Small-Scale Private Service Providers of Water Supply and Electricity
Small-Scale Private Service Providers of Water Supply and Electricity
Small-Scale Private Service Providers of Water Supply and Electricity
WPS3727
Mukami Kariuki
Jordan Schwartz
Foreword
Small-scale providers of water supply and electricity have long been an important part of
service delivery, particularly in peri-urban, rural and remote regions and in countries with
failed public utilities. Of the various forms of small-scale provision, community and
government-based systems have received the most attention from donors, analysts, and
the public. Indeed, most government, donor and NGO programs now provide funding to
community-based organizations, particularly in rural areas and remote regions.
In contrast to these small scale community and government service providers, small-scale
private service providers (SPSPs) have only recently gained acceptability as a viable
alternative for developing and managing small-scale water supply and electricity
services. Many governments and donors considered community based arrangements a
more appropriate match for the social objectives they aimed to achieve particularly in
those areas where monopoly utilities are responsible for service delivery1. As a result,
SPSPs are often viewed as temporary although many have been in operation for over
20 years; rent-seekers that take advantage of unreliable public services so as to
gouge their customers, and poor quality providing a service that does not meet
technical and water quality standards.
In recent years, national programs, policies and global forums have started to pay more
attention to these providers. Many practitioners now acknowledge the potential role of
SPSPs in developing and managing private water supply and electricity systems and in
advancing local private sector development.2 They recognize that many communities
would go unserved if not for SPSPs and that working with these providers to establish
measures to improve their quality, efficiency and affordability, and to leverage their
capacity in order to expand service coverage will be of more benefit to consumers than
continuing to ignore them.
Several leading bilateral and multilateral agencies, including the UKs Department for
International Development and the Inter-American and Asian Development Banks, are
currently undertaking activities to study, encourage, and support the role of SPSPs in
financing, developing and delivering water supply and electricity services. Given this
trend, and to build on and advance this research and advocacy work, the World Bank, the
Public-Private Infrastructure Advisory Facility (PPIAF) and Bank-Netherlands Water
Partnership (BNWP) launched an initiative to synthesize lessons learned over the past
decade, and draw common conclusions as a foundation for strengthening support for
SPSP activity at the country level.
This exercise was conducted as a preparatory first phase of what has become known as
the Policy Framework and Global Mapping Initiative (PFGMI), a global initiative to
1
Water providers were virtually all small scale until the Fabian movement led to nationalizations in the
1920s. Historic literature describes the process of small scale providers growing during the 18th century
in Europe into large scale providers, and through mergers, takeovers etc. becoming very powerful so that
the fear of monopolies seems to have led to nationalization -in several countries such as England.
2
The World Bank Groups Program for Water Supply and Sanitation, 2004.
Executive Summary
This document summarizes the key findings and conclusions of a literature review of
small-scale private service providers of water supply and electricity (SPSPs) conducted
over a six-month period in 2003. It draws on more than 400 documents - including
journals, articles, reports, case studies and project reports - which have been
disaggregated and referenced in a publicly available database.3
It defines key terms and proposes a common typology for classifying the different kinds
of SPSPs according to two key parameters: (i) relationship to source of water or
electricity (whether dependent or independent), and (ii) type of technology employed.
Parallel categorization systems are developed for water and electricity4.
The information obtained through the literature review is partial as it reflects only those
countries, locations or cases for which documented evidence of SPSPs has been prepared
(and found, as much of the work is unpublished and therefore difficult to access).
Despite the limitations in consistency and comprehensiveness of the information
available, approximately 7000 electricity SPSPs (not including battery recharging
businesses) were found to be operating in 32 countries and 10,000 water SPSPs were
identified in 49 countries. Given the scarcity of documented information on SPSPs, this
sample is likely to represent a portion of the total population of SPSPs.
SPSPs appear most prevalent in countries with low coverage levels, ineffective public
utilities that provide inadequate or partial services and remote, difficult-to-access regions.
SPSPs are especially prevalent in post-conflict countries, and others with weak or failed
states. Of the countries for which evidence of SPSPs was available, at least half fall into
this category. SPSP provision of networked services appears to be significantly higher
for electricity than for water supply.
Most SPSPs identified through the literature are single-purpose entities established for
the express purpose of delivering water supply or electricity. SPSPs take a variety of
organizational forms, both for-profit and non-profit. As such, they are established for a
variety of reasons including: to meet consumer demand, respond to crises or as part of
larger business ventures. The technology employed may extend upstream from
distribution services to the means for producing or generating water supply or electricity,
so capital needs vary accordingly. The vast majority of SPSPs have fewer than 50
employees and usually fewer than 10. A lack of affordable financing is a constraint for
most SPSPs, who fund investments mainly through their own earnings and savings, loans
from friends and family, and money borrowed from formal and informal lenders.
This database is currently under design and will be available through the World Banks Rapid Response
Unit (www.rru.worldbank.org)
4
This document addresses other key characteristics such as legality, formality and organizational form.
However, from the literature review it was evident that there was a lot of overlap among these
characteristics and the relevance of organizational type was often not elaborated on. The authors therefore
opted to treat these aspects qualitatively.
Table of Contents
1. INTRODUCTION 6
1.1 Why Focus on Small-scale Private Service Providers? ................................................ 6
1.2 Aim and structure of this report .................................................................................... 9
2. TOWARDS A COMMON DEFINITION OF SPSPs
10
2.1 Defining the private in SPSP................................................................................... 10
2.2 Scale: SPSPs as Micro, Small and Medium Enterprises (MSMEs)........................... 10
2.3 Classifying SPSPs....................................................................................................... 11
3. ASSESSING THE SCOPE AND SCALE OF SPSP ACTIVITY 16
3.1 Summary of Literature Review: Water Supply SPSPs ............................................. 18
3.2 Summary of Literature Review: Electricity SPSPs .................................................. 19
4. KEY PATTERNS AND TRENDS AMONG SPSPS
20
4.1 Organization................................................................................................................ 20
4.2 Technology ................................................................................................................. 21
4.3 Staffing........................................................................................................................ 22
4.4 Customer service and marketing................................................................................. 23
4.5 Financing..................................................................................................................... 23
4.6 Pricing, Sales and Earnings......................................................................................... 24
4.6.1. Unit Price Analysis ................................................................................................. 25
5. CONCLUSIONS 28
Annex 1:
Annex 2.
Annex 3.
Annex 4.
Annex 5.
Annex 6.
1. INTRODUCTION
1.1 Why Focus on Small-scale Private Service Providers?
In communities where national, regional or municipal utilities are not providing sufficient
or reliable electricity or water services, households depend instead on a wide variety of
local providers. These providers finance, develop and manage systems, ranging in
sophistication from water tankers and diesel generator dealers to stand-alone networks
and power grids. Organizationally, they encompass community groups, village
administrations and private entrepreneurs. And while a portion of them receive some
form of public funds from governments, donors and NGOs, many are privately financed
by business people, financial intermediaries and users.
This report focuses on those small-scale private service providers (SPSPs) that have
contributed to the extension of water supply and electricity services at their own initiative
and with resources mobilized largely from private sources. SPSPs often bear regulatory
and political risk, in complex and remote locations that may also present commercial risk.
SPSPs have traditionally played three basic roles: gap filler in countries with high
coverage levels but low service quality (measured by the number of days or hours within
which services are available); pioneer--developing and operating systems in areas
where there is no public service but there is customer demand; and
subconcessionaire--buying water or electricity in bulk from the utility and selling it on to
customers. In addition, SPSPs are increasingly assuming the function of manager of
small public systems in need of improved efficiency.
An analysis of the scope, scale, constraints and roles of SPSPs is important because:
They are significant service providers in many countries, particularly in periurban, rural and remote regions, and may be the only viable operators for the
foreseeable future. SPSPs are estimated to reach as much as half the population
in some countries, particularly in post-conflict situations and other cases of weak
or failed states. Overall, it is estimated that up to a quarter of the urban population
in Latin America and nearly half of urban dwellers in Africa rely on SPSPs for at
least a portion of their water supply. In low-coverage countries, or poor regions in
higher coverage countries, SPSPs can play an important role in service provision,
compensating for - or supplementing - the limited financial and human resources
of the public sector.
The local private sector currently accounts for over 85 percent of all private
sector investment in water security5and the potential for private financing of
small-scale waster supply is significant.
The local private sector has
demonstrated its ability and interest in the development and management of water
supplies even in remote or difficult locations that are unattractive to formal
providers. Despite unclear legal or operational status and sub-optimal financing
Towards Water Security: A Framework for Action, Global Water Partnership, 2000.
arrangements (primarily from the informal market) these providers have made
significant investments in water supply and electricity systems. Establishing a
clear policy and regulatory framework for SPSPs could free up scarce public
financing for less attractive segments of the market and reduce costs, thereby
improving prices for consumers.
Counting and expanding existing SPSP activity may help governments reach
the coverage targets set out under the Millennium Development Goals (MDGs).
Because SPSP activity is often considered temporary or informal, it is often not
counted towards coverage targets6. Recognizing and supporting SPSPs may be a
practical way for governments to reach service coverage objectives more quickly.
As decentralized options are increasingly accepted as an integral part of service
delivery by governments and decision makers, particularly in remote regions that
are isolated from utility networks, policies that formalize or promote SPSP
activity are increasingly important for creating a favorable business environment
for SPSPs; encouraging increased private sector investment; and improving the
terms and conditions of service for consumers.
The possibilities for provision on a larger scale have diminished throughout the
developing world, as both governments and the private sector have scaled back
major infrastructure investments (see Chart 1). While small entrepreneurs are
unlikely to take on the responsibility for massive rehabilitation or expansion
projects in large metropolitan areas, SPSPs can help fill the growing gap in
private financing of infrastructure by serving marginal urban communities, periurban areas, and outlying and rural communities. These are often the most costly
clients to serve for large investors, the last to receive connections and the targets
of controversial universal service obligations imposed upon private investors and
concessionaires.
Improved water source (percent of population with access). Access to an improved water source refers to
the percentage of the population with reasonable access to an adequate amount of water from an improved
source, such as a household connection, public standpipe, borehole, protected well or spring, and rainwater
collection. Unimproved sources include vendors, tanker trucks, and unprotected wells and springs.
Reasonable access is defined as the availability of at least 20 liters a person a day from a source within one
kilometer of the dwelling
Despite these potential advantages, many governments and practitioners have paid
insufficient attention to SPSPs, preventing effective planning and policy making for their
engagement in longer-term water and electricity provision. This is because: i) SPSPs
have been viewed as just a temporary or stopgap solution; ii) both electricity and water
supply are seen by many as natural monopoly sectors - for policy makers it has simply
been easier to deal with a small number of large enterprises - national providers or
municipal providers than to regulate a market of SPSPs;; (iii) water supply in particular
is often considered a public good, social good or free good, and therefore not appropriate
for private provision; (iv) global technical standards sometimes do not recognize SPSPs
modes of service. (For example, the Joint Monitoring Program of the World Health
Organization does not consider water tankers and vendors as sources of safe water
supply.)
Chart 1: Total Investment in Large Private Electricity and Water Projects, 1993-2003
45,000
40,000
Electricity
35,000
US$ million
30,000
25,000
20,000
15,000
10,000
5,000
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Finally, while sound and consistent data are needed for informed decision-making (e.g.,
to justify policy decisions, enable monitoring and facilitate benchmarking), this
information has often been lacking. Since the 1970s, SPSP activity has been documented,
although on a limited basis (for example G. White, 1977, D. Whittington 1988).
However, much of the evidence collected is anecdotal and based on scant or incomplete
data (for one location or city, one type of SPSP, or with scarce data or details regarding
SPSP characteristics or business). To date only a handful of projects has focused on
documenting the scope and scale of SPSP activity, although the number of projects and
programs with SPSP components has increased. These focus on knowledge generation
raising the profile of small scale providers; reform of regulatory and business
environmentsrecognition of existing SPSPs; and transaction design, improved
contracts, access to financingstimulating the entry of local SPSPs in development or
management of services.
Assesses the scale, scope and current state of knowledge of SPSPs. Using
existing data sources, it is not possible to estimate the scale of SPSP provision
with a high degree of accuracy. Because the information collected to date is
motivated first by the observation and study of SPSPs, and therefore limited to a
specific location or type of SPSP, extrapolating across countries and regions is
difficult. The incidence and importance of SPSPs beyond the scope of the current
literature can only be inferred from the observations and could not be estimated
with a high degree of confidence until broader analyses is conducted. This phase
of the Global Mapping Initiative thus provides numbers on the scale and scope of
SPSP activity as currently observed within the context of the cumulative studies
identified through the literature review.
This definition deliberately excludes wholly owned public systems (whether funded by government, a donor or NGO)
that do not have significant risk taken by the private entity (e.g. management contracts for existing small towns, local
government systems or utility standpipes).
10
Within the MSME category, The World Bank Group defines micro or small enterprises
as those with fewer than 50 employees, total assets of up to $3 million or total sales of up
to $3 million. This definition was used to guide the review of literature on SPSPs, taking
into account a distinctive feature of the water supply and electricity sector: low levels of
direct employment. Small-scale water and electricity companies generally have fewer
staff than other businesses of equal turnover or asset value, such as manufacturing or
value-added agricultural businesses. A well functioning utility may have a staff-toconnection ratio of 4:1000 or below. At this ratio, an SPSP might serve a community of
25,000 people (assuming 5,000 household connections) with only 20 staff. Productivity
benefits of these providers are indirectalbeit considerable. Electricity provision allows
for home-based work and evening study while household water supply provides
improved health benefits and considerable time savings, particularly for women and
children who are often responsible for water collection. Understanding MSME linkages
is also important for policy and regulatory reforms in favor of SPSPs. For example,
initiatives to establish microfinance or credit institutions, simplify business licensing
procedures, provide for tax incentives or offer training and capacity building programs
intended for small business in general could have residual benefits for SPSPs - provided
that they are formally recognized or eligible.
2.3 Classifying SPSPs
All SPSPs found in the literature review have some common characteristics around which
they can be grouped. Based on the literature review it was considered important to
characterize SPSPs along two main axes: relationship to their source of energy or raw
water; and type of technology employed (see Table 1).
11
Grid or Network
Point Source
Mobile
Distributors
Independent
Dependent
Integrated
production/generation with
transmission/distribution
Own source, fixed location
vendor
Purchasing water or
electricity and on-selling
through mini-grid/network
Connected to utility fixed
location vendor
Within the framework described above, a classification system (see Tables 2 and 3) has
been derived for water-supply SPSPs.
In addition to the Source and Technology
parameters, information from the literature is synthesized wherever possible into
organizational parameters for both water and electricity providers as defined below:
12
The remainder of the report uses the definitions provided above as a basis for analysis.
13
Features, by
technology
Dependent
Independent
i) Piped Networks
System
Organization
Regulatory
Issues
Organization
Regulatory
Issues
Organization
Regulatory
Issues
Features, by
technology
Dependent
Independent
i) Distribution Network/Grid
System
Organization
Regulatory
Issues
Organization
Regulatory
Issues
Concessionaires, licensees,
cooperatives, enterprises, corporations,
community-based organizations
License or permit, tariff structure,
technical and service standards, hydro
rights for mini hydros ?
Organization
Regulatory
Issues
15
For several countries although no documentation of SPSPs was identified, anecdotal evidence of SPSP
activity was provided.
16
The lower levels of capital investment required to purchase a small generator and
string up wires than to produce, treat, store, pump and pipe water.
The competitive nature of basic water provision. As opposed to electricity, all
households have some access to waterhowever polluted or difficult to access
since it is a basic ingredient to life. As a result, piped water providers are often
competing against free surface water, community wells or aggressive mobile
vendors.
Public policy that highlights the nature of water supply as a public and social
good. As a result many small systems are community-based and may not operate
on a commercial basis.
Despite scale and scope economies that could be derived from bundling business
activities between water and electricity supply (e.g., customer billing, meter reading,
business management and electricity purchases for pumping), very few SPSPs provide
both services. Still, several SPSPs engage in other business activities that relate to their
sector, such as irrigation services provided by private water suppliers and agricultural
equipment being sold by dealers of solar panels.
Table 4. Documented SPSP Activity by Region
East Asia
and the
Pacific (8)
South Asia
(5)
Africa (22)
Middle
East and
North
Africa (3)
Eastern
Europe and
Central
Asia (3)
Latin America
and The
Caribbean (12)
Bangladesh
India, Nepal
Pakistan
Sri Lanka
Morocco
Yemen
Argentina,
Bolivia, Peru,
Guatemala
Honduras
Nicaragua
Water Only
Mongolia
Thailand
Vietnam
Jordan
Uzbekistan*
Kyrgyztan*
Albania*
Colombia,
Ecuador, Haiti,
El Salvador,
Paraguay
Energy Only
China
Zimbabwe
Dom. Rep
17
18
countries such as Brazil, Mexico, China and Russia and there were only a few documents
on the subject from the Middle East North Africa or South Asia. It is unclear whether the
lack of literature in these regions is due to lack of importance of SPSPs or a result of low
priority accorded by sector practitioners.
3.2 Summary of Literature Review: Electricity SPSPs
For electricity, literature from 32 countries with SPSPs was reviewed, with a focus on
dealers of solar panels and other household electricity generating equipment as well as
networked services.9 The level of SPSP activity is high in 15 of these countries,
primarily in rural areas and small settlements. Data on micro-power systems show that
the total number of such systems in developing countries has more than doubled over the
past decade. This gradual expansion took place over a period in which public investment
in power was declining and private funding for large-scale investments was inconsistent.
An estimated 10-50 million clients are served by the 7,000 SPSPs currently operating in
the electricity sector10. About 85 percent of these are in Asia. In Africa, the Middle East
and Latin America the number of SPSPs identified in each region was less than 500. In
Latin America and the Caribbean, SPSP activity, particularly in large countries such as
Brazil, was focused largely in remote regions of the country and provided only a small
fraction of electricity service. In Africa, SPSP activity was largely limited by access to
financial markets, high transaction costs, and the monopolistic rights granted to national
utilities. That said, a few post-conflict countries such as Mozambique demonstrated a
notable incidence of SPSPs. The maps in Annex 1 shows countries which were found to
have significant levels of SPSP activity in water supply and electricity according to
available literature.
For the purposes of this study, literature on battery recharging businesses, categorized as point source
systems in the typology, was not reviewed. This level of service is not considered comparable to delivered
electricity or that available from diesel and photo-voltaic home-based systems.
10
As in the water supply sector overall numbers of small-scale providers, including community and public
systems would be much higher. In China alone there could be 40,000 such systems, of which SPSPs
comprise an estimated 1,000.
19
Electricity
Grids or networked systems may take a number of
organizational forms. And while many such systems
are owned by user associations, a growing number are
managed by private individuals. Non-profit SPSPs are
typically more formal user or community-based
organizations, such as associations, cooperatives,
societies, and specialized NGOs providing networked
services.
11
Point Source or battery charging systems: The electricity sector equivalent to water kiosks may be considered
the battery recharging business. These stations are generally connected to a power company and, for a fixed fee,
recharge 12 volt car batteries that are used in homes to power small appliances. The literature reviewed as part of this
study did not include battery recharging businesses.
20
The legal form these organizations take is largely driven by national policy, legislative
frameworks and history. For example, SPSPs in countries with a tradition of cooperatives
in other sectors, such as Kenya, Colombia and Bangladesh tend to be predominantly
cooperatives. A large number of SPSPs that are registered as non-profit organizations
such as cooperatives, neighborhood associations, community groups, and societies
provide network services. Most of the SPSPs that are informal are individual
entrepreneurs or family businesses. Many water SPSPs are members of SPSP
associations (e.g. Kenya, Pakistan, Ghana), which serve a number of functions including
sinking common or shared boreholes, purchase bulk water from utilities, and lobby for
improvements in terms and conditions of service. For SPSPs operating on a formal basis,
operating constraints (e.g., access to finance) are often closely linked to organizational
status: for example fully private ventures rely on equity and informal borrowing while
non-profit SPSPs may have access to grant funding to augment their own resources;
similarly the legal form of the organization may also limit SPSP operations a study on
small scale providers in Kenya noted that the rights of small providers (e.g. to operate a
bank account) varied according to the legislation (e.g. Societies Act, Cooperative Act)
they operated under.
4.2 Technology
The range of technology used by SPSPs is as varied as the types of SPSPs documented
above (see Table 6). Some SPSPs are only engaged in the supply of services, while others
are also involved in production. The technology employed may extend upstream from
delivering a service to the customer to the means for producing or generating water
supply or electricity, in the case of independent SPSPs. Such providers bear additional
equipment costs related to generating or producing, as well as for storage or water
treatment, as appropriate, compared with dependent SPSPs. SPSPs are known, and often
criticized, for applying technological standards that may not conform to national norms.
A key reason cited in the literature is the rigid nature and high costs implied by existing
norms and the need to match services to the affordability levels. SPSPs are also known
to have introduced innovation in improving cost effectiveness of service delivery,
however, to date this has not been well documented or studied.
21
Electricity
Grids or Networked systems: Electricity is
typically produced by second-hand, high speed diesel
generators with distribution wires connecting 50-300
households. Households may or may not be metered.
Service is often offered only during "peak" demand
periods--sometimes as little as 3 to 5 hours per day--as
a result of lack of base load, high operating costs
(fuel) and low average off-peak demand. Where
networks are powered by run-of-river or hydro wheels,
capacity of wattage may be low (100 to 1000 kW
depending upon river head) but service is constant
except during seasonal river lows or flooding periods.
4.3 Staffing
Most SPSPs have flat structures with less than two layers between management and the
client. Many owner/managers know their clients and are therefore considered more
responsive by consumers. Most SPSPs reviwed in the literature had fewer than 50
employees the majority of the reports for which employment patterns were detailed
indicated that there were fewer than 10 employees (see Table 7). However, despite their
small scale, SPSPs can play an important role in job creation. Data on water-supply
vending activity in five cities (Port-au-Prince in Haiti, Dakar in Senegal, Nouakchott in
Mauritania, Kayes in Mali and Bobo Diaulasso in Burkina Faso), indicates that the
number of people employed in vending activities represents two to four per thousand
people, or 1 to 3 percent of regular jobs in those cities [Water and Sanitation Program,
2000].
Table 7. Typical Staffing Profile of SPSPs
Water
The number of staff typically employed by SPSPs
involved in water supply ranges from two to four
employees, for PNOs serving fewer than 800
households. The owner is typically the manager and
either relies on family members or employs a handful
of additional staff on a full- or part-time basis to assist
with specialized tasks. For systems with under 100
customers, staff-to-connection ratios are not a useful
measure of efficiency.
Electricity
Grids or networked systems: The Cambodia Rural
Energy Enterprise survey is one of the few pieces of
research that has sampled staffing questions for
electricity SPSPs. There, the average number of fulltime employees per SPSP was found to be three, with a
similar number working on a part-time basis.
22
Electricity
4.5 Financing
Investment requirements vary widely depending on the nature and extent of the system
installed, but access to affordable financing was a constraint for most SPSPs surveyed
(see Table 9). The majority tap a combination of three sources: their own earnings and
savings, loans from friends and family, and money borrowed from formal and informal
lenders. Informal money lenders appear to be a key source of financing, even though
monthly interest rates are often as high as 5 percent per month. Electricity SPSPs appear
to have greater access to commercial sources such as micro-finance institutions and
commercial and development banks non-profit or community based SPSPs are often
eligible for grant funding provided by NGOs and international donors.
23
Electricity
SPSP investment requirements ranged from
US$1,000 to a few million dollars. For larger
investments, commercial lenders loan terms are often
difficult to meet: monthly interest rates can range from
1 percent to 3 percent, for a period of a year to two
years. Non-commercial lenders may charge 5 percent
per month interest rates.
24
Electricity
Electricity SPSPs offer several alternative products,
each with a different pricing strategy.
This following section analyses unit prices, price differentials and connection charges13.
4.6.1. Unit Price Analysis
The unit price of water per cubic meter was analyzed based on data from 47 countries and
93 locations according to the typology presented earlier in this report. The analysis
showed wide variation in the prices offered by the type of small scale private service
provider (SPSP) at global level. Unit prices charged by PNOs ($0.17/m3 to $0.86/ m3)
were notably similar to those of formal utilities ($0.02/m3 to $0.79/ m3) for which data
was presented as a benchmark. Despite the fact that many of the formal utilities in the 47
countries for which literature was reviewed, provide highly subsidized services, which
may not account for full costs, prices charged by PNOs did not differ greatly14.
12
As concluded by a study in Manila, Philippines, the poor pay more for water and consume less, however,
average prices/m3 reveals that SPSPs do not charge excessive prices. The poor depend more on
intermediaries, which appears to have an upward effect on prices. [190] Sohoni, Neera Kuckreja. 2003. Draft.
How effective are small-scale independent providers in serving the poor? Experience from the Philippines. Water and
Sanitation Program, Department of the Interior and Local Government, and AusAID.
13
The unit price analysis converts the rates obtained from the literature (typically per cubic meter or liter)
and converts these rates to US dollars ($) for each type of SPSPs. Price Differential analysis uses the cost
price and compares it to the selling price. And lastly, the Connection Charge is the cost the
customers/households pay to connect to the Utility or the Private Network Operator (PNO).
14
The unit price of public utility water may only be a fraction of the total cost to society of the provision of
the service since tariffs rarely cover capital costs and often fail to cover operations and maintenance.
Through budgetary operating subsidies and debt obligations, taxpayers pay the remainder. By contrast, the
tariffs of private network operators generally cover all costs, including the amortized capital investments
required to build the networks.
25
$11.00
$10.00
Public
Pr iv at e
$8.00
Piped
Unit iz ed
$6.32
$6.00
$4.00
$3.60
Av er age
$2.00
$0.79
$0.86
$0.76
$0.34
$0.00
$0.02
Public Utilities
$0.45
$0.17
Point-source Vendors
Tanker Trucks
Carters
Mobile Distributors
Chart 2 above indicates that price of water increases as economies of scale in production
and sales decrease. Likewise, as unit size or volume of sales decrease, prices go up.
Carters, which have the smallest sales volume, charge the highest unit price per m3 of
water as much as $11.00/ m3 or more. Thus, the ability of the service provider to
amortize capital costs as well as operating inefficiencies (such as fuel, bribes and salaries)
over larger volumes is the key to improving affordability.
On average, water from piped network operators (PNO) costs 1.5 times more than that
from a formal utility, whereas, water from a point source (PS) costs, on average, up to 4.5
times the utility and, finally, water from the mobile distributors (MD) can costs up to 12
times more than the utility. Taking into account the role of local conditions in
establishing prices, this information provides a useful baseline. Further study of factors
influencing SPSP prices by geographic location and understanding how these factors
contribute towards such pricing is necessary.
The range of prices by geographic location, as seen in the Chart 3 below, also confirms
that local conditions play a key role in determining prices. Factors like: distance from the
source, seasonal fluctuations in water availability, economic conditions, physical terrain,
26
and other such extraneous factors may significantly contribute to the final price/m3 at the
local level. Evidence, suggests that presence of Private Network Operators (PNOs) in
Africa (AFR) and South Asia SAR) regions to be limited, as data was not available or
cases were not documented. Active presence of PNOs was found in East Asia and Pacific
(EAP), and Latin American and Caribbean (LAC) regions. Point Sources (PS) were less
prevalent in Latin American and Caribbean (LAC) and East Asia and Pacific (EAP).
Mobile Distributors (MDs) were prevalent in all regions which displayed SPSP presence.
Chart 3: Average Price of Different Service Provider Based on Regions
$5.00
$4.50
$4.00
$3.50
AFR
$3.00
EAP
ECA
$2.50
LAC
$2.00
SAR
$1.50
MENA
$1.00
$0.50
$-
Utility
PNOs
PSs
Vendors Tankers
Vendors Carters
Mobile Distributors
It is interesting to note, that the lowest per cubic meter prices for all categories of
providers were observed in East Asia Pacific (EAP) region. PNOs were at $ 0.37/m3, PSs
at $ 1.02/m3, and MDs at $ 2.18/m3, these values were also lower than the overall average
seen in Chart 3 above. Price is determined by the market, the number of actor involved,
the competition in the sector that keeps prices at the lower level and SPSPs outreach.
This analysis provides insight into the trends of price variations globally and regionally
for different small-scale private service providers (SPSPs). Furthermore, it provides a
benchmark to think about a particular provision based on region and its prevalence. This
analysis also lends toward the need to think about the extraneous factors
globally/regionally that contribute toward escalating and de-escalating the price per cubic
meter.
27
5. CONCLUSIONS
The literature illustrates the extent and nature of small-scale private service provision of
water supply and electricity services, providing rich examples that demonstrate the
complexity and diversity of SPSPs, but also highlighting the limited extent of information on
SPSPs thus making it difficult to draw broad conclusions on SPSPs. Further analytical
study is required to deepen current knowledge of SPSPs and to determine how best to go
about the development of the water supply and electricity sectors in those countries in which
SPSPs currently play an important role and are expected to continue to do so for some time to
come. Where it is determined that SPSP services are essential to expanding service coverage
to unserved communities, governments should strive to adapt and improve sector norms to
accommodate them. However, as sector reforms take effect and the option of extending
formal (public utility) services to all consumers at more affordable rates becomes possible,
governments will need to work with SPSPs to develop an exit strategy that takes into
consideration
lost
opportunity
(investments
and
earnings)
to
SPSPs.
28
Annex 1, page 1
29
Annex 1, page 2
30
Reference
69
33
68
49
35
50
32
66
60
90
45
69
63
51
40
95
40
15
21
90
80
10
56
25
30
25
[13]
[148]
[148]
[223]
[223]
[119]
[81]
[13]
[223]
[119]
[81]
[148]
[21]
[13]
[119]
[81]
[119]
[119]
[148]
[119]
[81]
[119]
[223]
[81]
[223]
[81]
15 - 20
100
20 - 25
32
70
30
30
26 - 30
[2]
[2]
[2]
[2]
[76]
[65]
[2]
[2]
50
44
27
30
36
10
10
19
5
5-7
40 - 50
6 - 47
14
[119]
[25]
[ 119]
[89]
[25]
[119]
[119]
[25]
[25]
[25 - 346]
[19]
[346 - 3]
[25]
31
Country
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
City
Argentina
Cordoba
Benin
Cotonou
Bolivia
Santa Cruz
Colombia
Urban
Ghana
Accra
Guatemala
Guatemala
Haiti
Port-au-Prince
Honduras
Tegucigalpa
Indonesia
Jakarta
Sudan
Khartoum
Mauritania
Nouakchott
Paraguay
Asuncion
Peru
Lima
Philippines
Manila
Tanzania
Dar es Salaam
Total Number Reported
Number
Households
of
Number
of
Households Served by
SPSPs
220,000
130,000
188,000
N/A
171,800
200,000
198,000
107,800
1,660,000
260,000
N/A
109,200
1,120,000
1,600,000
260,000
38,200
60,000
100,000
197,000
125,000
78,500
60,000
16,000
1,280,000
60,000
20,000
50,000
360,000
625,000
180,000
3,249,700
Reference
[2]
[217]
[2]
[2]
[215]
[2]
[76]
[75]
[83]
[187]
[217]
[2]
[2]
[33]
[224]
32
Number of
SPSPs
[-]
Average
clients per
SPSP
[-]
Number of
clients
million
million
high/medium/small
5.3
0.7
2.4
87.4
14.6
110.4
56%
9%
3%
1%
0%
3%
high
medium
medium
small
small
5.30
0.12
0.03
0.40
0.30
6.15
13.2
0.4
0.2
22.5
249.0
285.3
40%
32%
13%
2%
0%
2%
high
high
medium
small
small
5,000
300
200
1,000
200
500
300
10
10
10
1,000
300
736
0.10
0.03
0.02
0.01
0.02
0.00
0.01
0.00
0.00
0.00
0.01
0.00
0.20
0.5
0.2
0.2
0.3
0.6
0.2
1.0
1.6
1.7
0.6
5.7
0.7
13.2
21%
15%
12%
4%
3%
1%
1%
0%
0%
0%
0%
0%
2%
high
high
high
medium
medium
medium
small
small
small
small
small
small
200
200
200
0.06
0.02
0.08
1.5
4.1
5.6
4%
0%
1%
medium
small
300
1,000
1,000
1,000
1,000
1,000
300
500
763
0.02
0.01
0.02
0.01
0.04
0.01
0.03
0.01
0.14
1.0
0.5
1.1
0.7
3.8
7.0
34.2
1.5
49.9
2%
2%
1%
1%
1%
0%
0%
0%
0%
medium
medium
small
small
small
small
small
small
SOUTH ASIA
Bangladesh
Nepal
Sri Lanka
India
Pakistan
Sub total
67
250
200
1,800
20
2,337
44,776
250
400
350
300
9,215
3.00
0.06
0.08
0.63
0.01
3.78
EAST ASIA/CHINA
Philippines
Cambodia
Laos
Indonesia
China
Sub total
119
600
125
2,000
1,000
3,844
44,538
200
200
200
300
9,088
20
100
100
10
100
5
30
3
3
3
10
5
389
AFRICA
Kenya
Mali
Somalia
Mozambique
Ethiopia
Uganda
Zimbabwe
Cote d'Ivoire
Ghana
Senegal
South Africa
Tanzania
Sub total
LATIN AMERICA
Bolivia
Nicaragua
Dominican Rep
Honduras
Peru
Argentina
Brazil
Guatamala
Sub total
80
10
15
10
35
10
100
10
270
ECA
Total
7,240
10.35
464.3
Note: countries listed have been selected after literature review - list might change after field surveys
2%
33
34
2.1.2 Private owner-operated and for-profit 2.2.2 Private or community developed and
baths with independent source of water in operated public baths that use utility/municipal
Lima, Peru [65].
water sources. Includes franchisers of public
bathing facilities in Delhi, India [205].
2.1.3 Private well or borehole owner-operators,
that sell bulk water to public or private mobile 2.3 Dependent Resellers.
vendors in Lima, Peru [134], and Karachi,
Pakistan [19] (where well, pump and tank
systems are called hydrants).
Residential and institutional for-profit resellers
(through garden hose or garden faucet).
Includes individual vending of utility water
from domestic faucet/tap, elevated tank or
cistern in Port-au-Prince, Haiti [76], Jakarta
Indonesia [83]; Abidjan, Ivory Coast [217]; and
Cartagena, Colombia [107].
Note: Cases referenced are for illustration purposes only. They do not represent the universe of these types
of providers. Utility owned and built kiosks / standpipes, such as those in Dakar, Senegal [11] and Burkina
Faso [217] are not included by definition of SPSPs.
35
This analysis excludes not-for profit public utility-owned trucks that provide water to
neighborhoods (free of charge) drawn from utilities or government / municipal sources,
and natural sources (untreated water). Tank trucks may distribute water to public utility
storage tanks, communal cisterns, individual households or institutions in Delhi, India
[178], and Lima Peru [134]. Anecdotal evidence suggests that these moonlight selling
water to households without control of government authorities.
36
TYPE 1:
Individual/
entrepreneur
establishes a water
supply or
electricity service
which is managed
as a business/on a
commercial basis
(e.g. entrepreneur
aguateros)
TYPE 2:
User association
or self help
group.
Established on
initiative of the
users, but not
always managed
on a commercial
basis. (e.g.
Society/self help
group)
Water: Piped
Network
Primary focus of
SPSP initiative
Secondary focus
of SPSP
initiative. **
Primary focus of
SPSP initiative.
Documented for
water supply only
Secondary focus
of SPSP
initiative. **
Primary focus of
SPSP initiative
Secondary focus
of SPSP
initiative. **
TYPE 3:
Local
Government
scheme initiated
by government and
funded by
government and
donors. Managed
on a commercial
basis (e.g. small
town water
system).*
TYPE 4:
Community based
scheme initiated by
Government with
donor support. 100
percent financing
externally sourced.
Not managed on
commercial basis
(e.g. community
based gravity
scheme.*
Electricity:
Grid
Water :
Point Source or
Kiosk
Energy: Battery
Recharging
Water:
Mobile Distributor
Energy: Home
based systems
*
Excluded from SPSP study because of public ownership and/or extent of grant
financing. SPSPs could play a future role in developing and/or managing these systems.
37
**
wb268448
L:\Jordan\FINAL PAPER -Phase I Report SPSPs August 2005.doc
09/12/2005 2:11:00 PM
38