No more “business as usual” in Benin’s water sector

from the World Bank blog:

by Sylvain Adokpo Migan

As countries consider how to meet their Sustainable Development Goals (SDGs), creating water supply services that are more sustainable – with investments that are longer-lasting – is a high priority. This is the case in many rural parts of Africa where today’s villages are quickly becoming tomorrow’s small towns, and demand is high for an improved system to develop piped water schemes. It’s certainly true for Benin, where I work.

But when our team started examining what it would take to create an effective public-private partnership (PPP) for sustainable rural water services, it became clear that the step before the transaction was not due diligence or other research, as is typical – it was reform. Legal and institutional reform needed to take hold first so that the change we wanted to help the government implement would be effective for many decades to come.

When reform comes first

Every country’s story is different.  In Benin, the “before PPP” picture shows non-financial participation of the domestic private sector in the water sector in terms of CAPEX, where the local government has the asset but not the improved services.  When the World Bank Group (IFC and Water Global Practice-Water & Sanitation Program) was brought in to advise on a PPP transaction in 2012, we tested the market with a plausible service delivery model.  Immediately, it was clear that we needed to improve the operating environment and facilitate access to finance for water service providers. This was necessary for the country to achieve its millennium development goals with improved levels of service.

Despite the promising implementation of the affermage model in Benin, there were serious obstacles (highlighted in a 2010 diagnostic study commissioned by the Government of Benin with funding from the Water and Sanitation Program). But the implementation of affermage contracts was hampered by a number of factors, including:

• Municipalities did not have an accurate knowledge of their assets;
• Municipalities lacked technical, monitoring, and financing capacity;
• Water private operators (POs) had limited technical skills, lacked experience with the tendering process, and had limited access to finance to carry out required investments that would make the management of piped water schemes (PWS) more profitable;
• The contractual framework did not provide enough incentives for POs to perform; and
• The tender process was obstructed by political agendas or personal interests.

These findings provided the basis for launching reforms to enhance the sustainability of rural water services, with support from the Water and Sanitation Program. The main objective of these reforms was to improve the contractual arrangements between decentralized municipalities and POs and to test an enhanced PPP model on a number of selected PWS across Benin.

Financial flows under the innovative PPP subsidized

Ranking the reforms
We understood at the outset that creating and implementing reforms would be a difficult process – and it was.  We were trying to change the rules of how business was done, and that’s never easy. But we succeeded in part because we had an “ambassador for change” within the administration who was informed, engaged, and willing to speak out.  He prepared notes to give to Cabinet members, for example, and championed this cause with a number of audiences.  When I advise others with similar reform mandates, I always tell them that the first step is to find an ally in government who can work on behalf of these forward-minded activities.

In Benin, water sector reforms fell into five different categories, as follows:

1.      Introducing knowledge of the condition of the asset;
2.      Defining the responsibility for operation and maintenance of assets to each local government affected;
3.      Defining how to delegate management to private operators;
4.      Organizing private regulation at the national level; and
5.      Allowing private operators to use financing to develop services.

Easier said than done? Perhaps. But we approached it as a science, and that helped move the process forward. To begin with, we were clear on our key goals. In this case, our goal was to improve the level of services so that people would consume more volume, make more sales, and ultimately lower the price of water.  We explained this to our stakeholders, including the official who became our “ambassador,” and once he was convinced, he was willing to reach out and convince others.

Internally, going this reform-minded route was a risk.  Although many people on the team were in agreement that reform was the critical first step – an opportunity to try out an idea that, if successful, would scale up – it hadn’t been done before.  The trust and vision among our managers, who made it possible for our team to take this risk and advocate for reform, was a key part of the process.

Once the reforms took hold, we saw further evidence of the potential to attract private sector engagement in piped rural water systems. There is an important learning opportunity for the rest of Sub-Saharan Africa to develop similar PPP projects, with some of the same reforms tailored to their own situations, to address the challenges with a greater emphasis on sustainable services that evolve together with the changing demands of rural populations.

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