Can private sector participation (PSP) in the provision of water supply and sanitation services (WSS) meet essential social and environmental needs? New research by the International Institute for Environment and Development (IIED) suggests that inappropriate forms of private sector involvement that are inadequately regulated are unlikely to be of much value to poorer households or the environment.

The development, management, protection and use of freshwater resources has become a topic of considerable international debate over the past decade. Traditionally, the provision of WSS in developing countries has been the responsibility of national and municipal governments. Recently, however, there has been a large increase in private sector participation in the provision of WSS. Between 1990 and 1997, the cumulative private sector capital expenditures in WSS projects in developing countries was $25 billion, compared with $297 million between 1984 and 1990.

Concerns have been raised about the ability of PSP to address the needs of low-income households or to protect the freshwater ecosystem. There is a multitude of related problems that a private sector provider has to overcome if it is to provide services to poorer areas. Findings include:

• At the regional level, there are concerns that PSP will not benefit the poorest as they are less attractive to investors.
• Within countries, PSP in water and sanitation services is concentrated in urban areas where economies of scale can be realised and potential returns likely to be higher.
• Even within urban areas, there are concerns that poorer households may not benefit from any gains in efficiency, either because they live in areas where costs of provision are relatively high or because their demand is relatively low.
• Households in expansion areas will often be unwilling to pay connection fees when existing users, usually richer, did not do so when they were first connected to the network.
• The costs of providing a standardised service to some areas, particularly in ‘illegal’ settlements may be prohibitive.

Overcoming such obstacles requires innovative solutions that go to the very heart of the provider’s relationship with the household. Policy implications include the need for:

• the social and environmental benefits of water supply and sanitation to be incorporated into strategies for service provision
• community participation in formal decision-making on forms of provision, and in the management and operation of provision
• governments to serve as regulator and guarantor of a certain level and quality of provision
• bidding procedures and contract design to allow sufficient flexibility for innovative solutions, without undermining the accountability of the firm
• service contracts to stipulate the use of high quality, low cost, intermediate technologies to expand service coverage to reach low-income areas.

Source(s):
‘Private Sector Participation in the Water Sector: Can it meet social and environmental Needs?' World Summit on Sustainable Development (WSSD), International Institute for Environment and Development, by John Thompson, May 2001 Full document.

Funded by: SIDA

id21 Research Highlight: 11 March 2002

Further Information:
John Thompson
International Institute for Environment and Development (IIED)
3 Endsleigh Street,
London WC1H 0DD
UK

Tel: +44 (0) 20 7388 2117
Fax: +44 (0)20 7388 2826
Contact the contributor: john.thompson@iied.org

International Institute for Environment and Development (IIED), UK

Other related links:
Insights #37 'Tapping the market. Can private enterprise supply water to the poor?'

Refer to related links on public-private partnership in water supply

'From subsidy to sustainability: cost recovery challenges in urban water supply'

IPWA promotes private sector participation in water utilities worldwide

The World Bank focuses on Water Supply and Sanitation

World Water Council is the International Water Policy think tank

InterWater is a Gateway to Water and Sanitation Information