EXPERT GROUP MEETING ON STRATEGIC APPROACHES TO FRESHWATER MANAGEMENT 27 - 30 January 1998 Harare, Zimbabwe Financing of Freshwater for All - A Rights Based Approach by Ashok Nigam and Sadig Rasheed Paper No. 2 Prepared for the Department of Economic and Social Affairs United Nations ------ Financing of Fresh Water for All - A Rights Based Approach by Ashok Nigam and Sadig Rasheed * UNICEF, New York * Sadig Rasheed is Director, Programme Division, and Ashok Nigam is Policy Analyst, Division of Evaluation, Policy & Planning, UNICEF, New York. The authors are grateful to Marta Santos Pais, Gourisankar Ghosh, Alfredo Missar and Jan Vandemoortele for their support and comments. The paper reflects the views of the authors and not necessarily those of UNICEF. - "All people have a right to have access to drinking water..." Mar del Plata, 1977 - "Some for all rather than more for some" New Delhi Declaration, 1990 - "Water is an economic good" Dublin Declaration, 1992 - "Satisfy the freshwater needs of all countries." Agenda 21, Rio Earth Summit, 1992 - "Efficient and effective use of the available funds", Ministerial Conference, Noordwijk, 1994 The international declarations in water supply and sanitation in the last two decades have emphasized the right to water and covered a range of criteria for the mobilisation and allocation of financial resources. Yet, by the year 2000, it is projected that almost 750 million people will not have access to safe water supply and 3.3 billion will not have access to environmental sanitation. More alarming still are the predictions of water scarcity. The United Nations estimates that "..some 80 countries, comprising 40 per cent of the world's population, are already suffering from serious water shortages and that, in many cases, the scarcity of water resources has become the limiting factor to economic and social development". Further, "ever increasing water pollution has become a major problem throughout the world, including coastal zones" (United Nations, 1997). In this paper we argue that fresh water for all is achievable early in the next millennium if a rights based approach is adopted by governments for the mobilisation and allocation of financial resources. The challenges in fresh water for all are twofold: ensuring sustainable financing and environmentally sound use of water resources. In this paper the term fresh water will refer to the availability of water resources for all its competing and conjunctive uses - agriculture, industry and domestic - with primacy for the latter, and for the maintenance of the ecosystem taking account of future generations. The rate of abstraction of water resources and its utilisation must recognize the limitations of the resource base in specific locations at specific times and ensure sustainability of the eco-system. The -fresh water environment■ includes environmental sanitation because of its impact on health through pollution and water borne diseases. Fresh water is a renewable but finite resource in a given environment. Ninety seven per cent of all water on earth is salt water - unsuitable for drinking or growing crops. Of the remaining 3 per cent most is locked away in the polar ice caps. Only 0.3 per cent of the total fresh water reserves on earth are found in rivers and lakes which along with ground water forms the bulk of the water for drinking (10 per cent), industry (21 per cent) and agriculture (69 per cent) (Gleick, 1993; Shiklomanov, 1993). While fresh water is a renewable resource following the hydrological cycle, it is not evenly distributed. Adequate quantity and quality of water is not available when and where it is needed and pollution and unsustainable abstraction of water resources has enormous environmental, socio-economic and health implications. The global fresh water crisis is in actual fact a local level crisis. It is a crisis in time (particular periods during the year) and in space (particular locations) as shown by a number of case studies (Nigam et. al. 1997; IUCN & PRB 1997). Water as a human right The Universal Declaration of Human Rights (1948), Article 25 states that "Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services.." Article 22 of the Declaration confers on everyone "..economic, social and cultural rights indispensable for his dignity and the free development of his personality". The Vienna Declaration and Plan of Action on Human Rights 1993, further reaffirms the right to development as a -universal and inalienable right and an integral part of fundamental human rights■. Fulfilment of this right requires -effective development policies at the national level, as well as equitable economic relations and a favourable economic environment at the international level. The right to development should be fulfilled so as to meet equitably the developmental and environmental needs of present and future generations■. Water is essential for life and development. It fulfills all of the criteria to qualify as a fundamental human right. The Vienna Declaration calls for policies and strategies which take full cognizance of the needs of future generations. This is no where more true than in fresh water management because of the implication for water availability if the ■water environment■ is degraded. Deforestation, soil erosion, agro and industrial pollution of water sources, and declining water tables, as a result of over-exploitation for irrigation, have now become major problems in many parts of the world. This right to survival, protection and development has been further reinforced for children in the Convention on the Rights of the Child (CRC). Article 24 of the CRC calls on State Parties to recognize the right of the child to the enjoyment of the highest attainable standard of health and in implementation of this right through ".... inter alia, the application of readily available technology and through the provision of ...clean drinking water, taking into consideration the dangers and risks of environmental pollution". The State must also ensure hygiene and environmental sanitation. This implies that fresh water use must take full account of the costs of environmental protection. The welfare of future generations can often be compromised in strategies to meet the challenges of the present. Role of the state, NGO■s and civil society The role of the state in ensuring access to water for all and environmental sanitation must be interpreted in the context of both human rights - political, civil, economic and social - and child rights, both of which call for the satisfaction of basic needs. Access to safe water, environmental protection and sanitation are economic and social rights. All human beings are entitled to basic levels (as defined in the national context) of drinking water supply and environmental sanitation with environmental protection for the welfare of present and future generations. State Parties are urged under both the Vienna Declaration and the CRC to undertake measures to meet these rights to the maximum extent of their available resources. The congruity between rights and economic efficiency In the allocation of scarce resources, national governments are often faced with difficult choices. The economic criteria governing the allocation of scarce resources has been derived from theories of Pareto optimality, second-best and where market failures exist, compensation of the losers by the gainers. The role of the state becomes increasingly important in cases of market failure. The market is also inefficient in taking account of equity and inter-generational considerations. In arriving at the conditions for efficiency, the market allocation mechanism takes as a given the initial resource endowment across individuals and households. But the efficiency frontier depends very much on the distribution of the initial endowment of resources. This is to say that if the initial endowment of resources and capabilities is changed to ensure that rights are met, then alternate but efficient outcomes can still be achieved. These outcomes can be both more equitable and efficient. But the inequities that prevail in the initial conditions - endowments and capabilities - are not the primary considerations of the market. Moreover, to the extent that it is political economy rather than purely market forces that drives the decision-making on the allocation of resources, the role of rights in influencing those decisions is of fundamental importance. The allocation criteria based on rights would ensure the fulfilment of basic needs and compensate to some extent for the inequity in the initial endowments and capabilities. The rights based approach is not at odds with that based on economic efficiency. Decisions in political economy must be informed by the overarching framework of human and child rights. One can find a formidable ally for a rights-based approach in Sen (1987) who acknowledges the shortcomings of a pure economists way of analysis: "moral rights and freedom are not, in fact, concepts for which modern economics has much time. In fact, in economic analysis rights are seen typically as purely legal entities with instrumental use rather than any intrinsic value". Sen argues for the role of freedom and rights in achieving well-being as well as offering choices on which much of economic reasoning is based. The rights based approach to development, within which meeting of fresh water for all is one challenge, provides the political, moral, ethical and legal imperative for more equitable allocation of resources. Thereafter, the criteria for economic efficiency can be postulated. The rights based approach to financing fresh water for all, therefore, calls for ensuring that the fundamental right to basic levels of service 1/ is met. If these initial conditions for the distribution of resources and enhancement of capabilities are achieved, then the market mechanism can reach an efficiency frontier which is more equitable and just. Public and private goods from a rights perspective - who should pay? The role of the state in public finance has often been looked at in the context of public and private goods in order to determine who should pay for what type of services. It is argued that because the benefits from water supply such as time savings, amenity and health benefits accrue to the household, the public finance principle dictates that the bulk of the costs should be borne by the households themselves. By the same principle, because there are strong positive exernalities in sanitation whereby the benefits accrue to the community as a whole from safe excreta disposal, the costs outside the household should be borne by successive levels from block to district, state and national (Serageldin, 1995; Briscoe and Garn, 1995). In the case of water and sanitation the distinctions between public and private goods is not easy. Water borne diseases in many parts of the world are a health hazard. The positive externalities mean that the nation as a whole will benefit from improved access to safe water and sanitation through productivity gains and reduction of the cost of health care. The public-private criterion for the allocation of resources must not obviate the state's responsibility to ensure that basic levels of services are provided. While the state has primary responsibility to ensure access to water and sanitation, it cannot even with its best efforts shoulder the sole responsibility for its provision and operations of maintenance of the facilities. Non-governmental organizations and civil society have historically played a major role. The example of Orangi in Pakistan (Box 1) shows the scope and impact of such partnerships. The lesson from Orangi suggests that not only do NGO■s and civil society play a critical role in ensuring fresh water for all but if actions by the state are motivated from the rights perspective there can be powerful strategic alliances between the state and civil society. The major change in the policies of the state in the case of Orangi was the granting the residents title to the land that they had been living on which provided civil society the motivation for action. The community was able to design cost-efficient financing mechanisms on its own without profit-seeking intermediaries. The key constraint was not lack of financial resources but the political decision by the state to confer rights to people. -------------------------------------------------------------------------- Orangi Sanitation Project About 40 per cent of Karachi■s population lives in squatter communities, called katchi abadis. These are dynamic new neighbourhoods developed on the edge of the city over the past 25 years by enterprising migrants from rural areas. The rich in Karachi have modern sanitation with flush toilets in the homes and underground sewers. Most of those in the katchi abadis had only bucket latrines and open sewers. In the 1970s the municipal government made a major shift in policy by accepting that these settlements were here to stay. This was a key step because it enabled people to buy titles to their homesite, giving them a sense of permanency and the incentive to invest in improvements. In 1980, Akhtar Hameed Khan formed an organization called Organi Pilot Project to tackle the sanitation menace in one of these abadis. Orangi is home to about 1 million working-class people - skilled labourers, clerks, shopkeepers - with family incomes averaging about 1000 rupees (US$30) per month. The residents had formed numerous community associations that relentlessly pressed their demands with the authorities, but they were getting nowhere. OPP was set up to help them develop a sanitation system themselves after repeated requests to the municipal authorities was getting them nowhere. Seventeen years later virtually every home in Orangi has a pour flush toilet connected to an underground sewage line. OPP provided technical advice and plans for a simplified design, which reduced the cost by a factor of 10. Each family invested about a month's income to buy materials and hire labour. Government contractors who often pad their costs were avoided. Significant improvements are now seen in school attendance, loans for small businesses, and health. The key Organi lessons are that adequate sanitation is fundamental to improving living standards; that people are willing and able to pay for sanitation if costs can be controlled through community initiatives; that ownership of land and houses in urban areas is an essential prerequisite for private investments in sanitation; and that collective efforts of ordinary people can push aside roadblocks of bureaucrats. Source: "The sanitation gap: Development's deadly menace" by Akhtar Hameed Khan, UNICEF, Progress of Nations 1997. --------------------------------------------------------------------------- Recognizing some of the lessons learned in the sector the New Delhi Declaration (UNDP 1990) envisaged the role of the government to transform from that of provider to that of promoter and facilitator. At the Dublin International Conference on Water and the Environment (1992), the lessons learned suggested that water should be treated as an "economic good". While no clear interpretation of this term was provided, it is generally interpreted that water should have a "price"■. Pricing of water is seen primarily with respect to its domestic and manufacturing use not so much for agriculture. With the exception of surface water supply which can be controlled and regulated, legislation and control of ground water varies from country to country. For example, In India, the owner of the land has right to the water beneath it under common law. By contrast, in Mexico, the landowner has no such rights. In the context of competitive use of the resource, which has resulted in water scarcity for domestic purposes as a result of over-extraction for irrigation, there is an increasing need to consider pricing of water for agricultural use also. In the absence of the price mechanism covering all the uses of water and protection of the environment, the emerging problems of scarcity will be difficult to tackle. Needless to say, pricing of water for agriculture is a much more difficult task, politically and operationally because of the system of water rights such as in India and the difficulty to monitor and control the amount of ground water extracted. The nature of the fresh water sector suggests that market forces alone will not be able to address the problems of water scarcity, access to safe drinking water, competitive and conjunctive uses of water between domestic, agriculture and industry, sanitation and environmental protection. The state has an important role to play in setting the standards to be met in the extraction and use of water resources, including regulating and monitoring compliance regardless of whether services are government owned or privatized. Unfortunately, most developing countries do not have appropriate regulatory frameworks. The difficulty in setting up such frameworks is the lack of experience, relevant skills and expertise. Moreover, because of the political sensitivity of the sector, the issues are highly charged and many governments in developing countries lack credibility as a regulator. Willingness and ability to pay The growing trend towards market-based approaches for meeting basic needs has gathered momentum in the water supply and sanitation sector. Through a number of studies it has been contended that people are willing to pay for water supply. Willingness to pay studies became a major justification for instituting charges for water supply in rural and urban studies. Since the principle of payment for urban services was generally accepted although recovery was low, the chief focus was on payment for rural water supply and in particular by the poor. The evidence cited was derived from contingent valuation surveys and from what people already pay for often inferior services. Thus, for example, it has been shown that in many peri-urban areas the poor are often paying up to 20-30 per cent of their income for water (Briscoe and Garn, 1995). In a study in five cities in Morocco it was found that households are willing to pay more than the 5 per cent of total household expenditure - an unofficial norm in the sector - for individual water services (Mcphail 1993). Such evidence in conjunction with the need to ensure a demand based approach for sustainable operation and maintenance of services has been used to justify cost-recovery in water supply. The willingness to pay approach suffers from a number of inherent weaknesses as pointed out by Reddy & Vandemoortele (1996) in the context of social sectors. Water being life, it is not surprising the people would be willing to pay for it. In December 1997 the New York Times reported on the willingness of people in Indonesia to sell their precious gold for water in the wake of the massive forest fires that engulfed the nation. Willingness to pay analysis in water supply fails to pay adequate emphasis on the ability or capability of poor households to pay for basic levels of services when they have to pay for all the other basic needs such as health and education (Ghosh and Nigam 1995). Second, although women are the main fetchers of water, their willingness to pay may not be matched by ability, because of their lack of control over household income. The dynamics of household decision- making, control over material and non-material assets and the overall economic and social burden needs to be built into the analysis (Cleaver and Elson, 1995, Cleaver and Lomas 1995). Finally, from a rights and public good perspective, the public health argument to justify widespread provision of these services by the state is being replaced under the guise of economic efficiency criteria with calls for individual valuation of the benefits. By equating the monetary payment that individuals are willing to make or already make, the willingness to pay technique suggests that the preferences that people express in such a manner to meet what is after all a basic need for survival is equivalent to welfare. (Cleaver and Lomas 1995, Sen 1979). Recognizing the centrality of rights to basic levels of service, willingness and ability to pay and the resource constraint faced by national governments, UNICEF■s strategy calls for ensuring that basic levels of service are met through community cost-sharing of capital and recurrent costs while the full capital and recurrent costs of higher levels of services is to be recovered in order to generate additional resources to extend basic services and ensure their sustainability (UNICEF, 1995). Such a strategy recognizes the need to ensure that the provision of higher levels of services does not hinder the achievement of the right to at least the basic levels of service for all as defined in the national context. Equally, it does not preclude cost-sharing by communities for even basic levels of service. Investments in water and sanitation Investments in water supply and sanitation and allocation of government budgets have been difficult to track. In part, this is because a number of sectoral ministries from health, water resources, agriculture, and infrastructure development are engaged in the provision of domestic water supply and sanitation and hence the data is dispersed. Moreover, no distinction is made between low-medium and high cost investments. An estimated $134 billion was spent in the water supply and sanitation sector in developing countries in the 1980s - the International Drinking Water Supply and Sanitation Decade (WHO 1990) - three-quarters of which was on high cost urban systems. In relation to the estimated total requirement of US$5-9 billion a year (UNICEF 1994) for universal water supply and sanitation coverage in rural and peri- urban areas using low-cost technologies, there is a need to at least double the investments from the level of the 1980s of about US$3 billion a year on such systems. Increasing populations in urban areas have severely strained the already low levels of services in many cities of developing countries. Lack of proper urban sanitation facilities is having a dramatic impact on health as witnessed by the plague and dengue fever in parts of India and cholera outbreaks in Chile. A $13 billion annual investment in water supply and sanitation in 1990's is less than 8 percent of the $170 billion spent on health in 1992 in developing countries (World Development Report 1993) and the estimated $200 billion per annum spent on total infrastructure (including power, telecommunications, roads, water supply and sanitation) (World Development Report 1994). Of the total investment in infrastructure only about 6.5 percent is in water supply and sanitation. Investment in water supply amounts to about 0.4 percent of the GNP of developing countries (WDR 1994) compared to 4.7 percent for health and 5.5 percent for infrastructure. This represents only about $3 per capita for water supply and sanitation; compared to $41 for health and $49 for infrastructure as a whole (Figure 1). Investments in the water and sanitation sector have been woefully inadequate. Public investment must be complemented by greater private investment in the future, both of which must be guided by the rights based approach to ensure basic levels of services for all. The 20/20 Initiative Article 4 of the Convention on the Rights of the Child calls for State Parties to meet the rights of children to the -maximum extent of their available resources■. It would be true to say that most developing countries can do more. The 20/20 initiative agreed upon at the World Social Summit in Copenhagen calls for an agreement on a mutual commitment between interested developed and developing country partners to allocate, on average, 20 per cent of Overseas Development Assistance (ODA) and 20 per cent of the national budget, respectively, to basic social programmes including low-cost water supply and sanitation, basic education, primary health care, nutrition and reproductive health (UNICEF, 1994; United Nations, 1995). Current estimates suggests that developing countries on average are spending only about 13 per cent of government budgets and about 10 per cent of ODA is spent on basic social services. The attached note on 20/20 for Water and Sanitation prepared by IRC, Netherlands Ministry of Foreign Affairs and UNICEF examines in depth the scope of this initiative for this sector and the efforts underway for its implementation. Clearly, more can be done through public finance, including the re-structuring of inter and intra-sectoral expenditures in favour of basic social services. In addition, the efficiency and effectiveness of current investments can be enhanced. Figure 1 - ESTIMATED ANNUAL INVESTMENT IN DEVELOPING COUNTRIES [ not available ] Reaping the efficiency dividend for fulfilling rights of fresh water for all It has been argued that the goal of universal access to water supply and sanitation cannot be met without efficiency and effectiveness in resource use; additional resource allocation; and the use of alternate financing mechanisms (Nigam & Ghosh, 1995). The water supply and sanitation sector is highly inefficient with significant water loss from leakages in urban areas and inefficiency in utilisation of water for agriculture. It is estimated that China■s network of 600,000 km of underground pipes waste US$360 million worth of water each year. A saving of 1 per cent could supply 6.5 million people with water for one year (Financial Times, July 30, 1996). In an environment of water scarcity where there are competing users of fresh water wastage by other sectors also constitutes a significant loss. In India, it is estimated that 60 per cent of irrigation water is wasted by seepage through unlined field channels and due to over application (TERI, 1997). There are a number of other examples of inefficient utilization of funds in the sector. In Kerala State of India for example, during the period 1977/78 to 1989/90, while water supply coverage has doubled, real investment in the sector increased sixfold indicating that real unit costs more than trebled (Pushpangadan et. al. 1995). Inefficiencies and subsidies for the rich work against the fulfilment of rights of all because they take away scarce financial resources for meeting the rights of those who do not have access to basic levels of services. Cost recovery in urban water supply in many developing countries is only about 30 per cent - the rich in urban areas benefit from government finances and subsidies (Briscoe & Garn, 1995). Increasing this percentage will depend very much on improvements in the quality of services provided, quantity of water available to the household in relation to the total volume of water pumped and reliability of services - QQR principle (Nigam, 1996). Failure to improve efficiency of services impinges on the rights of those that do not have access to basic levels of services. Privatisation and private sector financing within a rights-based approach Quite apart from considerations of whether water and sanitation are public or private or economic goods, the inability of the state to meet the basic levels of services in rural and urban areas due to political, financial and institutional constraints and the high degree of inefficiency that has prevailed in the sector has led to a growing recognition that the private sector can play a major role in achieving the fundamental right of all to safe water and enviornmental sanitation. A wide range of possibilities have been suggested in private financing of public infrastructure from NGOs, to contractual arrangements for service delivery and operations and maintenance by the private sector, to franchising and ultimately the sale of public property to private investors with the rights to engage and manage all aspects of service delivery and operations and maintenance. The domestic private sector will be an important source for both capital and service delivery. Thus, for example, a number of country experiences now show that services can often be delivered more cheaply and efficiently by private contractors than by the government. The expansion of the handpump programme in India testifies to this. The costs of boreholes has been halved in the case of Zambia by the use of private contractors. Similarly, incentives for the private sector for the production and sale of sanitary latrines and imparting health messages through rural sanitary marts in India has been shown to be a cost-effective strategy. Provision of household sanitation facilities should be based on the principle of effective demand. (Nigam and Ghosh, 1995). The role of the state is also increasingly being called into question in the context of growing liberalisation and globalisation of economies. In such an environment, privatisation of water utilities and private sector financing is increasingly being looked at as a major market-based approach for sustainable financing of water supply and sanitation. Experiences in privatisation in developed countries such as the United Kingdom, private sector financing of the public sector such as in France through concessions (a contractual arrangement between the public authority and private enterprise which is generally accompanied by subsidies and risk sharing whereby the public sector contracts the private to act in its stead through the delegation of specific authority) and in developing countries such as South Africa have provided models such as Umgeni Water Board (Box 2) for other countries. Liberalisation, privatisation and globalisation of markets is also affecting the direction of flow of natural water resources across national borders. In such an environment, water becomes yet another resource that can be bought and sold on international markets. It is now not uncommon to think of tanker loads of water being transported from water abundant regions to water scarce regions. This issue gained prominence in the aftermath of the North American Free Trade Agreement (NAFTA) which opened up the possibility of large scale transfer of water resources from Canada to California. In the case of developing countries which are severely strapped for resources, it may not be uncommon for them to enter into agreements for the shipment of water to scarce regions. The long-term implications, including environmental impacts of such large scale transfers in the exporting country have yet to be analysed systematically since this is a relatively new phenomenon. But globalisation of international markets has introduced trading in water as a distinct possibility with its consequent and as yet uncertain implications for livelihoods and the environment in relatively water abundant regions. Despite the trend towards privatisation of water utilities, it is perhaps worth noting that in most of the developed countries provision of water supply and sanitation had until recently been considered to be primarily a ■state■ responsibility and continues to be so in many of them. Those that have privatized have done so only after the basic infrastructure had been well developed. Privatisation of water and sanitation services in developed countries did not come about until full coverage had been assured by the state. Indeed, under the principle that the market would not be interested in ■lame ducks■, water utilities have to be profitable ventures in order to be candidates for privatisation. The private sector has been willing to fund public infrastructure but whole sale privatisation of public water utilities is a relatively new phenomenon. There is an important distinction between using the private sector for service delivery, promoting private sector investment in the sector, both in principle to be encouraged, and private sector ownership and management of the water supply and sanitation utilities or privatisation. A key consideration from a rights perspective is whether privatisation can ensure access by all to at least basic levels of services in a non-discriminatory manner; or whether privatisation will lead to a balkanization of the market with the profitable sectors being passed in to the hands of private shareholders and the poor and marginalised groups being forced to purchase water at much higher rates than in the privatized sector - or left to the state which, having lost the profitable sector to cross-subsidize the disadvantaged segments of society, finds it increasingly difficult to finance the provision of services to marginalised groups. These questions are, however, often pressed aside in the rush to encourage private capital flows - domestic and foreign - for infrastructure development. The conditions necessary for private sector flows, particularly external - sound macroeconomic environment, and consistent and "friendly" economic and regulatory policies towards private sector utilities - become the primary objective of government actions. Only a handful of developing countries are presently beneficiaries from foreign direct investment in general and to the water sector in particular. Although, private sector flows can compensate for inadequate and inefficient public investments, without adequate regulatory mechanisms they cannot guarantee access by all and ensure environmental sustainability. Privatisation must also not compromise accountability - both to the market and society. Calls for privatisation must be mindful that the efficiency of such institutions assumes the existence of corporate governance - an assumption which may not always hold in some developing countries. Hence privatisation must be accompanied by corporate governance. There may be reasons for optimism in privatisation if companies operate in a socially responsible manner as in the case of Umgeni Water Board (Box 2). Their reason for doing so arises not from being welfarist, but the realization that the long-term growth of the private sector in water supply and sanitation depends very much on ensuring environmental sustainability. Lack of basic services for the poor can impact on the environment of the basin on which the private company is dependent for its revenues. It is in its interest to bring communities within its basin into the ambit of improved services. But this will not happen automatically. The state will need to play the role of guarantor of services to the poor, protecting them from the inequity of the market, and regulator of private utilities in the sector. ---------------------------------------------------------------------------- Box 2. Umgeni Water Board: Expanding access to improved levels of services through the private sector. Umgeni Water, the largest water utility in the province of Natal, South Africa takes a long-term view in the provision of water supply to a catchment of 24,000 Km. and a population of 5.5 million people of which 1.5 million are rural. Development and growth has put the water resources under stress. The utility identified a major source of pollution to be from the discharge of raw and untreated sewage into the basin resulting from increased urbanisation and informal settlements. In addition, soil erosion in the headwaters was causing increasing silt loads in rivers and reservoirs. As a result the cost of water supply to urban users was increasing due to expensive treatment processes. To counter these long-term effect, the utility started providing water supply to rural areas also demonstrating that services could be provided jointly to rural, peri-urban and urban areas in a cost-effective manner with full cost recovery for the operations and maintenance cost. The utility covered the capital cost by a capital subsidy from the urban to the rural areas which, when a broader perspective is taken of the environment and long-term cost price relationships, is essentially seen to be of benefit to the urban dwellers. The utility charges households the full capital cost for house connections and recovers the full recurrent costs. Umgeni Water is a parastatal which receives no subsidy. It is triple A rated on the stock market and issues its own bonds. Source: Nigam and Ghosh (1995) ------------------------------------------------------------------------------ Micro-finance and other credit mechanisms A key aspect in treating domestic water supply and sanitation as economic and social goods is to enhance the capabilities of households to pay for these services. Participatory rural appraisals in a number of countries have shown that water is a priority and people may well be willing to pay for these services. But for the reasons noted above, their ability to pay for these services should also be enhanced. Microfinance, small loans for the purpose of income generating activities and support for other business services along with savings mechanisms, can play a crucial role in increasing access to fresh water for all. There are now a number of experiences in microfinance which indicate its potential for meeting the domestic water and sanitation needs. Grameen Bank in Bangladesh, is by now a well known provider of credit to over two million of the poor and landless, mainly women. It provides small loans for income generating activities. Since 1992, it has also provided loans for tube well and sanitary latrines. Within a period of one year these loans tripled to US$18 million. The income generated from self-employment loans has allowed families to both improve their water and sanitation facilities and to repay the loans taken specifically for water and sanitation. When loans are made to women, one of the first benefit for households is improved water supply and sanitation. In the Family Development Fund microfinance scheme in Egypt supported by UNICEF, one of the first uses of the net income from their self-employment activities is to pay for the capital cost of water connections to the house. ------------------------------------------------------------------------ Box 3. The Tegucigalpa Model Prior to the start of the programme in Tegucigalpa, most of the peri-urban communities had difficult access or totally lacked water and had to buy it from private vendors at high commercial prices and/or collect rainwater in the wet season. Families used up to 30% of their already low income to purchase water. The programme set up a revolving fund for construction of water supply facilities. The community actively participates by providing manual labour and purchase of part of the construction material. The contributions to the cost are approximately 40%, the national water and sewage authority 25% and UNICEF 35%. The cost recovery system recovers fully the operations and maintenance and capital costs of the investments. The community decides the speed with which to pay back the revolving fund. By the end of 1996, approximately 150,000 people in 80 communities will have benefitted from the water supply programme and about 5,000 in four communities from the sanitation component. Source: Torres X and A.M. Mooijman, Waterfront, 1996. ---------------------------------------------------------------------------- Other models have consisted of a revolving fund for covering capital costs. The capital costs are recovered over a period of time with regular recovery of the recurrent costs. In such approaches the community has to mobilise and manage the resources themselves. The model of Tegucigalpa in Hondurus is now well known (Box 3). There is considerable scope for using microfinance and alternate credit mechanisms for financing water supply and sanitation services. In microfinance schemes which are based on groups and require group meetings there is also scope for imparting health, hygiene and environmental protection messages. Both microfinance and revolving credit schemes require a long-term commitment and building national capacity. Community initiatives and public-private partnerships One of the important lessons in the water and sanitation sector in the 1980s and 1990s is the fundamental role that communities play in any sustainable financing strategy. Many of the communities are not ripe for private sector initiatives. Placing undue reliance on private capital to finance public infrastructure runs the danger of marginalizing many poor people unless this investment is also socially responsible. But, community initiatives have in many instances shown potential for sustainability and replication. The motivation for community initiatives arises from the shared nature of the resource base, whether ground or surface water and the implications of unhygienic conditions as a result of improper sanitary practices. Even for the protection of the fresh water environment success can be achieved only when the community participates in decision-making and sees a stake for itself in the protection of the environment. The latter goes beyond the rhetoric of stakeholder participation. The greater the control that the community has in the management of the fresh water environment and benefits from it, the higher the probability of success. For this purpose the community must be aware and appreciate the consequences of actions that impact on its environment. This is true for example for the promotion of sanitation and control of deforestation. In Guatemala city, the El Mezquital squatter slum, with 9,400 families has been able through community initiatives to ensure improved water supply and sanitation facilities for its residents. Like many squatter settlements the families did not have rights to the land that they had invaded and as a result received no help from either national or local government agencies. However, the community and children living there were still subject to health risks. After an outbreak of typhoid UNICEF was approached to improve water supplies in the settlement. As an initial step UNICEF in co-operation with NGOs and the community provided 13 community water taps and health care to the residents. This small step which was brought to the attention of the government provided the basis for a dialogue in the form of the creation of a Commission to look into the issues and the alternatives, including linking of the local community to other agencies and resources. The important innovation of the programmes was the recruitment and training of community volunteers called reproinsas to develop a health care and monitoring programme. The reproinsas save the community money and reduce pressures on costs within the hospital system by providing preventive care facilities. The initial water and health intervention was expanded to develop income generating activities through credit programmes. In turn, this allowed for improving water supply and sanitation facilities in the settlement which were not priorities for he municipality but very much so for the communities, even over health services. The Commission helped the community to approach the municipal water enterprise for the installation of a ■corporate■ or single source water tank in the neighbourhood. From this single source the community created a supply network to reach individual residences. Each family carried out and paid for the work for its own connection. The local community association received one large bill from the water company and then collects fees from residents according to usage measured by individual meters. Although, the cost of water paid by households in El Mezquital is more than that paid by those in the city connected to the city■s water supply, it is far less than the exorbitant rates that had previously been charged by private tanker water supply firms. In another scheme, residents constructed a 305 meter community well which now provides 80 liters of water per person per day for each of the 2000 families connected to it at a cost that is 25 to 60 per cent lower than that from other sources. The project also improved the sanitation facilities: 500 dry latrines installed, 3,000 existing latrines improved (Espinosa and Lopez, 1994). Community initiatives also play a critical role in rural settings where the dynamics of water use for domestic and agricultural purposes often puts considerable stress on water resources. In Narsipur village, Gujarat State in India, the community has taken initiatives to ensure drinking water supply even in the face of competition by the agriculture in which the same community is involved (Nigam et. al. 1997). The introduction of energized borewells led to a rapid over-extraction of water for the irrigation of cash crops in this relatively water scarce region of India. Despite the fact that this over-extraction in Narsipur has led to the decline in the ground water table, it has not affected domestic water demands of the community. This is because in the 1970s the community, through the local institution called Panchyat, constructed a waterworks with a 30 meter borewell and storage tank with a capacity of 85,000 liters, a pumphouse and distribution pipe lines. Water is provided to each household by the pipeline at an average of 165 liters per capita in the peak summer months when demand is highest. The community has financed the costs on its own, managed its water source and also safeguard its domestic water supply from the competing uses. But it is increasingly recognized that continued pressure from cash cropping will not abet and they will need to take additional steps to ensure sustainable utilisation of the fresh water resource. Already the tank that used to take two hours to fill now takes seven. This suggests that sustainable financing mechanisms must be accompanied by sustainable resource utilisation - the twin challenges noted above. Conclusions The number of lessons in financing fresh water for all suggest that there is no blue print for all countries, regions or communities. Private sector financing should be seen to be complementary and in no way a substitute for the state's responsibility in ensuring basic levels of services for all. Some of the key considerations in arriving at strategies and plans of action for financing fresh water for all are: - Ensuring that the fundamental right of access to safe water and sanitation with environmental protection as enshrined in the Declaration on Human Rights and the Convention on the Rights of the Child is met. The trends towards local water scarcity creates a further imperative for urgent actions. The key constraint is not lack of financial resources but the political decision by the state to implement the rights already conferred on individuals. - The market cannot be expected to safeguard and allocate the freshwater resources equitably across income groups and across competing uses. The pressure on domestic water supply as a result of over-extraction for agriculture calls for examination of ■pricing■ of water in its competing uses. - There is no incongruity between achieving efficiency in resource allocation through the market mechanism and the rights based approach to financing. This approach suggests that efficiency with equity can be achieved if basic levels of services for all are guaranteed by the state. There needs to be the political will to ensure that these rights are met. - Privatisation and public sector financing can be complementary, but the former should not be expected to substitute for the state responsibility for ensuring basic levels of service especially to the most disadvantaged groups in society. Private sector financing, however, will be needed for mobilising resources for meeting the challenge of fresh water for all and the private sector can be useful for delivery of services. But reliance on capital from the private sector alone for water supply and sanitation risks marginalizing the poor. - Privatisation of water supply and sanitation services in urban areas must be accompanied by effective regulation. Regulating profit taking by private companies, ensuring coverage of marginalized groups to adequate and acceptable levels of service and protection of the environment must be part of the regulatory framework. Many developing countries as yet lack the expertise and skills in effective water and sanitation utility regulation. - Microfinance and revolving credit schemes must be promoted along side water supply and sanitation. Operations and maintenance of the services by the community has been a key lesson in the sector. But this must be accompanied by efforts to enhance the capacity of the community to pay and manage the fresh water resources. Enhancing the income generating capabilities of the poor provides them with the ability to pay and maintain their services. - Community based management as a strategy for service delivery and financing fresh water for all has been shown to be effective. Private sector delivery and privatisation of water utilities cannot serve as the solution, particularly in ensuring services for the poor. Moreover, communities will need to play a central role regardless of whether the state or private sector are the principal institutional mode of service delivery. Communities need to be in charge and particpate in all aspects of management if they are to be the custodians of their "fresh water enviornment". There are no blue prints for community initiatives. But communities are capable through the implementation of their rights and with financial and capacity building support from governments, NGOs, and donor agencies to transform Samuel Taylor Coleridge's (1772-1834) phrase "Water, water everywhere, nor any drop to drink", in the poem "The Rime of the Ancient Mariner" into the slogan and reality of "fresh water for all". References: Briscoe J. and Harvey A.Garn (1995) Financing water supply and sanitation under Agenda 21, Natural Resources Forum Vol. 19, No. 1 pp. 59-70. Cleaver F. and D. Elson (1995) Women and Water Resources: Continued Marginalisation and New Policies, International Institute for Environment and Development Gatekeeper Series No.49. Cleaver F. and I. Lomas (1996) The 5% ■Rule■ Fact or Fiction? Development Policy Review, Vol 14 pp. 1-11. Espinosa L. and O.A. Lopez Rivera (1994) UNICEF■s urban basic services programme in illegal settlements in Guatemala City, Environment and Urbanization, Vol 6, October . Ghosh G. (1996) Keynote Address, Proceedings of the 22nd WEDC Conference, Reaching the Unreached: Challenges for the 21st Century: 9-13 September, New Delhi, Edited by John Pickford and others. Loughborough University, Leicestershire, U.K. Ghosh G. and A. Nigam (1995) Comments on ■Financing water suppy and sanitation under Agenda 21' by John Briscoe and Mike Garn, Natural Resources Forum, Vol 19, No. 2 pp161-165. Gleick P. (1993) "An introduction to global fresh water issues" in P.H. Gleick edited Water in Crisis - A Guide to the World■s Fresh Water Resources, Oxford University Press, Oxford. IUCN and PRB (1996) Water and Population Dynamics - Local Approaches to a Global Challenge, Report on a collaborative initiative and workshop at IUCN■ World Conservation Congress, The World Conservation Union and Population Reference Bureau, Montreal Canada. Mcphail A.A. (1993) The -Five Percent Rule■ For Improved Water Service: Can Households Afford More, World Development, Vol 21, No.6, pp 963-973. Ministerial Conference on Drinking Water and Environmental Sanitation, Noordwijk (1994) Nigam A. (1996) Sustainable Financing of Water and Sanitation, Proceedings of the 22nd WEDC Conference, Reaching the Unreached: Challenges for the 21st Century: 9-13 September, New Delhi, Edited by John Pickford and others. Loughborough University, (Leicestershire, U.K.). Nigam A., B. Gujja, J. Bandyopadhyay and R. Talbot (1997) Fresh Water for India■s Children and Nature - Learning from local-level approaches, UNICEF and WWF Nigam A. and G. Ghosh (1995) A model of costs and resources for rural and peri-urban water supply and sanitation in the 1990s, Natural Resources Forum, Vol. 19 No. 3 pp.193-202. Pushpangadan, K., G. Murugan and K. Navaneetham (1995) Status Report on Rural Water Supply in Kerala State, Centre for Development Studies, Thiruvananthapuram, Kerala. Reddy S. and J. Vandemoortele (1996) User Financing of Basic Social Services: A review of theoretical arguments and empirical evidence, Working Paper, Office of Evaluation, Policy & Planning, UNICEF, New York. Sen A. (1979) "Rational Fools" n F. Hahn and M. Halls (eds) Philosophy and Economic Theory, Oxford University Press, Oxford. Sen A. (1987) On Ethics & Economics, Blackwell, Oxford U.K. Serageldin I (1995) Water Supply, Sanitation and Environmental Sustainability: The Financing Challenge. World Bank. Washington D.C. Shiklomanov I. (1993) World Fresh Water Resources in Water in Crisis: A Guide to the World■s Fresh Water Resources edited by P.H. Gleick, Oxford University Press, Oxford. Tata Energy Research Institute (TERI) 1997 Looking Back to Think Ahead - Green India 2047, Growth with Resource Enhancement of Environment and Nature. Torres Xiomara and A.M. Mooijman (1996) Update on the Tegucigalpa Model, Waterfront, Issue 9, UNICEF December 1996. United Nations (1977) Report of the United Nations Water Conference, Mar del Plata, 14-25 March 1977. ------------------- (1989) Convention on the Rights of the Child ------------------- (1992) Earth Summit Agenda 21, The United Nations Programme of Action from Rio. ------------------- (1993) World Conference on Human Rights: The Vienna Declaration and Programme of Action. ------------------- (1995) The Copenhagen Declaration and Programme of Action, World Summit for Social Development, 6-12 March 1995. ------------------- (1997) Comprehensive Assessment of the Freshwater Resources of the World, Report of the Secretary General, Commission on Sustainable Development, Economic and Social Council E/CN.17/1997/9. UNDP (1990) Report of the Global Consultations on Safe Water and Sanitation for the 1990s, 10-14 September, New Delhi, India UNICEF (1995) Strategies in Water and Environmental Sanitation, ---------- (1997) Progress of Nations. UNICEF, UNDP, UNFPA & UNESCO (1994) The 20/20 Initiative WHO, (1992) International Drinking Water Supply and Sanitation Decade, End of Decade Review as at December 1990. World Bank (1993) World Development Report, Investing in Health. Washington D.C. --------------- (1994) World Development Report, Infrastructure for Development. Washington D.C. 8 January 1998 Note 1/ Basic level of service must be defined in the national context. In general, safe water supply should be available throughout the year within a reasonable distance from the home in rural areas. For urban areas, the criteria may be defined as accessibility within the home or through a yard tap. The determination of reasonable distance is important because of the time spent by women and girls in fetching water which impacts on health and school attendance.
This document has been posted online by the United Nations Department of Economic and Social Affairs (DESA). Reproduction and dissemination of the document - in electronic and/or printed format - is encouraged, provided acknowledgement is made of the role of the United Nations in making it available.
Date last posted: 8 December 1999 15:15:30