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The Accessibility-Affordability Tightrope in Urban Water Policy: New Trends, New Approaches

A short article arguing for a new accessibility paradigm in urban water policy in developing economies. The traditional affordability agenda, epitomised by many poor-performing Indian utilities, is rapidly being overtaken by the new accessibility paradigm being led by the World Bank and Asian Development Bank.

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The Accessibility-Affordability Tightrope in Urban Water Policy: New Trends, New Approaches

  1. 1. The Accessibility-Affordability Tightrope in Urban Water Policy: New Trends, New Approaches Jonathon FleggWithin developing urban economies an inherent of secondary pro-poor policies can betension exists between the twin policy goals of employed in targeting producer surplus towardsproviding adequate access to piped water identifying and assisting the urban poorinfrastructure and the affordable pricing of the sustainably access critical water infrastructure.on-going service. More access to immovablenetwork infrastructure demands greater costly The ‘Indian’ and ‘Chilean’ Approaches toinvestment and long-term financial Urban Watersustainability, while service affordability erodesboth these conditions in the presence of limited Within the water infrastructure literature thereto the availability of government subsidies. are certainly two discernable philosophical approaches: one premised on water access asPolicy approaches to urban water supply in a human right or social objective that underpinsdeveloping economies prior to the 1990s was the policy goal of affordability, and another thatdominated by a crude affordability agenda with characterises water as a commodity whichinsufficient weight placed on the heavy capital demands the focus of policy be placed on therequirements of network extension and financial sustainability of water utilities. Themaintenance, but a new policy consensus in later argument is usually premised on the factmore recent years has become discernable that that a household water connection isplaces less stress on affordability as the characterised as a pure private good (rival andprimary or direct objective of urban water policy. excludable), and should involve an adequateAffordability measures are moving from general level of user payment and cost targeted, and more importantly, arebecoming conditional upon notions of Of course most water experts advocate ainfrastructure accessibility and overall cost pragmatic stance that inhabits the policy spacerecovery. After all, argue proponents, what use somewhere between these two philosophicalto the poor is an affordable service that is poles, but in the sense that they characteriseimpossible for the vast majority of them to two „ideal types‟ we can introduce the contrastaccess? between an accessibility-based „Chilean‟ approach and an affordability-based „Indian‟As a result best practices now tend to treat approach to urban water provision to the poorservice affordability as an indirect or secondary (see comparison in Table 1). Moreover thepolicy objective, the consequence of increased Chilean approach has become the dominantproductive efficiency and financial sustainability. reform paradigm adopted and activelyOnce these policy conditions are met, a variety promoted by IGOs such as World Bank, UN1|Page
  2. 2. and Asian Development Bank. The World Bank The Indian approach to water supply reached(2006: viii) put the evolution of their its zenith immediately prior to the 1990s. Ainfrastructure agenda this way: caricature of the typical urban water supply in developing economies at the time was oneThe Bank’s first attempt to reach the poor with involving widespread general price subsidies,infrastructure services, the “basic needs” flat monthly fees rather than volumetric tariffs,approach launched in the 1970s, produced and stifled public utilities struggling with lowmixed results [the Indian approach]. Starting in collection efficiency and high operating ratios.the 1980s and gaining momentum in the 1990s, Populist political pressures set prices at belowthe Bank actively promoted a new generation of cost recovery, and time inconsistency, theinitiatives aimed at helping the poor to gain problem of unwillingness to accept higheraccess to infrastructure services [the Chilean prices because of the poor quality of theapproach]. existing service, held them there. Indian Chilean The approach is still visible in many failing Approach Approach urban water utilities in India, where in thePrimary Water Affordability Accessibility capital city of Madhya Pradesh, the Bhopal Policy Municipal Corporation is running on an Objective operation ratio of 5.07 and selling water on a Ownership Public Utilities Regulated cheaper average tariff than any utility in the Private country (Rs0.60/m3) (ADB 2007). As a result Companies one-third of residents are still without a Capital City household connection. Similar situations stillComparison in exist across India in cities such as Indore, 2004 Kolkata and Visakhapatnam. Households 69% 99% Connected Le Blanc‟s analysis (2008: 38) focusing onAverage Tariff 0.11 1.34 utilities in Africa, describes the failure of the(USD/per m3) affordability-approach similarly: Connections 33% 99% Metered The traditional paradigm of consumptionNon-Revenue 53% 34% subsidies passed on to consumers through Water utilities via low tariffs has repeatedly shown itsStaff per 1000 19.9 2.4 limits. In many countries, most of the subsidies connections given to utilities have been absorbed by Government 61% of None inefficiencies, rather than passed on to Operating operating consumers. Subsidies costsTargeted Pro- None Means-Tested As late as 1994 the World Bank-sponsoredPoor Policies Subsidies Algerian Urban Water Supply and Sewerage Rehabilitation Project failed because “the Table 1: A brief comparison “ideal types” of policy utilities were not turned into self-financing approaches taken by developing economies to urban entities, there were no improvements in water (Irwin 1997; Komives 2005; ADB 2004, 2007) controlling leakages and reducing the level of unaccounted-for-water” (World Bank 2006: 12).2|Page
  3. 3. The Chilean approach, with its stress on the capacity to pay has typically been assumedaccess, developed in the 1990s as a response to be quite low, surveys have found a surprisingto these widespread failures of utilities in urban high percentage willing to pay and a strongcentres across developing economies to rationale for greater focus on investing inprovide adequate access to water supply. household connections (Whittington et al 1998).Chile‟s reform agenda was to privatise thecountry‟s water utilities, regulate and restrict That the unconnected poor regularly pay manycorporate amalgamations, and to replace the times the average tariff of similar connectedcross-subsidising price structure with taxation- consumers leads to the second reason forfunded subsidises targeted at low income moving towards access as a primary policyhouseholds (Irwin 1997; Gomez-Lobo and objective: Crude affordability measures areContreras 2003). The pro-poor policy aims to socially regressive (Komives 2005: 171). Flatensuring no more than five percent of income is volumetric subsidies and most increasing blockspent on water and sanitation (Irwin 1997). tariffs accrue larger overall subsidisation to larger, often middle-class consumers. For theseHow did the Chilean Approach Eclipse the reasons some analysts (Irwin 1997; Le BlancIndian Approach? 2008) have concluded even going beyond the typical Chilean approach where the waterThe first reason is quite obvious: To propose provider is responsible for targeted pro-pooraffordable piped water presumes a priori the subsidisation through geographic-targeting orexistence of a functioning connection. However means testing. This rationale prefers to removeby proposing a primary of policy goal of crude all socially equity considerations for wateraffordability over accessibility, policymakers for providers. “[S]ocial concerns are legitimate, buta long period fell into that populist yet the responsibility to assist poor customersanachronistic trap. The unfortunate result is that should belong to the government, not to themany poor households who actually have utility” (Le Blanc 2008: 42).capacity and willingness to pay higher priceshave missed out on access. The ADB (2007: 8) Regardless of whether the necessary pro-poorsurvey of all Indian water utilities has concluded policies are best targeted from within or outsidethose “with the highest coverage also have the the utility (the main point is they are), a broaderhighest tariffs, indicating that people are willing principle can be made about subsidisation fromto pay for piped water.” the Latin American experience: If it is to used then it should be used to directly provide “thoseThis relation hold true in India where the goods with the highest difference betweensubstitute for a piped connection is usually free willingness to pay and costs” (Estache andor cheaper water from a local public stand. The Gomez-Lopo 2001: 1194). In almost all cities inwillingness to pay for piped water is even developing economies this is the one-timestronger in cities where the major substitute connection fee to access the network ratherwater source is sold from informal vendors or than on-going costs. To the extent thatwater trucks and usually costs many times the subsidisation has been necessary inutility‟s tariff price. Such clear incentive experience, it has been most effectively used instructures that preference private connections extending accessibility rather than for regularseem to characterise many South East Asian consumption.urban centres, such as Jakarta, Ho Chi MinhCity and Manila. Even in extremely poor urbanenvironments, such as Lugazi, Uganda where3|Page
  4. 4. [Date]The Chilean Approach Comes to India Estache, A. and Gomez-Lobo, A. (2001). “Utilities Privatisation and the Poor: LessonsIn response to the failures of the affordability and Evidence from South America.” Worldapproach, accessibility has now become the Development 29(7): 1179-98.primary policy objective of urban water utilitiesin developing economies. While political Gomez-Lobo, A., and Contreras. D. (2003).economy considerations have provided “Water Subsidy Policies: A Comparison of theresistant to change in many cities (in particular, Chilean and Colombian Schemes.” World Bankinfluential, non-poor beneficiaries of crude Economic Review 17 (3): 391–40.subsidisation), the affordability reform agendahas even begun in the most entrenched of Irwin, T. (1997). Price Structures, Cross-India‟s public utilities. In March 2010 Bhopal Subsidies, and Competition in Infrastructure.Municipal Corporation, with the assistance of Retrieved from: http;//, passed an order to triple average tariffs, documents/publicpolicyjournal/107irwin.pdf.subsidise the installation of meters, and pushtowards universal connection coverage at cost Komives, K, Foster, V., Halpern, J. and Wodon,recovery prices. Q. (2005). Water, Electricity, and the Poor: Who Benefits from Utility Subsidies? Washington:Global experience in South Asia, South East World Bank.Asia, Africa and Latin America demonstratedmaking affordability the direct objective of water Le Blanc, D. (2008). A Framework forpolicy fails because continuing subsidisation Analyzing Tariffs and Subsidies in Waterjeopardised the financial viability of utilities and Provision to Urban Households in Developingtheir capacity to invest in costly network Countries (DESA Working Paper No. 63).extensions. Without network access subsidies Retrieved from do not reach the poor or if they do they desa/papers/2008/wp63_2008.pdf.are socially regressive. Better to follow Chile‟sexample of reaching cost recovery and using Whittington, D., Davis, J., and McClelland, E.targeted measures to assist the poor, a process (1998). “Implementing a Demand-Driventhat might involve assisting with on-going costs Approach to Community Water Supplybut is even more likely to involve helping them Planning: A Case Study of Lugazi, Uganda”.get connected. Water International 23: 134-45. World Bank (2006). World Bank Report -Bibliography Infrastructure: Lessons from the Last Two Decades of World Bank Engagement (ReportAsian Development Bank (2004). Water in No. 35199). Retrieved from http://www-Asian Cities: Utilities’ Performance and Civil Views. Retrieved from: default/WDSContentServer/WDSP/IB/2006/02/ 07/000160016_20060207101539/Rendered/PDr_All_Series/Water_Asian_Cities/default.asp . F/3519910vol.01.pdf.Asian Development Bank (2007). 2007Benchmarking and Data Book of Water Utilitiesin India. Retrieved from|Page Made in Office 2007 for