1. OECD Water Programme Sustainable Financing to Ensure Affordable Access to Water and Sanitation EUWI Finance Working Group World Water Week Stockholm, Aug.20 2008

2. 2 The 2007-08 Water Programme: Key Policy Questions The Programme responds to two sets of policy questions : How to overcome financial obstacles to the provision of adequate and affordable water services for all, addressing the mounting investment needs in OECD countries and contributing to meet the MDGs How to improve the use of economic incentives to help manage water resources (and associated watersheds) in an economically efficient and environmentally effective way, to address increasing competition for water resources and deteriorating water quality

3. 3 The 2007-08 Water Programme: The 3 Pillars The Programme contributes to the debate by focusing on issues where OECD-specific value added was identified: 1.Identify good practices with (i) water pricing & financing of water service provision (urban and rural); (ii) economic instruments for the sustainable use of water in agriculture 2. Help developing country governments prepare realistic financing strategies for water & sanitation services 3. Develop practical guidance for engaging the private sector in developing / managing water & sanitation infrastructure Final Output: An OECD Synthesis Report

4. Linkages between pricing, financing and the role of stakeholders

5. Some Preliminary Messages The vicious circle : underfunded service providers -> lower than needed investment/ maintenance -> collapsing infrastructure and deteriorating services -> reduced willingness to pay of users. The poor suffer the most from lack of access or low-quality services. Financial sustainability of services is a necessary ingredient of an operational right to access. It is possible to increase revenues from tariffs. Even very poor countries can reach important cost-recovery targets. But there are trade-offs between financial sustainability and other policy objectives. This complicates the design and implementation of tariff policies. 5

6. Some Preliminary Messages The trade-off between financial sustainability and access to affordable services may be a perceived rather than a real trade-off. And aspects other than tariff levels may be more relevant in resolving it. Two key questions are: How should affordability thresholds be determined? How can we determine if a certain tariff level is affordable? And do low tariffs prevent increasing access? The macro-affordability problem: How much should we pay? vs. The micro-affordability problem: Who should pay for what? Should we use tariffs as social policy instruments? It is preferable to use multiple instruments to achieve multiple objectives. But consider (i) the complexity of designing coordinated instruments, (ii) the costs and capacity required to manage /enforce them. 6

7. Some Preliminary Messages A role for everybody : Stable revenue stream is a pre-requisite for sustainability of operators Role of providers to match level of service with actual need & capacity to pay Role of providers in increasing efficiency (including collection rates) -> reduce need to increase tariffs Adequacy and sustainability of services -> increased service quality -> increased WTP Role of governance (i) facilitate dialogue on levels of services; (ii) clarify roles of different entities (public and private); (iii) regulator as referee between political claims and efficiency gains A policy dialogue regarding tariff strategies is necessary. But a failed dialogue may have dire consequences. Policy-makers need to define who participates, on what questions, and how. And different stakeholders can contribute to improving this dialogue Why so much attention to tariffs? Other issues may be more relevant: improving service quality, doing this at reasonable costs, increasing collection rates and efficiency of service provision in general. 7

8. Questions for discussion On which objective basis and criteria should we determine affordability ? Can full cost recovery be achieved exclusively through tariffs affordable to all ? Where should subsidies be targeted in priority : access, service provision, water, sanitation ? Which dialogue process, policy objectives and constraints should be taken into consideration when desiging tariffs (eg IBT) ? 8

9. 9 Thank you!! www.oecd.org/water/

10. Sustainability in 4 objectives