Aggregationmodule 0807


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  • This is one of 2 PowerPoint presentations for leaning module. This one gives an overview, while the one includes case studies.
    The module is mainly based on WN1.
  • In the past 20 years, WSS service delivery in many countries is decentralized to make them more responsive to the needs of the local population. However, most small and medium-size towns lack the capacity to provide beyond a very basic level of services. Therefore, decentralization in the water sector may not yield all of its expected benefits without stronger governance skills at the local level and small-town service providers.
    Aggregation of WSS providers is relatively frequent to overcome these problems.
  • Aggregation is one of many reform options.
    Can also be combined with other models (private sector participation for instance)
    Interesting for towns that are too small to sustain independent utility.
  • More on this in para 3.1 of WN1
  • Models differ from country to country and sometimes with countries.
    Models are characterized by:
    Corresponding chapter in WN1 is chapter 4.
  • On lessons: we will come back to case studies
  • Scale of the aggregated structure?
    A few neighboring towns (e.g. Hungary, The Philippines)
    All towns in a given region or river basin (e.g. The Netherlands)
    Most towns in the country (“national utility”) (e.g. Burkina Faso, Tunisia, Uganda)
    There is no standard ‘optimum’ size of utility, but clear that smallest ones are not viable.
    Economies of scale tail off beyond a certain point. See graph – With the increase in scale (x axis) the returns to scale increase. The slope becomes less sharp after a point and at some point the returns to scale decline.
    Optimal size of an aggregation structure depends on many circumstances such as topographical conditions, access to international markets, water availability etc.
    Recent study (Kingdom and Tynan, see reading list) of 270 utilities world wide shows that utilities, particularly those serving a population of 125,000 or less, could reduce per-customer operating costs by increasing their scale of operation.
  • Scope - What services are aggregated?
    Water production
    Whole water service (e.g. France and Netherlands)
    Water and sanitation
    Water and energy and others (solid waste, street lighting, heat)
    Scope - What functions are aggregated?
    Operations / Management /Procurement / Investment /Financing (Can be through a pick and choose system, e.g. France)
    All functions, with merging of assets and staff
  • Decisions:
    Define institutional form of aggregated structure
    Distribution of responsibilities between member municipalities and aggregated structure.
    Arrangements can be temporary, for a specific objective such as investment or access to private sector participation or permanent, with practical limits on exit
    Some forms:
    Loose association: Example in Duanvarsany in Hungary: six municipalities created a wastewater association led by the largest municipality, which carries out all administrative activities on behalf of its members.
    Permanent structure: Example: the “syndicate” model in France, a permanent structure with its own staff, which offers different combinations of services to different municipalities, according to their requirements. For example, the SDEA syndicate in the East of France provides services to 453 member municipalities and employs 480 employees, most of whom are regional public servants.
    Supralevel of local governments: Example: Partido Development Administration in the Philippines provides water, communications, training services, port facilities, energy programs, tourism development, fish processing, health services, economic zones, local roads, and railways for 10 municipalities to accelerate development through an integrated approach.
  • Aggregated entity will have a board in which various owners (e.g. municipalities) make decisions. The distribution of power between the various entities depend on their voting share in the board.
    Define governance arrangements that balance the need to represent all member municipalities and avoid fragmentation and conflicts. Ensure that aggregated entity cannot be captured by one (political) actor.
    Establish clear rules in articles of association or other founding document of aggregated entity.
    Develop a clear information strategy to customers and community leaders  can help further in limiting political capture.
  • Corresponding chapter in WN1 is para. 4.3 and annex B.
    We will look at:
    Permanent or temporary aggregations
    Voluntary or mandatory aggregation
    Stages in process
    Entry and exit conditions for local governments
  • Aggregation can be initiated by the entities involved without any incentives of rules from “above”. This is called voluntary aggregation. Example: The Philippines – speed of aggregation varies, some areas get stuck (if entities are too different – in size, $$, water resources).
    Higher tier governments can play an important role by steering local entities through incentives or roles.
    Incentives – example: Hungary, the central government increased grant funding by 10% for aggregated entities vs individual municipalities. In Brazil, local governments were compelled to delegate service provision to state water companies through concession arrangements to receive subsidies and funding.
    Mandatory -often imposed after a voluntary or incentive process fails. Examples: The Netherlands: national government mandate provincial government to impose binding reorganization plans (however, force let to local resistance and slow process). England and Wales are exceptional in having a fully top-down process.
  • The process of analyzing the options for aggregation starts with identifying and assessing drivers and constraints. Secondly the
    benefits and costs for each entity should be identified and assessed. Deciding on whether to embark on a process of aggregation. This is a standard list of pros and cons ~ specify them for your own situation.
  • Upon completing the assessment of benefits and costs for each entity, it will be important to consider the impacts of alternative types of grouping, considering different geographical scales, services, and functions aggregated. Under this analysis, the distribution of benefits and costs for each entity for alternative types of grouping should be conducted because one of the main constraints of aggregation is often that such benefits and costs are inequitably distributed. Intuitively, it appears that the benefits of aggregation are likely to increase with the degree of grouping (up to a certain level), but so would the costs and the associated constraints. Therefore, the optimal level of aggregation (or optimal size of the unit of water service provision) should be where the curve showing the reciprocal of the increasing benefits would intersect the curve showing the increasing constraints, or degree of resistance to aggregation that would result from such constraints, as in this figure.
    This figure also illustrates that barriers to aggregation could be reduced through the provision of incentives for aggregation (such as financial incentives provided by higher levels of government), broadly described in the main report. If incentives were adequately provided, it may be possible to move further along the progressive complexity from informal or temporary clusters of municipalities to more formal types of grouping or aggregation.
  • We discussed: scale, scope, process.
    experience with aggregation is rich and abundant and that many policy lessons can be drawn from such experiences.
    Aggregation reforms are likely to become increasingly needed, for reasons internal or external to the WSS sector.
    Three main factors to consider are scale, scope and process.
  • Let's recuperate the potential benefits:
    Aggregation provides opportunities for improved efficiency of service delivery through economies of scale and scope.
    Aggregation facilitates enhanced professional capacity in service providers.
    Cost sharing through aggregation can mitigate the impact of high-cost systems.
    Aggregation can fail if benefits are not clearly understood and there is no adequate process in place to implement it; due process and political will are key to the success of the aggregation initiative.
  • Aggregation - like all WSS reforms - is an inherently political process. Aggregation has implications for local democracy. The potential benefits are high, but in how far these potential benefits can be realized depends on local politics. There will always be resistance to change, as some actors will have to give up power. Central governments can assist, mandate, or provide incentives for the aggregation process. Assets can either be divested to the aggregated utility or remain with the individual governments. Aggregation without transfer of asset ownership will meet less resistance --> however it might lead to problems down the line as the utility has no full control over its assets.
    Aggregation is one element of reforms.
    Aggregation can be an important element of public utility reforms as it introduces multiple minority owners. Diversifying ownership can reduce the risk of capture by own owner. An aggregated entity, by its nature, is either a statutory body or a government owned company. Its corporate oversight board comprises of representatives from multiple municipalities. The Board will balance the needs of the various member municipalities and thus proceed on a consensus rather than unilateral approach. The ability of any single municipality to overtly influence the activities of the provider becomes more limited.
    When linking aggregation and private sector participation, be careful not to overemphasize the need for a larger revenue base to attract operators.
    Aggregation decisions may be formulated when introducing private sector participation (PSP) into the WSS sector. Implementing PSP and aggregation reform processes simultaneously is not necessarily beneficial, however. Aggregation decisions are fundamental decisions for the sector. Maximizing the efficiency of service provision should be the primary focus, as opposed to maximizing the attractiveness of the transaction. Any proposed aggregation should stand on its own and make technical, economic, and political sense.
  • Aggregationmodule 0807

    1. 1. Models of Aggregation for Water Supply and Sanitation Provision Capacity Building Module
    2. 2. Outline of the presentation  What is aggregation?  Aggregation models  The process of aggregation  Summary
    3. 3. 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
    4. 4. 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
    5. 5. 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
    6. 6. 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)
    7. 7. 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 sharingImproved management systems & technology aggregation Drivers for Aggregation(2)
    8. 8. Outline of the presentation  What is aggregation?  Aggregation models  The process of aggregation  Summary
    9. 9. Aggregation: no standard blueprint  Each aggregation has a unique character  Tailor aggregation to specific circumstances and needs  Lessons can be drawn from other aggregations
    10. 10. Scale: The optimum size of utility SCALE Two Towns Several Towns Regional Provider National Territory Hungary, The Philippines, France Brazil Italy, England and Wales, The Netherlands
    11. 11. 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 functionsSeveral functions What services? What functions? Nimes (France), The Netherlands only water Dunavarsany (Hungary), water first, waste water later Italy, England and Wales
    12. 12. Governance arrangements temporary permanent Association Time-limited agreement for specific purpose Permanent aggregated structure
    13. 13. Governance arrangements: Voting rights in Board ….Or a mixture of the various methods Method Pluses (++) 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
    14. 14. Outline of the presentation  What is aggregation?  Aggregation models  The process of aggregation  Summary
    15. 15. Process of aggregation PROCESS Voluntary Voluntary with incentives Mandated The Philippines, France, Brazil Hungary Italy, The Netherlands, England and Wales
    16. 16. 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
    17. 17. 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!
    18. 18. 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
    19. 19. Essential Trade Off
    20. 20. Outline of the presentation  What is aggregation?  Aggregation models  The process of aggregation  Summary
    21. 21. Aggregation: define scale, scope and process SCALE Two Towns National Territory SCOPE A single service or function All services and functions PROCESS Voluntary Mandated
    22. 22.  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
    23. 23.  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
    24. 24. More information Available from: