June 2001 Insights Issue #37

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Why should governments serve the poor?

Is government responsible for ensuring public health? Is it necessary for public entities to deliver this public good? Who else might serve the unprofitable urban poor?

Experience suggests that government responsibility has not been sufficient to drive service delivery to informal housing areas characteristic of many cities. Government officers plead that however much they would like to extend pipe distribution systems they are not allowed to serve illegally occupied areas. Disincentives exist in that public servants can profit personally from on-selling public water to private vendors.

What are the incentives for utilities, public and private, to serve the urban poor? Research by the Institutional and Management Options Working Group (IMO) has set out to answer this question, to determine what pressures utilities are under to achieve their universal service obligation.

Of the cities studied, Santiago and El Alto are served by private operators, the remainder by government entities: Guayaquil, Kampala, Lusaka, Durban and Dhulikel. For four of the five public providers there appears to be no incentive to serve the urban poor. Indeed there is a clear disincentive in that utilities are now under pressure to become financially sustainable. Any subsidies aimed at the poor, perhaps through a cross-subsidised 'lifeline block' (minimum consumption) make it harder for managers to meet their new commercial performance targets.

The private sector, on the other hand, does have clear incentives. In El Alto the private provider is contracted to expand water services to 100 percent of the population by the end of 2001. The company is on course to achieve the target through: participatory development, discounted connection fees (coupled with a contribution through 'sweat-equity' labour - householders digging trenches for pipes), micro-credit for the construction of wet cores (bathrooms), a relaxation of some technical standards and limited donor contributions. Government ensures compliance with these targets through its own regulatory office, effectively separating control from provision.

In Santiago, subsidies and service provision are separated: the municipality pays the private utility up to 50 per cent of the costs of basic needs water and sanitation (15m3 per month) of the registered poor. This means that no household pays more than 5 per cent of their income.

For the public sector incentives are less clear. The political imperative at a time of change in Durban led to innovative techniques to serve the poor, differentiating service provision with cheaper tariffs for low-pressure ground tanks. Now central government requires a free water allowance to be made available to the poor.

In other countries the technique is to supply water through free standposts which can be far from home, with irregular supply, long queues and loss of revenue for the provider. In Lusaka and Kampala, in the absence of incentives for the public utility, NGOs are becoming involved to complement, and perhaps limit, the private vendors. In Dhulikel, government has handed over this small town system to a specially formed user committee who on their own initiative are trying to ensure service for all whilst trying to achieve government revenue collection targets.

With only a small percentage of urban services managed by private contractors there has to be an effective public provider solution for the remainder.

• Governments should use the experience of private provision with contracted service obligations to require a similar level of performance in serving the poor from their own public providers.
• The new drive towards financial sustainability of utilities has been undermining any move towards the universal service obligation. The private sector shows how it is possible to achieve both these key objectives. The public sector now has a responsibility to adopt these approaches for the benefit of all their customers, present and potential.

Richard Franceys
International Institute for Infrastructural
Hydraulic and Environmental Engineering (IHE)
Westvest 7
Box 3015
2601 DA Delft
The Netherlands
T +31 (0)15 215 1783
rwf@ihe.nl

See also
'Incentives for utilities to serve the urban poor' IMO, IHE, Delft: The Netherlands, edited by Richard Franceys and Annette Bos, Water Supply and Sanitation Collaborative Council, 2001 (forthcoming).