Transcript Restructuring Cities for Efficient Service Delivery Vivek Srivastava WSP-SA ASCI-WBI Program on “Strengthening Urban Management - Unlocking the Potential of Indian Cities” Hyderabad January 24 2003

Restructuring Cities for Efficient
Service Delivery
Vivek Srivastava
WSP-SA
ASCI-WBI Program on
“Strengthening Urban Management - Unlocking the Potential of Indian Cities”
Hyderabad January 24 2003
Productive Cities as Centers
of Growth
The Context
• A New Global Setting
Urban Millennium
• A New Management Challenge
Creating World Class-Cities
Share of Cities in GNP
Level of
Development
Share of Urban
Areas in GNP
Low-income
55%
Middle-income
73%
High-income
85%
Important Implication
• Municipal service delivery cannot be seen in
isolated context;
• How municipal services come together to
serve the city-economy;
• Managing cities to be credit worthy
• National economic growth and poverty
reduction efforts will be increasingly
determined by the productivity of cities and
towns
Models of Urban Governance
Which Model of City
Governance?
• Metropolitan Government
• Metropolitan Government with
Economic Decentralization
• Metropolitan Government with Political
Decentralization
Key Differences
• In the politically decentralized model, political
and fiscal power is shared between the
metropolitan and municipal tier.The
metropolitan tier and municipalities jointly
keep each other in check.
• In the economic decentralized model, political
and fiscal powers resides at the metropolitan
level. The regions are de-concentrated arms
of the metro unlike the independent
municipalities of the first model
Similarities
• Fiscal and political power is devolved to
city governments.
• Both models adopt corporate structures
for the financing and delivery of
municipal services with user-charges.
• In both models the city has share
ownership with expected dividends from
the corporations.
• Danger of political deadlock.
Evaluating Decentralization
•Political Stability
•Quality of Public Services
•Equity
–Horizontal (inter-state/city)
–Within state/city
•Impact of Macro-economic Stability
Issues in Service Delivery
The Problem
• Chronic poor performance is the rule
rather than the exception in many
publicly run municipal services
• Technical losses
• Poor cost recovery
• Subsidies do not reach the poor
Current Situation - Water
• Technical and commercial losses
• “filling the leaking bucket”
• 3 hour connectivity
• Poor quality of service
• High coping costs
• Low Tariffs
• Fiscally and financially unsustainable
Why?
The Judge, The Jury and the
.
Executioner are the Same!
Policy
Define the Objectives
– 24-hour supply
– Clean water
– Extended Access
• Define the Rules

Regulation

Enforce the Rules
– Monitor Compliance
– Regulate Pricing
Delivery


Deliver the Service
Play by the Rules
Goals
• 24 hour delivery
• coverage for by all: geographic and
household
• quality
• pressure
Elements of Separation
• Government ownership of some form
– Public good nature of water
– Sustainability as a resource: time and quality
– Attacking poverty
• Business approach to delivery
– Private good nature of water
– Demand driven; customer responsive
• Independent regulation
City Restructuring:
Johannesburg Example
Johannesburg’s Original
Structure
•
•
•
•
•
4 municipalities and one metro
Fragmented: no economies of scale
Duplication of service delivery
Typical line function responsibility
No integrated planning
IGOLI 2000
• Program A: Utilities
• Water and Sanitation, Power Distribution, Waste Management
• Program B: Agencies
• Roads and Stormwater, Parks and Cemeteries
• Program C: Privatize
• Metro Gas, Airport, Stadiums, Power Generation
• Program D: Corporatize
• Zoo, Bus Co., Market, Property and Project
• Program E: Traditional Governance
• Admin, HR, Planning, Budget, Finance, Community Services,
Welfare, etc.
Restructuring of Johannesburg
Metropolitan
Government
Water & Sanitation
Waste
Electricity
•Spatial Planning
•Fiscal Budget
•Local Economy
Delivery
Contract
IT
R1
•Slum-upgrading
•Primary Health
•Peoples Center
R2
Fiscal
Transport/Roads
Surplus
R11
PSP Options for Service
Delivery
Why PSP?
•
Efficiency
•
Flexibility in procurement
•
Appropriate incentives
•
Technology
•
Investment
•
Accountability
The Basic Options Compared
Option
Asset
Ownership
O&M
Capital
investment
Commercial
Risk
Management
contract
public
private
public
Public/
Shared
Lease
public
private
Concession
public
private
Public/private Public/private
private
private
Large City Utility
The potential PPP
• A public asset holding corporation (AHC) with
– state and municipal shareholders
• A private operating company (PO) with
– with shareholder agreement with domestic and
international partners
– holding a concession contract with AHC
• Appropriate mix of public and private finance
• Appropriate division of risks between AHC and
PO
• A competent autonomous regulator
State Govt.
Municipalities
shareholders
Asset Holding Company
contrac
t
Service delivery obligations
Regulator
Access by poor
Pricing and subsidies
O&M
Human resource management
Investment expansion
Operating Company
Medium and Small Towns
Need of Alternative
Management Model
• Too big to be managed by communities
– Large and dense enough to benefit from
economies of scale offered by piped water
systems
• Too small and dispersed to be managed
by a conventional utility
Possible option
• Regional or multi-town utilities
• Advantages
– Economies of scale in management
– Minimize transactions costs of contracting
– Viable volumes of business
Criteria for Clubbing
• Large enough population base 
Clusters of 1-2 million
• “Manageable” overall distance
• Within a watershed boundary
• Voluntary or prescribed
International Examples: UK
• Economies of scale up to population of
1 million
• 10 large utilities with population of 2-10
million
• 15 smaller utilities with population base
of 250,000 to 1.2 million
• Jurisdiction based on watershed
boundaries
International Examples: France
• WSS responsibility of Local
Governments
• Voluntary “Syndicates”
• 15500 undertakings for 37000
municipalities – 2/3 per grouping
• SEDIF manages water services for 144
municipalities and about 4 million
customers
Regional Utility
Shareholders:
ULBs, State government
ASSET HOLDING COMPANY
Contract
Private sector operator
Town 1
Town 2
Town 3
Rules of Engagement
• “Top down”: Statutorily create the regions
and enforce all ULBs to be members e.g.
England, Scotland
– Need to ensure compatibility with 74th amendment
• “Bottom up”: Voluntary association e.g.
France
– Slow
– How to create incentives for association?
Governance
• Vesting O&M control of water related assets
by lease (or otherwise) to AHC/AMC
• Share ownership proportional to asset value
• Voting rights possibly allocated on a more
equitable basis
• State government as shareholder,
coordinator and arbiter
• Rules of entry and exit
PSP and the Poor
Current situation: Status of the
poor
• How are the poor being served today?
– Free water through stand posts and tankers
(10 -20 lpcd)
– 15% of population not covered by public
system
• Is Water Really Free?
– Poor quality water with adverse health
implications
– Time, physical energy, drudgery and space
costs
PSP and the Poor
• A sound and competitively procured PPP will
benefit the poor through efficiency gains
• In addition, benefits to the poor can be further
enhanced by specific contractual design
• The Manila example:
– 600,000 poor connected within two years
– The poor now consume three times more water at
half the price
– The poor now have more time for productive work
and more living space
Maximizing the benefits
for the poor
• Designing Pro-poor Contracts:
– Service expansion obligations designed to include
the poor
– Some form of subsidy (or finance) for one-time
connection fee
– Gradual phasing of prices: transition finance
– Concessionaire responsible for providing water by
alternative means where private connections are
not feasible or during a transition period
Thank you