United Nations
Commission on Sustainable Development

Background Paper

                             EXPERT GROUP MEETING



                             27 - 30 January 1998

                               Harare, Zimbabwe

         Financing of Freshwater for All - A Rights Based Approach


                          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

                           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

- "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

         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

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

         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

         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

         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.


                            [ 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,

         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

         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

         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

                   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

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

         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

         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.


         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

- 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

- 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".


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8 January 1998


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.

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Date last posted: 8 December 1999 15:15:30
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