Water and Sanitation Review Prepared for Bali Workshop Infrastructure in East Asia and Pacific – the Way Forward David Ehrhardt 28 June 2004 Copyright Castalia. All rights reserved. Castalia is not liable for any loss caused by reliance on this document. Castalia refers to members of the worldwide Castalia Advisory Group and its staff

Performance Review - is there a problem? Outline Service vs. GDP Performance Review - is there a problem? Improvement vs. other sectors Improvement vs. goals Investment Needs Past investment levels Service standards, Tariffs, Subsidies, Efficiency Biggest problem : cost recovery Institutional change to lock-in good incentives Financial Intermediation Arrangements

Access to Improved Water vs. GDP per capita

Annual average percentage changes in income, teledensity and access to improved water

Investment needs (to 2015) vs Investment needs (to 2015) vs. Historic actuals (1990-2000) (US$/person/year)

Ratio of operating expenses to revenue

Social and Environmental Priorities Cost recovery through getting service standards, tariffs and subsidies right Cost of Service Efficiency Subsidies Service Standards Social and Environmental Priorities Is the bundle of services, tariffs, subsidies right? Customer Tariffs Lock In

Locking in Good Incentives through Good Institutions Public Inform, Involve, Consult Explain the trade-offs Services Politicians (Minister / Mayor) Link good service to good politics Commercialize, corporatize Utility Contract with private operator to lock in autonomy, subsidy, tariff rules

Section is under-preforming against other sectors and MDGs Conclusions Section is under-preforming against other sectors and MDGs Meeting MDGs requires US$6.3 billion investment per year – twice current levels (but only US$3.50 per person per year) Biggest barrier to good service and investment is lack of cost recovery Achieving cost recovery requires: Consistent, appropriate package of service standards / tariffs / subsidies Institutional reforms to create informed consumers, accountable politicians, efficient utilities and reliable tariff and subsidy rules

Financial intermediation for the water and sanitation sector Private Sector Savings (US$ 8 trillion) Bond Markets Central Government Public Utilities Financeable Projects Customers Public –Private Partnerships Banks Municipal Government Private utilities Specialized intermediaries Taxpayers