Water For All: The Water Policy of the Asian Development Bank - The Policy

Table of Contents

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I. The Context

II. The Need For a Comprehensive Water Policy

III. The Policy

A. An Overview

B. National Policies and Reforms

C. Water Resource Management

D. Improving Water Services

E. Conserving Water

F. Promoting Regional Cooperation

G. Fostering Participation

H. Improving Governance

IV. The Policy and ADB's Poverty Reduction Strategy

V. Getting the Policy to Work

Water For All: The Water Policy of the Asian Development Bank : III. The Policy

D. Improving Water Services

37. Decentralization. Because demand for water services across subsectors is increasing rapidly, measures for conservation and demand management need to be urgently introduced or strengthened. Governments also need to modify their role from one of service provider to regulator. Experience has shown that irrigation and water supply services are most efficient when delegated to autonomous and accountable service providers.¹⁷ Most DMCs require a phased program to increase the autonomy and accountability of service providers, either as new enterprises or by reorganizing existing agencies. ADB’s sector strategies within countries will identify the need for introducing such a program. Details will be developed through dialogue with stakeholders and will include community participation, corporatization, commercialization, and privatization where appropriate.

38. Private Sector Participation. Private sector initiatives and market-oriented behavior are expected to improve performance and efficiency, particularly in service delivery. ADB will seek to provide innovative financial packages to enable commercial lenders and promoters to manage the risks involved with investing in water-related projects. In financing build-operate-transfer and build-own-operate projects from its private sector window, ADB will promote selection through international or local competitive bidding. Through such financing ADB will secure additionality of resources for the water utility, superior management structures, advanced project implementation capability, construction technology, and improved operation and maintenance services. ADB will also assist DMCs to identify suitable projects for such financing and engage concessionaires. Where utilities are privatized, ADB’s various financing and guarantee modalities can help obtain access to credit with longer maturities and provide relief from the debt-service burden in the early years of operation. To maximize the efficiency of publicly owned and managed water service delivery systems, ADB will promote the contracting out of specific operations to the private sector.

39. Public-Private Partnerships. While governments will be primarily responsible for water resource management, several management functions will attract private investments. Others may be contracted out. Global experience indicates that public responsibility and ownership is often best blended with private management. Water supply and wastewater treatment services in urban areas can be leased to the private sector, or concessions made against agreed performance parameters. In most DMCs, a significant increase is needed in the level of public sector investment in water resource management, including physical infrastructure, institutions, and capacity building. These investments will be targeted at the development, management, and conservation of water resources in river basins, mainly through package programs and multipurpose projects, in a river basin context. The private sector will need to share the burden of investments if the capital intensive programs are to be implemented in a timely way, and if efficiency gains are to be realized. ADB will develop modalities for public-private partnerships in the management of physical infrastructure. Box 3 illustrates how partnerships with the private sector in water service delivery generally promote efficiency.

Box 3: Associating with the Private Sector: Some Illustrative Examples

Obtaining efficiencies in managing water resources is often best done in partnership with the private sector. Public limited companies can manage water supply in urban centers. In the Philippines, public limited companies cover 400 water districts. Their five-member boards represent a variety of customer interests –business, women’s organizations, and households. They are overseen by the local water utilities administration that also undertakes informal regulation.

In Thailand, the Government established East Water as a subsidiary of the Provincial Waterworks Authority in 1992. The objective was to expand the system and manage it with resources from the private sector. The Government took back all the water supply facilities it had invested in on the eastern seaboard and leased them to East Water for 30 years. East Water is making profits annually, the quality of service has improved, nonrevenue water is less than 5 percent, the company is listed on the Thai stock exchange, and the Government is not burdened with expenditure for water supplies – a win-win situation for all.

In the Philippines, water supply and sewerage services in the Metro Manila area were awarded in 1997 as concession contracts for 25 years. Service quality has improved markedly with regular hours of supply, fewer interruptions, an improvement in water quality, and significantly reduced water bills.

Uzbekistan offers a recent example of attracting private investors. Economic regulation of the water supply sector has been introduced, tariffs increased, and subsidies reduced. Management has been decentralized to the provincial level, and tax exemptions and privileges are being offered to international investors. Metering has been introduced to improve demand management.

In Chennai, India, the Metropolitan Water Supply and Sanitation Board has contracted out operation and maintenance services for the sewage pumping stations. Cost reductions of 40 percent have been achieved. Water tanker services have also been contracted out – delivery costs have declined by half and volume delivered increased by 100 percent.

Associating with the private sector does not always bring benefits. In Sri Lanka, the National Water Supply and Drainage Board contracted out meter reading and billing for its water supply services. With irregular readings and billing delays averaging six months, it decided to undertake the functions in-house. Bills are now sent out within a month of meters being read and consumer complaints have fallen from over 10 percent to less than 2 percent.

40. Participation. The participation of users in irrigation and drainage system operation and maintenance at the local level has increased significantly over recent years. Participatory management and turnover of responsibilities to users has started in many small and medium-scale irrigation schemes. Participation of consumers in local water supply and sanitation projects has also been sought to improve efficiency, increase ownership, and thereby lower the rates of unaccounted-for and nonrevenue water.¹⁸ User participation will also be supported to (i) make services and service providers more responsive and accountable to beneficiaries, (ii) align the provision of services with users’ needs and ability to pay, thereby improving cost recovery and sustainability, and (iii) tailor institutional arrangements for water service management to local practices. Participation will be the cornerstone of ADB’s country water sector strategies; institutional arrangements for participation, particularly at the community level, will be strengthened.

41. Water Supply and Sanitation. The autonomy of service providers, especially in terms of staffing and tariffs, but not privatization, is typically the central issue in urban water supply and sanitation systems. At the same time, there are significant opportunities for increased private participation in new investments and the management of existing systems. ADB will support the upgrading of existing systems in physical and managerial terms. This will help reduce the current unacceptably high levels of unaccounted-for-water and nonrevenue water in many cities. Also, ADB will help develop contracting modalities that allow potential investors to participate in the expansion and improvement of services. In particular, contracts that address social equity concerns and improve water and sanitation services to the poor will be developed.

42. Irrigation and Drainage. ADB will promote the achievement of higher irrigation efficiencies in a basin context. This will optimize the performance of irrigation and drainage systems. Subsidies for operating and maintaining public irrigation and drainage systems will be phased out. Virtuous cycles of investment, user charges, and operation and maintenance by autonomous and accountable service agencies, with user representation, will be established to successfully modernize irrigation and drainage systems. The phased turnover of responsibilities for distribution system operation and maintenance to farmer groups will improve system sustainability. Correspondingly, the collective and individual rights and responsibilities of water users (including poor and marginal farmers at the tail end of irrigation systems), service providers, and public agencies will be clarified and agreed. ADB will seek to initiate monitoring and benchmarking exercises for irrigation and drainage service providers to track value and performance parameters.

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As shown by Malaysia, whose experience was used to develop the stream watch and river care programs in Australia's Murray-Darling basin, which involve school children and local communities.
Nonrevenue water is the volume of treated water produced minus volume of billed consumption, usually expressed as a percentage of volume of treated water produced; volumes may be estimated, measured, or a combination of both depending on the extent of metering. Unaccounted-for water and nonrevenue water are not synonymous; for example, if standpipe water use can be estimated or metered, it is not included in unaccounted-for water, but if revenue is not derived from the water at the standpipe, the water is included in the total nonrevenue water figure.

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C. Water Resource Management

E. Conserving Water

Catalog

D. Improving Water Services

Box 3: Associating with the Private Sector: Some Illustrative Examples