) could boost Angola's annual growth by about 2.9 percentage points. As a resource-rich, postconflict country, Angola has shown an exceptionally strong commitment to financing the reconstruction and expansion of its infrastructure. It has recently expanded its generation capacity, embarked on an ambitious multibillion-dollar road rehabilitation program, begun to make investments aimed at easing congestion at the Port of Luanda, and embarked upon an ambitious rehabilitation program for urban water systems. Numerous challenges remain, however. Angola needs to upgrade its electricity transmission and distribution infrastructure, expand its urban water-supply system, improve efficiency at the Port of Luanda, and make policy and regulatory adjustments across the board. Angola presently spends around $4.3 billion per year on infrastructure, with$1.3 billion lost to inefficiencies. After taking sectoral allocations and inefficiencies into account, a modest funding gap of $115 million per year remains, which could be largely eliminated by focusing on lower-cost water and sanitation options. Angola's infrastructure needs are manageable relative to its fast-growing economy, as long as the country can address inefficiencies.Transport Economics Policy&Planning,Infrastructure Economics,Town Water Supply and Sanitation,Energy Production and Transportation,Economic Theory&Research

Niger's infrastructure : a continental perspective

Between 2000 and 2005 infrastructure made a net contribution of less than a third of a percentage point to the improved per capita growth performance of Niger, one of the lowest contributions in Sub-Saharan Africa. Raising the country's infrastructure endowment to that of the region’s middle-income countries could boost annual growth in Niger by about 4.5 percentage points. Niger has made significant progress in some areas of its infrastructure, including water and telecommunications. But the country still faces a number of important infrastructure challenges, the most pressing of which is probably in the water and sanitation sector, as 82 percent of Nigeriens still practice open defecation, the highest in the continent. Niger also faces significant challenges in the power sector, as only 8 percent of the population is electrified. Niger currently spends about $225 million per year on infrastructure, leaving an annual funding gap of$460 million even after savings from curing inefficiencies are taken into account. Niger can close that gap by tapping alternative sources of financing or by adopting lower-cost technologies. There is plenty of room for private-sector participation in Niger's infrastructure sectors, and the adoption of lower-cost technologies could reduce the funding gap by almost half.Transport Economics Policy&Planning,Infrastructure Economics,Town Water Supply and Sanitation,Water Supply and Systems,Energy Production and Transportation