Water - A Key to Sustainable Development 3

8/14/2019 Water - A Key to Sustainable Development 3

1/20

Key Facts Jordan

Population 5.4 million

Urban population as a percentage of total population 78%

Population with access to water supply 98%

Population with access to waste water collection andtreatment systems 63%

Regulatory framework Ministry of Water and Irrigation (MWI), Water AuthorityJordan (WAJ), Programme Management Unit (PMU)

Service providers National public providers with regional administrations aswell as private operators

Regulation and Supervisionin Water Supply and Sanitation (WSS)

the municipal network are high, at

more than 98%, but water supply is

intermittent. Around 63% of the ap-

proximately 5.4 million inhabitants of

Jordan have access to wastewater

collection and treatment systems.

Service provision in the Sector. The

Water Authority of Jordan (WAJ) is re-

sponsible for WSS service provision in

the Kingdom. Over the past years an

ambitious restructuring programme

was implemented, including the de-

centralization and commercialisation

of services as well as the delegation of

Jordan is one of most water-scarce

countries in the world and the lack of

water will be a serious challenge to

its future economic growth. Despite

scarcity, water use is not efficient,

with high levels of Non Revenue

Water (NRW) in the range of 47% in

the Amman region. Agriculture, which

contributes about 5% to GDP, uses

around 63% of water resources,

again with high NRW-levels, low tar-

iff, and low cost recovery. As a con-

sequence, Jordan suffers chronic

imbalances in its water supply-de-

mand equation. Connection rates to

Division Environment and Infrastructure

power from the centrally controlled

WAJ to regional units operating on a

commercial basis.

Private Sector Participation (PSP)

went underway in 1999 with the sign-

ing of a Management Contract be-

tween the WAJ and the private joint

venture LEMA (Ondeo and Mont-

gomery Watson Arabtech Jardaneh)

for the Amman Greater Area serving

2.2 million customers (set to expire by

the end of 2006). Additional PSPs

were considered but not carried out.

The tender of a Management Contract

Situation in the countrywith regard to WSS

Case sheet

Focus: Jordan

commissioned by:


2/20

Sector policies

WSS regulatoryframework in Jordan

Sector policies Monitoring Contract monitoring

Tariff setting

Central oversight

Northern Gouvernorate Water Admin-

istration (NGWA) was cancelled. As a

consequence, it was decided to ten-

der a three-year Managing Consultant

Contract (MaCo), which will give way

to the establishment of a commer-

cially operating public company. The

negotiations for a Build Operate Trans-

fer (BOT) tender on Disi water supply

were stopped while the BOT Asamra

wastewater treatment plant is cur-

rently under implementation. In the

future further BOTs as well as the pub-

licly owned water company approach

and Micro-PSP options (PSP of localprivate companies in selected busi-

ness activities such as billing and col-

lection) are sought for Jordans water

sector. The first Micro-PSP contract

has been awarded to a local Jordani-

an Engineering consultant in 2005.

Regulatory Framework

Institutional Structure of the Sector.Within the existing setting there is no

clear separation of the roles of agen-

cies with regard to regulatory and su-

pervisory and operational tasks. The

Ministry of Water and Irrigation (MWI),

the WAJ, as well as a Programme

Management Unit (PMU) carry out

regulatory tasks (see chart above).

The MWI was established in 1988 to

improve the coordination in the sector.

Since 1992 the MWI is in charge of the

development of sector policies and

the overall management of the scarce

water resources. The WAJ is the cen-

tralised authority responsible for WSS

services. WAJ is working under the

WAJ law which regulates current op-

erations. The regional administrationsof WAJ in the Gouvernorates are fully

dependent on headquarters with the

exception of the Northern Governo-

rates Water Administration. Authorities

have been delegated from WAJ to

NGWA to support the decentralisation

process (e.g. financial planning, hu-

man resource development, procure-

ment and capital investment pro-

grammes). PMU was created in 1997

to manage a comprehensive pro-gramme of restructuring and rehabili-

tation of the water supply system in

Amman and to administer the Man-

agement Contract and the implemen-

tation of further PSP projects. It oper-

ates under the supervisory control of

an Executive Management Board,

which is headed by the Minister.

Regulatory Tasks, Powers and

Tools. Within the regulatory frame-

work, the MWI is responsible for mon-

itoring, planning, management and

the formulation of strategies and poli-

cies in the water sector. Price regula-

tion is also done by the MWI, which is

committed to set tariffs at operation

and maintenance (O&M) cost recovery

at minimum. However, decisions of afinancial nature require the approval

by the cabinet.

WAJ is a semi-autonomous body

within the ministry, carrying full re-

sponsibility for WSS nationwide as

well as for regulatory oversight. WAJ,

in coordination with MWI, is also re-

sponsible for the groundwater moni-

toring and control. In future WAJ is

sought to be mainly responsible forbulk water supply to the providers and

the WSS services in the remaining

Gouvernorates. The PMU is responsi-

ble for the regulation of the Amman

MWIMinistry of Water and Irrigation

Minister of Water and Irrigation

WAJ (Water Authority of Jordan) PMU (Programme Management Unit )

Local WSS Administrationsunder central control

Decentralised/commercialisedWSS Administration (NGWA)

Private operator (LEMA) / Aqaba Water Company (AWC)

Customers B Customers CCustomers A


3/20

Management Contract and other PSP

initiatives in the Gouvernorates. How-

ever, its regulatory functions remain

limited to sector monitoring with a fo-

cus on performance improvement and

asset management. Over time, PMU

gradually expanded its field of inter-

vention to include PSP-promotion, in-

troduction of modern management

tools and monitoring and reporting ofthe water operators. In the future PMU

will become the monitoring and audit-

ing unit of the water sector.

Incentives for Service Providers.

There are no real market-based incen-

tives for performance in place. Per-

formance indicators were used in the

Amman Management Contract, as

well as in the Micro PSP contracts.

Dispute Prevention and Resolution.

There are no institutionalised dispute

prevention and resolution mechanisms

in place. Conflicts with regard to the

Amman Management Contract were

carried out between the private opera-

tor LEMA, the PMU and the MWI.

Pro-poor Provisions. A well-estab-

lished tariff structure exists for do-mestic water use (progressive system)

with subsidised lifeline tariff for poorer

communities, generally guaranteeing

affordability. Intermittent supply proofs

to be a larger burden on the shoulders

of the poor.

Assessing ResultsRegulatory Independence. Although

WAJ and PMU are semi-autonomousbodies, the degree of political interfer-

ence in Jordans WSS sector contin-

ues to be an important factor in regula-

tion. Within the current structure it is

difficult to differentiate and coordinate

between the responsible agencies.

Transparency in Decision-making.

Since the first PSP activities in 1996

(preparation of the Amman Manage-

ment Contract), transparency and co-

operation between the public and

private sector has considerably im-

proved. Today, the public as well as

the private sector perceive the Am-

man Management Contract as a suc-

cess. The large number of interna-

tional companies willing to bid for re-

cent tenders has shown that the trustof the international market in the pro-

cedures in Jordan is relatively strong.

Stakeholder Involvement. There is

no institutionalised consultative proc-

ess. Even though WAJ law envisages

the participation of citizens and local

authorities there is little evidence of

stakeholder engagement. With re-

gard to the Amman PSP-preparation

process and other intended PSPs,there was no stakeholder involve-

ment. The private operator LEMA, on

the other hand, has made positive

experiences with customer consulta-

tion by way of focus group discus-

sions in Amman. In Aqaba stake-

holder consultations took place guar-

anteeing the smooth transition to-

wards a water company. But in

general low trust in authorities and

the absence of non-governmental

organisations are impediments to

taking the poor consumers views

forward.

Promotion of Competition. Initially,

there was a strong drive towards PSP.

However, due to changing markets it

became apparent that complex PSPmodels would not be sought anymore

and that alternative approaches, such

as Micro-PSP and the concept of a

public company, would be promoted.

WAJ supports decentralisation as a

first step towards PSP through delega-

tion of authority and also the imple-

mentation of different forms of PSP

(Amman Management Contract, Man-

aging Consultant Contract for the

NGWA, Aqaba Water Company, BOT Asamra wastewater treatment plant)

and other PSP measures.


4/20

German Development Cooperation has

been engaged in Jordan for over 30

years. Through its Water Programme,

GTZ is supporting the implementation

of the Jordanian Water Strategy in all

important institutions responsible for

water supply and sanitation, irrigation

and water reuse as well as water re-

sources management. The Operations

Management Support (OMS) compo-

nent of the programme supports the

institutional reform in WSS, improved

operational efficiency and Phasing-In

Approaches for different PSP options.

In close cooperation with KfW, progress

could be achieved with regard to cost

recovery in the sector. German Devel-

opment Cooperation closely coordi-

nates with USAID, JICA, MREA and the

EU. Currently GTZ is heading the Donor

Subgroup on Water. Within its Techni-

cal Committee on Commercialisation

and PSP, issues on regulation, PSP and

user group participation, especially in

irrigated agriculture, have been elabo-

rated and presented to the Minister of

Water and Irrigation.

Impact of Regulatory Reform on

Sector Performance. NRW contin-

ues to be rather high and service

provision is not satisfactory. However,

the overall performance in the WSS

sector has improved. The achieve-

ments of the first Amman Manage-

ment Contract became apparent afterfive years. The highest cost recovery

in Jordan is achieved by Aqaba Water

Company, which is benefiting from its

location, a small service area with

some major consumers. The Northern

Gouvernorates Water Administration

(NGWA) can be considered as the

best performing utility managing to

reduce its operational deficit by more

than 30% within just four years.

Conclusionsand OutlookUrban water demand is projected to

almost double by 2020. To increase

supplies and service efficiency, the

government has already launched an

ambitious investment programme.

Key measures in order to meet the

challenges are the institutional and

the regulatory reforms. The principalregulatory functions are not likely to

be carried out by an independent

regulator within the foreseeable fu-

ture. However, an agency with a cer-

tain degree of independence could

be formally introduced as a mediator

between all stakeholders to promote

high quality service provision, trans-

parency, legitimacy and equality in a

politically and economically uncer-

tain environment. There is also apressing need to get consumers

more involved and to raise their

awareness.

Role of German Development Cooperation.

This document belongs to a series of CaseSheets, which draw on GTZs advisory servic-es in the area of Regulation and Supervisionof Water Supply and Sanitation. The conclu-

sions expressed in this paper are those of

the authors and should not necessarily be attributed to GTZ or German DevelopmentCooperation as a whole. Nor do the conclu-

sions represent official policy of the GTZ.

This note is available on www.gtz.de/pspFor more information: [email protected] Authors: Marina Meuss,Uwe Stoll, Nina Barmeier Published by:Deutsche Gesellschaft fr Technische

Zusammenarbeit (GTZ) GmbHPO Box 5180, 65726 Eschborn, Germany

Imprint

Design by: www.creativerepublic.net, 2006Photos: Marc LatzelPrinted on 100% recycled paper

Status: January 2006


5/20

Key Facts Kenya

Population 32 million



Population with access to sanitation No reliable data available

Regulatory framework Water Services Regulatory Board (WSRB)

Service providers Water Services Providers (WSPs), Alternative providers


to decentralised sanitation. Popula-

tion growth in Kenya is projected to

increase dramatically, particularly in

the urban informal settlements, fur-

ther worsening the situation.

Service Provision in the Sector.

There have been a great number of

changes in Kenyas WSS sector with

the completion of the Water Act of

2002 (enacted in 2003). The Act pro-

vides for the decentralisation of pow-

ers from the national to the regional

and local level; the separation of wa-

ter resources management from WSS

as well as the institutional separation

Kenya is classified as a chronically

water-scarce country and has cur-

rently the lowest access to safe wa-

ter in East Africa. Available access

statistics are largely outdated but it

is estimated that more than 50% of

the population is underserved. Urban

informal settlement and the rural

poor are the most affected: while the

urban poor largely rely on informal

vendors, the rural consumers often

draw their water from unprotected

sources. The sanitary situation is

likely to be worse with just about

10% of all households connected to

a sewerage system and around 50%


of policy, regulatory, asset holding and

operational functions.

Prior to the reforms, a number of

organisations had been involved in

water service provision including the

Ministry of Water and Irrigation (MWI),

the National Water Conservation and

Pipeline Corporation (NWCPC), vari-

ous local councils as well as an esti-

mated 3000 Community Based Or-

ganisations.

Following the provisions of the Act,

the transfer of asset ownership from

the Water Ministry and the National

Case sheet

Focus: Kenya

Situation in the Countrywith regard to WSS

commissioned by:


6/20

Framework for WSS service provision

financing provision

for poor areas

no regulation

License

WSS regulatoryframework in Kenya

Service Provision Agreement

Dispute prevention and resolution

Water Corporation to seven regional

Water Services Boards (WSBs) has

been gazetted in July 2005, and

most local governments have hand-

ed over their assets to the WSBs.

While the WSBs are in charge of asset

development and bear overall WSS

service responsibility within their are-

as of jurisdiction, they appoint Water

Services Providers (WSPs) to actuallyprovide the service.

In urban settlements the WSPs are

mostly local authority-owned utilities

that have been established recently

as commercialised, publicly owned

companies. In other areas numerous

community-managed projects are to

be transformed into formally recog-

nised WSPs. Community Based Or-

ganisations will retain the ownershipover their assets and, where possi-

ble, remain or become in charge of

operations.

Regulatory FrameworkInstitutional Structure of the Sector.

The national regulator, the Water

Services Regulatory Board (WSRB),

has been created by virtue of the

2002 Water Act to supervise water

services provision in the country.

However, some regulatory tasks are

delegated to the seven regional

WSBs. A Water Appeals Board (WAB)

is responsible for resolving and deter-mining certain disputes. The Water

Services Trust Fund (WSTF) assists in

financing the provision of water to

areas without adequate supply (see

chart above).

The regulator, which has only be-

come operational in 2004, consists

of an 11-member board structure in

charge of major decisions and a

management team headed by a CEO.The recruitment process to fill the

key positions is still on going. The

sectors line ministry is the MWI,

defined by the Act as policy-making

body in charge of providing an ena-

bling framework for effective service

provision. The Minister wields con-

siderable powers, such as appointing

and removing Board members and

ensuring sector control.

Regulatory Tasks, Powers and Tools.

Institutional responsibilities, powersand regulatory tools are still in the

process of being further defined. The

regulators primary responsibilities are:

WSP s (Water Services Providers) Alternative providers

WSBs (Water Services Boards)

MWI (Ministry of Water and Irrigation)

WSRB (Water Services Regulatory Board) WSTF (WaterServices Trust Funds)

Customers A Customers B

WAB(Water Appeals Board)


7/20

< Licensing the WSBs and formulating

sector guidelines and regulations.< Monitoring and enforcing the

WSBs compliance with conditions

attached to their licences.< Determining standards and issuing

guidelines on service provision,

customer protection, cost-effectiveand efficient operation and mainte-

nance (O&M) procedures.< Fulfilling certain dispute resolution

functions.< Issuing overall guidelines on tariff

policies, structures and adjustment

mechanisms.< Compiling sector information for

comparative competition of provid-

ers and informing the public about

sector development.

The overall price regulation regime

is currently being further defined and

clarified. The proposal endows indi-

vidual WSPs to request adjustments

of remuneration as part of their peri-

odic business planning process,

which the WSB approves. Any adjust-

ment to the WSB remuneration will

need to be approved by the regulator.In addition, the current draft concept

proposes an indexation formula to be

included in the standard service pro-

vision agreement between the WSBs

and the WSPs. The WSBs also have

monitoring tasks in relation to the

service provision agreements within

their area and are partly allowed by

law to make their own subsidiary

regulations within the framework of

the overall regulatory regime.


The current Model Service Provision

Agreements provide for some simple

incentive mechanisms. According to

these, the WSPs may be allowed to re-

tain part of the additional revenues if

they outperform with regard to collec-

tion rates and Unaccounted-for-Water

(UFW). As part of a government civil

service reform policy, on going since

July 2005, the WSBs and the top man-

agement of state corporations as well

as the Ministry have signed Perform-

ance Contracts, which will be assessed

annually.

Dispute Prevention and Resolution .

The functions of the Water Appeals

Board are likely to be limited to disputes

between the regulator and WSB or, as athird instance, between WSBs and

WSPs. Alternative more localised and

accessible mechanisms are currently

being discussed as part of the on-going

development of dispute resolution and

appeals mechanism guidelines and

Model Service Provision Agreements.

Pro-poor Provisions. Although strate-

gic plans indicate an awareness of

pro-poor issues in the regulatoryprocess, the definition of targets has

remained vague and implementation is

in the initial stages. While many formal

providers operate a flat-rate lifeline tar-

iff, the actual impact on low-income

communities is contentious. There are

indications that connection rates may

be prohibitively high. Service provision

in the large informal settlements re-

mains outside the regulatory regime.

Presently, the sector institution with aclear pro-poor focus and mandate is

the Water Services Trust Fund.

Assessing ResultsRegulatory reforms have only started

recently and are part of a wider sec-

tor reform. So far, key institutions

have been established and are in the

process of becoming operational.

Some crucial regulatory tools have

been developed or are currently be-

ing finalized. Direct impacts of the

regulatory reform are expected to be

seen once the institutions and tools

become effective.

Regulatory Independence. Although

the Water Act provides for a fairly inde-

pendent regulator, at this stage of thereform process, the WSRB is not yet

fully independent. Funding is currently

provided through government grants

and a proposal for a regulatory levy of

1% is waiting for approval. In addition,

staff is still being seconded from the

Ministry to the regulator instead of be-

ing recruited from the market. A board

appointed by the Minister takes key

regulatory decisions and most of the

WSRBs responsibilities are limited toissuing guidelines and advice rather

than actual decision-making. However,

the ultimate degree of independence


8/20

German Development Cooperation

has been intensely involved in estab-

lishing local government-owned au-

tonomous and commercialised com-

panies in various secondary towns in

Kenya. These projects serve as a

model for the establishment of WSPs

throughout Kenya under the on-going

reforms. Presently, GTZ is providing

substantial support to the sector

through the Water Sector Reform

Programme. Objectives of this project

are inter alia the establishment of an

effective regulatory regime for WSS;

the operationalisation of the new in-

stitutions, established as part of the

water sector reforms; and the com-

mercialisation of WSPs. Water re-

source management components in-

tend to optimise available resources,

their management and use. KfW as

the sector focus coordinator repre-

Conclusionsand Outlook

sents German cooperation externally

and as such also co-chairs the water

donor forum. Close cooperation ex-

ists with the Swedish/Danish funded

Kenya Water and Sanitation Pro-

gramme formalised in a joint financ-

ing agreement as well as an agree-

ment on a common programme be-

tween German Development Coop-

eration (KfW, GTZ and DED) and the

World Bank.

will be determined with the definition

of the respective roles and responsi-

bilities and the development of regula-

tory tools.


There is an increasing awareness of

the regulator as well as growing pres-sure from the general public and the

regulated industry to move towards

more transparency and accountability

in regulatory decision-making.

Stakeholder Involvement. The Water

Act requests consultation on a number

of provisions and regulations. A culture

of public consultation and active

stakeholder engagement is gradually

being build. By appointing representa-

tives into the boards of the respective

institutions some improvements have

been made with regard to involving

consumers and civil society. Some of

the larger WSPs are starting the proc-ess of improving customer service

(e.g. Nairobi Water Company).

Promotion of Competition. While the

Water Act encourages competition by

appointing the WSP, government poli-

cy gives preference to public local

government companies.

The success of regulatory reform will

depend on the progress of the overall

reform process in the sector as well

as on the future strength and credibil-

ity of the regulator. It remains to be

seen whether the regulator will be

able to take a leading role, providing

guidance to the regulated industry aswell as to the Ministries throughout

the reform process.






This note is available on www.gtz.de/psp.For further information: [email protected]

Authors: Authors: Anja Knig, RolandWerchota and Nina Barmeier Published by: Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ) GmbHPO Box 5180, 65726 Eschborn, Germany

ImprintDesign by: www.creativerepublic.net, 2006Photos: GTZ Printed on 100% recycled paper



9/20

Key Facts Peru




Population with access to waste water collection andtreatment systems 57%

Regulatory frameworkSuperintendencia Nacional de Servicios de Saneamiento(SUNASS )

Service providersEmpresas Prestadoras de Servicios de Saneamiento (EPS),Juntas Administradoras de Servicios de Saneamiento(JASS), Community-based organizations, NGOs


ticularly in the rapidly growing peri-urban areas, are a consequence ofthis situation.

Service provision in the Sector. InPeru 45 WSS utilities or EPS (Empre-sas Prestadoras de Servicios deSaneamiento) public companies inproperty of the corresponding munici-palities - are in charge of providingservice to about 65% of the popula-tion. The remaining 35% of the - most-ly rural - population, is serviced bysmaller service associations or JASS

The urban WSS sector in Peru hasrelatively high WSS coverage ratiosbut they are mostly confined to theutilities in densely populated areas.Smaller utilities have not reachedsufficient levels of WSS coverage. Ahigh level of Unaccounted-for-Water(UFW) with a national average of45%, low metering rates, poor waterquality and intermitted water availa-bility are persisting problems in thesector. Wastewater treatment facili-ties are almost absent. Frequent wa-ter borne infectious diseases, par-


(Juntas Administradoras de Serviciosde Saneamiento) as well as by othertypes of community organizations andNGOs. Private sector participation(PSP) had until very recently been lim-ited to outsourcing, with the exceptionof a concession contract for the con-struction and operation of a water plantin Chilln issued by Limas utilitySEDAPAL (Servicio de Agua Potabley Alcantarillado de Lima). Lately, thereare number of PSP processes in effectat the provincial level. If these pilotsprove to be successful ten more EPSs


Case sheet

Focus: Peru

commissioned by:


10/20

are to be privatised in the next years. Amongst the pilot projects is a 30-yearconcession for the city of Tumbesawarded end of July 2005 by the Pri-vate Investment Promotion Agency(PROINVERSION) to the Argentinean/ Peruvian consortium Latinaguas-Con-

cyssa. The company EPS GRAU, op-erator of the WSS system in the city ofPiura, is in the stage of pre-qualificationfor a 30-year concession. A number ofsmall and medium-size municipalitiesare in the process of tendering the op-eration of their WSS services (e.g. Se-chura and Laredo).

Regulatory Framework

Institutional Structure of the Sector.

The water regulatory agency SUNASS(Superintendencia Nacional de Servi-cios de Saneamiento) was created bydecree in 1993 as a decentralized andautonomous agency under the jurisdic-tion of the Presidency of the Council ofMinisters. Presently, SUNASS over-sees quality, coverage and rates in 45EPSs. Service provision in small cities

and rural areas, administered by localgovernments or other institutions, aswell as small legal commercial activi-ties (water deliverers) are not registeredwith SUNASS.

SUNASS is a comparatively largeregulator with around 100 employeesheaded by a Superintendent appointedby the minister. The financial autonomyof SUNASS with an annual budget of

US$ 4million is provided by means of a2% levy on the turnover of the industry.The Ministry of Housing, Constructionand Sanitation (MVCS), created in

PMO (OptimizedMaster Plan)

SUNASS(Regulator)

Municipalities

EPSs (Utilities)

Contrato deexplotation

Elaborate and approve contract

Sign contract

Promotes and assists withelaboration of PMO

Elaborate and sustain PMO

Authorize implementation of PMO

Approves PMO and supervises

executionSupervisesexecution

MVCS(Ministry of Housing, Con-struction and Sanitation)

Promotes contract and provides technical assistance for its preparation

MVCS(Ministry of Housing, Con-struction and Sanitation)

PMO (OptimizedMaster Plan)

SUNASS(Regulator)

Municipalities

EPSs (Utilities)

ConcessionContract

Elaborate and approve concession

Sign concession

Promotes and assists withelaboration of PMO

Elaborate and sustain PMO

Authorize implementation of PMO

Approves PMO and supervises

executionSupervisesexecution

PROINVERSION(Private Investment Promo-

tion Agency)


11/20

2002, is the line ministry of the sector,responsible for the management, su-pervision and policy planning.


Tools. SUNASS has the functions tosupervise, regulate, oversee and en-

force water service provision; to setnorms and standards for water quality;and to resolve controversies and userclaims. The agency is empowered totake punitive action against any viola-tions committed by providers. With re-gard to price regulation SUNASS pow-er is limited to designing tariff rules andproposing tariff levels. The ultimate ap-proval of tariff adjustments is carriedout by the municipalities, with the ex-ception of the city of Lima.

In the past, two plans were used forthe regulation of tariffs of public pro-viders and a single plan, the OptimizedMaster Plan (PMO), for the determina-tion of rates of private providers. Re-cently, SUNASS modified the directiveof formulation and approval of tariffsfor public providers. Now the PMO is

being used for the regulation of tariffsof both: public and private providers.The PMO includes proposals for theeconomic offers, management objec-tives, tariff structure, and tariff formulaand coverage rates. SUNASS respon-sibility is to examine the proposal in aconsultative process with the popula-tion and to submit the outcome incase of private providers - to PROIN-VERSION for approval and to the mu-

nicipalities in case of public providers.Once the PMO is approved for privateproviders, it is viewed as involvingmandatory targets.


The link between regulatory incen-tives and performance measures inPeru is weak. To stimulate improve-ments of the municipal utilities man-agement, SUNASS established abenchmarking scheme in 1999 which

is based on nine indicators measur-ing four areas of efficiency: quality ofservice, coverage rates, managementand financial efficiency. Each utilityannually reports to SUNASS on itsefficiency indicators. The rankingbased on the data is calculated andpublished by the regulator. However,SUNASS cannot (at present) applyformal rewards or penalties based onthese rankings. Because of the lackof connection between the utilitiesperformance and benefits, no real in-centives for service improvement arepresently given to the utilities.

Dispute Prevention and Resolution. At the moment there are no viableconflict resolution mechanisms inplace with regard to disputes be-tween the regulator and a service

provider. If a service provider doesnot adhere to regulation, SUNASSmay assess a penalty but there are nofurther implications if the providerfails to comply.

The law provides for a water utilityto appeal the regulators decision tothe courts, but judiciary weaknessesreduce the credibility of the regulatoryframework. Disputes raised by con-

sumers and presented to service pro-viders are addressed by the regula-tors consumer appeals office in thesecond instance.

Pro-poor Provisions. In its capacityas consumer protection agency, SU-NASS encourages the service provid-ers to apply social rates and cross-subsidies in their rate structures in ur-ban areas. For example, in Cusco thesocial rate for WSS services is ap-

proximately 36% lower, than the reg-ular domestic rate and almost 80%lower than the rate applicable to com-mercial and industrial users.

Assessing ResultsRegulatory Independence. AlthoughSUNASS is financially self-sufficient itis still vulnerable to political interven-tion, so that unpopular decisions, suchas tariff increases, are extremely diffi-cult to implement. Because there is noboard representing different stakehold-ers and the powers are concentratedon the Superintendent, SUNASS is notimmune to direct intervention by theministry. The presence of multiple enti-ties in charge of supervising EPSs, in-cluding the Ministry of Housing, theMinistry of Economy and Finances and

SUNASS doesnt provide for a cleardefinition of roles.


Regulatory decision-making is gettingincreasingly transparent. SUNASS`regulations and decisions as well asthe results of the benchmarking schemeare available on the regulators webpage. Users can get guidance uponconsultation using the service hotline.

Stakeholder Involvement. There islittle stakeholder involvement in regu-latory decision-making. As an attempt


12/20

German Development Cooperation hasbeen engaged in Peru for over 30 years.GTZs water supply and sanitation pro-gramme PROAGUA focuses (i.) on fi-nancial, institutional and commercialstrengthening of the water utilities (EPS),

(ii.) supporting public participation andstakeholder dialogue and (iii.) setting up

capacity building and training sys-tems for the EPS. As a member andco-coordinator of the Grupo Agua,GTZ closely coordinates its activitieswith bi- and multilateral developmentcooperation partners active in Peru`s

WSS-sector.

to establish a forum for regulatory con-sultations a consultative committee,comprising representatives of differentstakeholder groups, including the Su-perintendence, the water utilities, themunicipalities, as well as associationsof engineers and consumers was cre-

ated. SUNASS is also obliged to con-sult consumers on the PMO and toinclude their views into the plan.

Promotion of Competition. SUNASSis only marginally involved in facilitat-ing competition by private sector par-ticipation. Currently, this role lies morewith PROINVERSION. The SUNASSbenchmarking systems role is to stim-ulate comparative competition but toachieve this, incentives or penalties

would need to be linked to it. Also, theweight given to the benchmarking sys-tems indicators might need to be re-vised to serve this purpose. Impact of Regulatory Reform on

Sector Performance. SUNASS and

its line ministry advocate a policy oftotal recovery of operating and main-tenance costs through user fees. Nev-ertheless the rate policies have not yetbeen accepted by elected officialsand tariffs are still too low in manyurban areas. This provides little incen-tives for service providers to improveUFW and makes it difficult to covercosts for service provision, to carryout operation and maintenance andeven more to expand coverage.


A number of regulatory improvementshave taken place in recent times andtheir impact remains to be seen. Par-ticularly the ongoing PSP-initiativesinvolving regional and national firmscould offer an effective means to im-prove sector performance and to

stimulate municipal service providersefficiency.

An accountable regulator will play akey role in realizing the gains. However,some regulatory reforms still remain tobe carried out: the legal framework forSUNASS tasks needs to be complet-ed and its strategic orientation andgoals need further clarification. Theautonomy from government and ac-countability in decision-making has tobe guaranteed.

To make operations more efficient,several organizational obstacles needto be solved and the staffs conductwould need to adjust to the new struc-tures. The accuracy of the currentSUNASS ranking schemes would needto be revised to make it an effective

tool for providing incentives to thepublic utilities.






This note is available on www.gtz.de/pspFor more information: [email protected] Authors: Michael Rosenauer, Nina Barmeier and Sandra NeuhausPublished by:Deutsche Gesellschaft fr Technische


Imprint

Design by: www.creativerepublic.net, 2006Photos: GTZ/PROAGUAPrinted on 100% recycled paper



13/20

Key Facts Uganda



Population with access to water supply About 57%

Population with access to sanitation Between 60 80% depending on source

Regulatory framework Regulation done largely by contract

Service providers National Water and Sewerage Corporation (NWSC),Local private and public operators, Small-scale providers


sanitation. The WSS sector is a main

area of focus in Ugandas Poverty Re-

duction Strategy and key in meeting

the Millennium Development Goals.

Service Provision in the Sector.

Water supply services in 19 large ur-ban towns are the mandate of the

National Water and Sewerage Cor-

poration (NWSC), a commercialised,

publicly owned utility established in

1972. NWSC currently also owns

and manages the assets of 18 of the

44 largest towns in Uganda. The

present water supply coverage in

these towns stands at 68%. Assets

Uganda is a largely rural country with

ample water resources. However,

slightly less than half of the population

still lives without access to safe water

supply: overall urban water supply

coverage stands at about 60% of the

population, whereas rural water cover-age is about 55%. It is estimated that

86% of the urban population use

shared or unshared on-site sanitation

and around 4% have no access to any

sanitation facility. Less than 10% are

connected to the water-borne sewer-

age systems, which are mostly in a

very poor state. In rural areas around

60% of the households use on-site


of the remaining urban towns are

owned and managed by the respec-

tive municipal town councils, a result

of the governments decentralization

programme. Over half of these towns

have established a Water Authority,

which contracts out operations to lo-cal private firms. The local private

sector currently serves 61 towns and

has achieved water supply coverage

rates of 67%.

There have been two international

private sector contracts in recent

years in the form of management

contracts in the Kampala water

Situation in the Countrywith regard to WSS

Case sheet

Focus: Uganda

commissioned by:


14/20

supply area (1997-2001 undertaken

by JBG Gauff, a German consulting

firm and 2002-2004 carried out by

ONDEO Services Uganda Limited, a

French water firm). In 2002/2003 it

was still envisaged to turn these in-

ternational private sector contracts

into a lease or concession contract

for the urban water sector, along with

the creation of a regulatory authority.These plans were not carried out and

instead the reforms are now focusing

on improving the financial and com-

mercial viability of NWSC and estab-

lishing an asset holding authority.

Regulatory FrameworkInstitutional Structure of the Sector.

The main institutions in charge ofregulation of the WSS sector are the

Ministry of Water, Lands and Environ-

ment (MWLE), its technical arm, the

Directorate of Water Development

(DWD), the Performance Contract Re-

view Committee (PCRC), as well as

the service providers themselves

(NWSC, water authorities). The Water

Act of 1995 puts DWD in charge of

technical regulation in the sector.

DWD is carrying out this role with re-

gard to monitoring of the perform-

ance contracts that exist between the

water authorities and the MWLE.Since 2000 part of the technical regu-

lation is carried out via performance

contracts between the MWLE / the

Ministry of Finance, Planning and

Economic Development (MoFPED) on

the one hand and NWSC on the other

hand. The PCRC is in charge of over-

seeing these contracts on behalf of

the MWLE. The NWSC in return mon-

itors its area offices under the Inter-

nally Delegated Area ManagementContracts (IDAMCs) and the water

authorities monitor the private sector

operators through management con-

tracts (see chart above).


Tools. The PCRC is tasked to monitor

the contract performance between

MWLE/MoFPED and NWSC using

performance indicators. These include

among others the coverage, Unac-

counted for Water (UFW), collection

efficiency, financial and operating ef-

ficiency, customer service and opera-

tional indicators. The MWLE is re-sponsible for price regulation. Pres-

ently, the operating entities propose

tariffs and the MWLE endorses these.

There are currently no explicit mecha-

nisms for the periodic evaluation of

tariffs to ascertain cost-recovery.

Since 2004, tariffs for the NWSC-

served towns are indexed annually to

adjust for inflation and increases in

operating costs. During the last Joint

Sector Review in September 2005 itwas agreed that the existing regula-

tory framework needs to be strength-

ened by more clearly defining institu-

tional roles and responsibilities and by

Performance contracts

WSS regulatoryframework in Uganda

PCRC (PerformanceContract Review Committe)

Contract monitoring

Consumer A Consumer B

NWSC (National Waterand Sewerage Corporation)

Muncipal Town Councils / Water Authorities

IDAMC (Internally DelegatedManagement Contract)

Private Operator NWSC Area Offices

Contract monitoringManagement

contracts Contract monitoring

MWLE (Ministry of Water)MWLE (Ministry of Water) &

MoFPED (Ministry of Planning)

DWD (Directorate of WaterDevelopment)

Contract monitoring


15/20

providing targeted capacity building,

where necessary. Regulation by con-

tract will be the key regulatory mecha-

nism in the short and medium term.


The IDAMCs, established within each

of the NWSC service areas, have a

well-defined incentive mechanism

that is based on Minimum Per-formance Standards and Perform-

ance Targets. Under this system sev-

eral key areas of performance are

used to calculate incentive fees for

the staff in each operating area. In ad-

dition to the normal management fee

and a 25% performance-related com-

ponent, there is an incentive fee,

which allows the operators to earn a

bonus when minimum performance

standards are exceeded.

Dispute Prevention and Resolution .

There are no explicit mechanisms for

dispute resolution. However, the Wa-

ter Statute of 1995 provides for the

establishment of a Water Policy Com-

mittee (WPC) to assist the Minister in

sector co-ordination and to advise on

disputes between agencies. The dis-

pute appeals and dispute resolutionbetween NWSC head office and area

offices are handled by the managing

director/board of NWSC. This arrange-

ment may lead to conflict of interest

and is envisaged to be changed in the

ongoing reforms when more contracts

with local private sector entities have

been entered into.

Pro-poor Provisions. Although the

poor have benefited from the increasedconnections and greater continuity in

water supply, most of the reforms that

have taken place had no explicit pro-

poor focus and there are no defined

standards and levels of service at

present. Currently, the NWSC provides

a subsidised yard tap and domestic

tariff as well as a new connection policy

that provides more affordable access to

water supply services to the urban and

peri-urban poor. In recent years, the

NWSC has also improved customer

services, reduced the average time to

deal with complaints and introducedGIS based customer records and a

Customer Charter.

Assessing ResultsThe process of strengthening the ex-

isting regulatory framework, as agreed

at the Joint Sector Review in 2005, is

ongoing and improvements are cur-

rently being defined. All stakeholders

contribute actively to the process of

developing a transparent and well-de-

fined framework.

Regulatory Independence. Within

the current process of strengthening

the regulatory framework, it is difficult

to assess the degree of autonomy in

decision-making. It is questionable

whether the PCRC, which is financedby the government, provides suffi-

ciently robust means to oversee the

performance contracts. It lacks the

resources to act as a permanent sec-

retariat and is in fact largely not opera-

tional. In general, there is a lack of ef-

fective monitoring and enforcement of

standards. The need for capacity in

the DWD paired with overlapping roles

and responsibilities lead to institution-

al conflicts.

Transparency in Decision-making. The ongoing review and analysis of

the existing regulatory framework in-

creased the awareness with respect

to transparency, accountability and

need for enforcement. A recent tariff

directive by the Minister highlighted

the need for a clear price regulation

mechanism based on sound analysis

of the respective service area before

tariff adjustments are applied.

The Association of Private Water Op-

erators (APWO) is raising pressure on

the government to increase transpar-

ency and accountability. Information

campaigns are under way to enhance

awareness and understanding of the

reform process in the affected insti-

tutions as well as by the general

public.

Stakeholder Involvement. The deci-

sion to strengthen the existing regu-

latory framework was made through


16/20


German Development Cooperation

has supported the reforms in the ur-

ban WSS sub-sector since 2002 un-

der its Reform of the Urban Water

Sector (RUWAS) programme. RUWAS

advises on the legal, institutional and

regulatory changes necessary to im-

plement the agreed sector reforms.

The programme forms part of the Sec-

tor Wide Approach to Planning (SWAP)

that was adopted in 2002. It is an ac-

tive member in the Water and Sanita-

tion Sector Working Group (WSWG), a

high-level decision-making and steer-

ing committee that coordinates the

work of all stakeholders in the sector.

The development partner contribu-

tions are coordinated through the Wa-

ter and Sanitation Sector Development

Partner Group (WSDPG) that is cur-

rently chaired by Germany as lead

donor. Sector progress is monitored

biannually during the Joint Technical

and Joint Sector Reviews in March

and September of each year.

a participatory process involving all

key stakeholders. However, at

present the sole mechanism to in-

volve the consumers in WSS regula-

tion is a NWSC community develop-

ment officer. There are currently no

other staff or committees for captur-

ing the voice of the poor.

Promotion of Competition. The

IDAMCs already provide a very good

platform for internal competition. The

aim is to continue to engage the local

private sector to stimulate wider com-

petition. The involvement of foreign

private sector firms is also being con-

sidered as a potential option, al-

though market size, country risks and

the currently weak regulatory system

make Uganda a less preferred option

for international involvement.

Impact of Regulatory Reform on

Sector Performance. Service deliv-

ery in NWSC-served towns has

clearly improved between 1998 and2005. This was partly due to private

sector participation initiatives

through management contracts. Pri-

vate sector participation had a sig-

nificant influence on sector reforms

and performance. Even more signifi-

cantly were the internal reforms as

well as the introduction of the

IDAMCs in 2004.

The effectiveness of the strength-

ened regulatory framework will large-

ly depend on the acceptance of the

regulatory reform process by all

stakeholders. So far the process has

received relatively high support be-

cause of its participatory and trans-

parent nature.






This note is available on www.gtz.de/psp.For further information: [email protected] Authors: Fridtjof Behnsen, Barbara Gerhager and Nina Barmeier Published by:Deutsche Gesellschaft fr Technische


Imprint

Design by: www.creativerepublic.net, 2006Photos: GTZ Printed on 100% recycled paper



17/20

Key Facts Zambia




Population with access to sanitation 44%

Regulatory framework National Water Supply and Sanitation Council (NWASCO)

Service providers Commercial Utilities (CUs), Local Authorities (LAs),Water Trusts (in some areas of Lusaka)


water pipe system or pollute resourc-

es. The unhygienic conditions as well

as the lack of access to safe water

mainly affect the poor, particularly

women and children.

Service provision in the Sector.Urban WSS services in Zambia are

mainly provided by Commercial Utili-

ties (CUs), which are owned by Local

Authorities as shareholders. 84% of

the urban population resides in the

service area of one of the ten CUs.

The remaining 16% are still serviced

by Local Authorities directly (15%) or

by private companies that supply

Zambia is one of the most urbanised

countries in sub-Saharan Africa with

around 43% of the population living in

urban areas. Although the country

has abundant water resources, clean

drinking water only reaches around

47% of the urban population andmore than half of the urban popula-

tion has no access to adequate sani-

tary facilities. The largely desolate

water infrastructure in low-income ar-

eas offers insufficient and often unac-

ceptable service levels with frequent

interruptions. Since decades cholera

arises regularly in these areas, due to

the fact that wastewater can enter the


water to their employees (1%). Within

the official coverage area of the Lu-

saka Water and Sewerage Company

(LWSC), a very large proportion of the

peri-urban areas receive their supply

through community-managed Water

Trusts.

Regulatory FrameworkInstitutional Structure of the WSS

Sector. The National Water Supply

and Sanitation Council (NWASCO),

established in October 2000, regulates

urban WSS service provision. All the

WSS service providers who provide

Case sheet

Focus: Zambia


commissioned by:


18/20

Reports Advice Appoints board membersResponsible for

WSS provision

no regulationRegulation

WSS Regulatoryframework in Zambia

financing provisionfor poor

areas

services other than for their own use

are required by the Water Supply and

Sanitation Act of 1997 to obtain an

operators licence. Other service pro-

viders operating in the service area of

a CU, i.e. small-scale providers are

required to enter into formal agree-

ments with the licensee. The commu-

nity-managed Water Trust, up to now,

operate outside of the regulatory re-

gime. NWASCO presently has a staff

contingent of 13 people. Its board is

composed of 16 stakeholders, repre-

senting government institutions, pri-

vate sector and other agencies. In2004, its annual expenditure amount-

ed to about 300,000, 84% of which

is covered through the license fees of

1% of the service providers turnover.

The remaining comes from govern-

ment and technical assistance (e.g.

from GTZ).The water sectors line

ministry is the Ministry of Energy and

Water Development (MEWD). NWAS-

CO reports to parliament through the

Minister of MEWD who also appointsthe members of the regulators board

after the institutions represented on

the board have submitted proposals.

The responsibility for WSS, however,

is under the Ministry of Local Govern-

ment and Housing (MLGH), ensuring

a clear separation between policy/ex-

ecutive and regulatory functions (see

chart above).


Tools. The main functions of

NWASCO, as established under the

WSS Act, are advising government

institutions, licensing of utilities, de-

veloping guidelines for WSS, estab-

lishing and enforcing standards for the

design and management of utilities,advising utilities and other service

providers, disseminating information

to consumers, as well as other activi-

ties. NWASCO has powers to enforce

its functions through the licensing and

tariff setting process and through en-

forcement notices and penalties.

NWASCOs power with regard to

price regulation is based on the WSS

Act. Applications for tariff-adjust-ments by providers go through a

number of stages before final ap-

proval by the regulator. Before sub-

mitting a tariff adjustment proposal a

provider has to hold a consultative

meeting with customer representa-

tives. A new tariff model is applied

since 2005.


There are a number of incentive

mechanisms that are presently being

applied in the urban water sector in

Zambia:< the Service Level Agreement and Ser -

vice Level Guarantee based on the

respective guideline by NWASCO

Water - A Key to Sustainable Development 3

Documents