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Output Based Aid: A Financing Tool for Access to Water Service
 

Output Based Aid: A Financing Tool for Access to Water Service

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The Water Supply and Sanitation (WSS) infrastructure gap particularly affects low-income and marginal areas. Efficient, targeted subsidy mechanisms are needed for sustainable public financing of WSS ...

The Water Supply and Sanitation (WSS) infrastructure gap particularly affects low-income and marginal areas. Efficient, targeted subsidy mechanisms are needed for sustainable public financing of WSS access.

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    Output Based Aid: A Financing Tool for Access to Water Service Output Based Aid: A Financing Tool for Access to Water Service Presentation Transcript

    • International Water Conference Dushanbe 2010 Roundtable on Sustainable Financing Output Based Aid: A Financing Tool for Access to Water Service Pier Francesco Mantovani, Lead Water Supply and Sanitation Specialist, Europe and Central Asia Region, The World Bank 1
    • Sustainable . “Need for more public expenditure in water” • Meeting water supply & sanitation (WSS) access goals calls for increased public expenditure. • The WSS infrastructure gap particularly affects low- income and marginal areas, where cost-recovery is weak and investment subsidies are required. • Efficient, targeted subsidy mechanisms are needed for sustainable public financing of WSS access. 2
    • The Output-Based Aid (OBA) Approach • An emerging public finance approach by which disbursements are linked to the verification of effective service delivery to targeted beneficiaries. Armenia: Access to energy services • Well-suited to promote access to services: – Shifts the risk to service providers. – Bridges gap between cost of service and Mongolia: Access to telecom services beneficiary’s ability to pay – Can target poor areas or households – Leverages commercial finance 3 Uganda: Access to health services
    • Public Financing of Services Development Input-based vs. Output-based Aid Traditional OUTPUT-BASED AID INPUT-BASED AID Service Service Provider Provider Public Commercial Finance Pre-Finance INPUT INPUT Materials, equipment, Materials, equipment, infrastructure, etc. infrastructure, etc. OBA Public Finance OUTPUT OUTPUTS Services Expected to Services Effectively Reach End Users Delivered to Targeted End Users OBA reimburses providers only after services are verified 4
    • OBA Core Concepts • Targeting : Using incentives to serve low-income communities • Accountability : Providers must deliver compliant service in order to be paid. • Monitoring : Output verification is Bangladesh: Electrification for Poor Rural Households systematic, ensures transparency. • Leverage: OBA leverages beneficiary contributions and private finance. • Efficiency : Implicit result and cost guarantee. Where applicable, OBA enables better use of public funds. 5
    • Snapshot 1 : Morocco WSS connections in poor periurban areas • Middle-income country, with large informal settlements around cities. • No WSS service in periurban settlements, due to cost and challenges of extending networks in informal habitat areas • No affordable option for households to access utility service.
    • Snapshot 1 : Morocco WSS connections in poor periurban areas Key design features: 1. Pilots by public & private operators in Casablanca, Meknes & Tangiers. 2. Upfront assessment of standard WSS connection price in targeted poor areas. 3. Works pre-financed by operators with loans or municipal funds. 4. Elegible households commit to a standard connection fee payable over 7 years. 5. Unit OBA subsidy bridges the gap between the standard connection price and household connection fee (25-50%). 6. Unit subsidy paid after connection (60%) and after 3 months of service (40%).
    • Snapshot 1 : Morocco WSS connections in poor periurban areas Main results: • Pilots successful, after slow start, for both water supply & sewerage service. • Strong stakeholder mobilization to overcome implementation obstacles. • Simplification of OBA documentation requirements. National scale-up strategy in preparation 8
    • Snapshot 2: Kenya Small-scale rural water service development • Rural communities around Nairobi want piped water service. • Small water operators access microfinance loans supported by GPOBA and Athi Water Services Board. • OBA subsidy paid upon completed development of simplified water systems. 9
    • Snapshot 2: Kenya Small-scale rural water service development 10
    • Growing experience with OBA Projects WBG OBA Portfolio by Sector In 2002: 32 projects identified, (Total = US$ 3.5 billion) $1.5 bn of World Bank funding Education Water & 5% Sanitation Energy In 2009: 131 projects identified 5% 6% for $3.5 bn of WB Group funding, +$2.8 bn government funding Health + 66 projects outside WBG 24% Growing evidence base : 34 Transport Telecom 58% projects closed, 78 on-going, in 2% low and middle income countries 11
    • Comparison of Performance: OBA vs. Traditional Projects 80% 70% 60% 50% 40% 30% 20% OBA 10% Non-OBA 0% Overrun Over-achieved Achieved Unclear Under run Not (fully) achieved In Budget Results Budget 12
    • Lessons Learned: Benefits of OBA Approach • Explicit identification of outputs promotes targeting • OBA shifts risk to providers • Achieve efficiency gains through competitive processes • So far, $1 of subsidy leverages ~$2 of private finance. Vietnam: Access to simplified piped rural water supply • Forces accurate monitoring by paying on outputs • Encourages careful subsidy 13
    • Lessons Learned: Challenges of the OBA Approach • Access to commercial finance or microfinance is essential. • Capacity to implement and monitor can be an issue. • Demand risk requires prudent upfront investment by Argentina: Public transportation provider improvements • OBA requires a supportive regulatory environment for sustainability OBA remains one component of a wider set of policy instruments, does not substitute good planning & regulation policies. 14
    • Moving Forward • Scale-up OBA approaches where they make sense • Fund technical assistance for new initiatives and further analysis and evaluation of OBA projects • Address challenges such as: – Limited access to commercial pre-finance, – Documentation and verification capacity – Contractual flexibility for changed conditions • Share lessons 15
    • Thank You Special thanks to : • The Global Partnership on Output- Based Aid (GPOBA) , a partnership of donors and international organizations working together to support output- based (OBA) approaches. www.gpoba.org Uganda: Access to Sustainable Water Services 16 for the Poor in Selected Small Towns
    • Targeting 80% 70% 60% 50% 40% 30% 20% 10% 0% Geographic Targeting Means Testing Self Selection Targeting No Targeting Identified