Models of Aggregation for Water Supply and Sanitation Provision Capacity Building Module

Outline of the presentation  What is aggregation?  Aggregation models  The process of aggregation  Summary

What is Aggregation? Grouping of several municipalities into a single administrative structure for the provision of a service town A town B town C town D Aggregated service provider aggregation

Aggregation: one of many management models Aggregation of small towns Professional support to medium operators Scaling up demand response approach Strengthening community management models Public private partnership Small scale independent providers Engaging the public sector

Aggregation: Essential Pre-requisites  Political support and commitment  Identify a “Champion” to pilot the aggregation  Adapt approach to local culture & circumstances  Keep public informed of benefits attained and progress  Consider whether a carefully-constructed, well-implemented public consultation, education and communication program is necessary according to local circumstances

Drivers for Aggregation (1) (Supply) BOTTOM UP & TOP DOWN APPROACHES - DEMAND OR SUPPLY DRIVEN Government Driven Central Government Province District Sub District Village (Customer Base) Customer Driven (Demand)

Economies of scale Access to professional & technical resources, in-house or procured Access to water resources Access to private sector, local &/or international Access to finance Cost sharing Improved management systems & technology aggregation Drivers for Aggregation(2)

Outline of the presentation  What is aggregation?  Aggregation models  The process of aggregation  Summary

Aggregation: no standard blueprint  Each aggregation has a unique character  Tailor aggregation to specific circumstances and needs  Lessons can be drawn from other aggregations

Scale: The optimum size of utility SCALE Two Towns Several TownsRegional ProviderNational Territory Hungary, The Philippines, France Brazil Italy, England and Wales, The Netherlands

Scope of Aggregation SCOPE A single service e.g. bulk supply All municipal services All water and sanitation services A single function e.g. procurement All functions Several functions What services? What functions? Nimes (France), The Netherlands only water Dunavarsany (Hungary), water first, waste water later Italy, England and Wales

Governance arrangements temporary permanent Association Time-limited agreement for specific purpose Permanent aggregated structure

Governance arrangements: Voting rights in Board ….Or a mixture of the various methods MethodPluses (++) and Minuses (- -)Power tilted to… Specific powers for the largest entity ++ Confidence for larger entity - - Small entities have limited influence larger entities smaller entities % of population in each entity ++ Democratic - - Small entities have limited influence Large entity needs vote of 1 or more smaller entities ++ Democratic - - Small entities have greater influence # of connections or value of the assets ++ A sound economic basis - - Varies from year to year One entity = one seat++ simple and transparent - - can be unacceptable to larger entities

Outline of the presentation  What is aggregation?  Aggregation models  The process of aggregation  Summary

Process of aggregation PROCESS Voluntary Voluntary with incentivesMandated The Philippines, France, Brazil HungaryItaly, The Netherlands, England and Wales

Stages in the Aggregation Process Preparatory Phase Analytical Phase Implementation Phase Initiate the aggregation process Identify key drivers for aggregation Identify aggregation candidates and stakeholders Choose an appropriate consultation process Establish group to lead the process Choose an appropriate aggregation process Assess drivers, constraints, and potential issues Assess benefits and costs for each entity Assess benefits and costs for alternative groupings Choose the most appropriate aggregation model Define an aggregation plan Define procedure to resolve disputes Monitor Progress against that plan

Entry and Exit Conditions  Entry and exit conditions must be carefully specified  Entry implies commitment and obligations to partners and should not be entered into lightly  Exit has potential to damage/weaken the aggregated entity and should be made difficult and expensive!

Is aggregation a suitable option? Adding up the pros and cons for the individual municipality Potential Pluses ++Possible Minuses Facilitates access to water resources ++ Economies of scale in works, procurement & support services ++ Access to finance (private/donors) ++ Attract private operator ++ Cost sharing between towns ++ Integrated Water Resource Management ++ More professional staffing ++ Improved governance through greater network of accountability - - Lower control over water resources - - Lower tailoring services to the needs of the end users - - Loss of competition - - Lower accountability to customers & citizens - - Resistance to cost sharing - - Potentially high transaction costs

Essential Trade Off

Outline of the presentation  What is aggregation?  Aggregation models  The process of aggregation  Summary

Aggregation: define scale, scope and process SCALE Two Towns National Territory SCOPE A single service or function All services and functions PROCESS Voluntary Mandated

 Improved efficiency of service delivery (economies of scale)  Enhanced professional capacity in service provision  Cost sharing to mitigate high-cost systems  Multiple utility ownership will enhance autonomy of the utility Potential Benefits

 Need to balance interests of all participating municipalities to overcome resistance  Role of central government: assist; incentivize; and/or mandate  Aggregation without asset ownership transfer can overcome resistance (but gives aggregated utility less autonomy)  Aggregation must be seen as one element of broader reform process:  Requires corporatization  Might require reform of the oversight of service provider  Might require adjustment (standardization) of tariffs and subsidies  Sometimes combined with private sector participation The politics of aggregation Actual benefits depend on political & other local circumstances

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