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Decentralization of Water and Sanitation Services

Honduras

A Public Expenditure Review

© 2013 Water and Sanitation Program, The World Bank.

The findings, interpretations, and conclusions expressed herein are entirely those of the author and should not be attributed to the World Bank or its affiliated organizations, or to members of the Board of Executive Directors of the World Bank or the governments they represent.

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Honduras

Decentralization of Water and Sanitation Services

A Public Expenditure Review

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Executive Summary .........................................................................................................

I. Background of the Review .........................................................................................

1. Introduction..............................................................................................................

2. ObjectivesofthisReview..........................................................................................

3. StructureofthisDocument.......................................................................................

4. Analysismethodology,informationsourcesandboundaries....................................

II. Decentralization in Context .......................................................................................

1. Overview..................................................................................................................

2. SectorInstitutionsandPolicies.................................................................................

3. SectorFinancingArrangements................................................................................

4. SectorTargetsandInvestmentNeeds......................................................................

5. RemainingChallenges...............................................................................................

III. Decentralization and Financial Flows .........................................................................

1. Overview..................................................................................................................

2. SectorFunding..........................................................................................................

3. SectorSpending........................................................................................................

4. OverallUrbanSub-sectorFinancialFlows.................................................................

IV. Decentralization and Performance ............................................................................

1. Overview..................................................................................................................

2. Influenceofvariousfactorsonutilityperformanceandinvestments......................

V. Conclusions and Recommendations ..........................................................................

1. Mainconclusions......................................................................................................

2. Recommendations....................................................................................................

VI. References ................................................................................................................

VII. Annexes ....................................................................................................................

1. SummaryofOLS–WaterSectorExpenditure...........................................................

2. StandardPerformanceIndexDefinition....................................................................

3. RegressionAnalysisonPerformanceIndicators.......................................................

4. Summaryofcasestudies,outcomesandsignificantfactors.....................................

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Figure1 InterrelationofEntitiesWorkingintheWater&SanitationSector.....................................................

Figure2 FinancialStructureoftheWater&SanitationSector..........................................................................

Figure3 EvolutionofAccesstoWater&Sanitation(1990-2010)......................................................................

Figure4 ShareofPopulationwithAccesstoPipedWaterandFlushToiletsbyPovertyQuintile......................

Figure5 UrbanWaterSectorFunding2010.......................................................................................................

Figure6 EvolutionofNationalvs.ForeignFundingintheSector......................................................................

Figure7 SourcesforfundingformunicipalWSSexpendituresfor2010............................................................

Figure8 Municipal,donorsandnationalinvestmentfundingin2005and2010...............................................

Figure9 TariffIncomeIncrease(2002-2011)inthecasestudiescities..............................................................

Figure10 EvolutionofTariffIncome,InvestmentlevelsandUrbanPopulation(2002-2011)inthecase studiescities........................................................................................................................................

Figure11 Averagebillandaffordabilityfor2010forasampleofserviceproviders............................................

Figure12 UrbanWaterSectorSpendingin2010.................................................................................................

Figure13 EvolutionofnationalinvestmentinWaterandSanitation(2002-2010)..............................................

Figure14 DistributionofInvestments(nationalandproviders)perSub-sector(2002-2011)..............................

Figure15 Comparisonofactualandestimatedannualinvestmentneedstoachievetargets............................

Figure16 ExecutionRateofBudgetedvs.ExpendedFunds(2002-2011)............................................................

Figure17 Numberofpeoplegainingaccesstowaterandsanitationservices,andsectorspending..................

Figure18 EvolutionofO&MandstaffingcostsinSANAA-managedservices......................................................

Figure19 EvolutionofO&MandstaffingcostsinNon-SANAAutilities...............................................................

Figure20 EvolutionoffinancingandspendinginurbanWSSsub-sectorbetween2005and2010....................

Figure21 ConceptualFrameworkforutilityperformanceanalysis.....................................................................

Figure22 Employeesper1,000ConnectionsBasedonTypeofServiceProvider................................................

Figure23 ServiceProviderPerformancebySPIparameters................................................................................

Figure24 ServiceProviderPerformancebyManagementModel.......................................................................

Table1 ServiceProvidersTypesandPopulationServed...................................................................................Table2 Municipal-levelfundingacrossmunicipalpovertycategoriesfor2010...............................................Table3 TypesofServiceProvidersClassifiedbyPovertyLevels.......................................................................Table4 AverageInvestmentsperCapitabyManagementModel....................................................................Table5 Afewcharacteristicsofdistinctserviceproviders’categories.............................................................Table6 SummaryoftheCaseStudies...............................................................................................................Table7 Afewindicatorsforutilitiesgoingthroughdifferentdecentralizationpaths.......................................

List of Figures

List of Tables

06 A Public Expenditure Review. Decentralization of Water and Sanitation services

Abbreviations and Acronyms

AECID Agencia Española de Cooperación Internacional para el Desarrollo (Spanish Agency for Internacional Development Cooperation)

AES AgricultureandEnvironmentalServices

AMHON Asociación de Municipalidades de Honduras(AssociationofMunicipalities)

BCIE/CABEI Banco Centroamericano de Integración Económica (Central American Bank for EconomicIntegration)

CONASA Consejo Nacional de Agua y Saneamiento(DrinkingWaterSupplyandSanitationNationalCouncil)

EPA U.S. Environmental Protection Agency

EPHPM Encuestas Permanentes de Hogares de Propósitos Múltiples(PermanentMulti-PurposeHouseholdSurveys)

ERSAPS Ente Regulador de los Servicios de Agua Potable y Saneamiento(DrinkingWaterandSanitationSectorRegulator)

FHIS FondoHondureñodeInversiónSocial(HonduranFundforSocialInvestment)

GDP GrossDomesticProduct

GoH GovernmentofHonduras

HDR HumanDevelopmentReport

HNL HonduranLempiras

IADB Bank Interamericano de Desarrollo(Inter-AmericanDevelopmentBank)

IBNET InternationalBenchmarkingNetworkofWaterandSanitationUtilities

INE Instituto Nacional de Estadística(NationalStatisticsInstitute)

JMP JointMonitoringProgramforWaterSupplyandSanitation(UNICEF/WHO)

L Lempiras,Hondurancurrency

LCCHN LatinAmericaandtheCaribbean–WorldBankOffice,Tegucigalpa,Honduras

LCSPE LatinAmericanandtheCaribbeanWorldBankEconomicPolicyGroup

LCSPR LatinAmericanandtheCaribbeanWorldBankOfficeoftheVicePresident

LCSPS LatinAmericanandtheCaribbeanWorldBankPublicSectorGroup

LCSWS LatinAmericaandtheCaribbeanWaterSupplyandSanitationUnit,WorldBank,Washington,D.C.

M Million

M&E Monitoringandevaluation

MAPAS Monitoreo del Avance del País en Agua y Saneamiento (MonitoringCountryProgress inWaterSupplyandSanitation)

MDG MillenniumDevelopmentGoals

MINSA SecretariatofHealth

07Honduras

NGO Non-governmentalorganization

O&M Operation&Maintenance

OECD TheOrganizationforEconomicCo-operationandDevelopment

OLS OrdinaryLeastSquares

PEMAPS Plan Estratégico de Modernizaciόn del Sector de Agua Potable y Saneamiento(StrategicPlanfortheModernizationoftheWaterandSanitationSector)

PER PublicExpenditureReview

PN/VP PlandeNación/VisióndePaís(CountryVision/NationalPlan)

PROMOSAS ProyectodeModernizacióndelSectordeAguaySaneamientoenHonduras/WaterandSanitationModernizationProjectforHonduras

PRSP PovertyReductionStrategyPaper(Estrategia de Reducción de la Pobreza, ERP)

RASHON ReddeAguaySaneamientodeHonduras/WaterandSanitationNetworkofHonduras

SANAA Servicio Autόnomo Nacional de Acueductos y Alcantarillados (NationalAutonomousWaterandSewerService)

SASEP WorldBankEconomicPolicyandPovertyUnit

SDC SwissAgencyforDevelopmentandCooperation,

SEFIN Secretaría de Finanzas(SecretariatofFinance)

SEIP Secretaría del Interior y Población(SecretariatofInteriorandPopulation)

SEPLAN Secretaría de Planificación(SecretariatofPlanning)

SERNA Secretaría de Recursos Naturales y Medio Ambiente (Secretariat of Natural Resources andEnvironment)

SINIMUN Sistema de Información Municipal(MunicipalInformationSystem)

SPI SimplePerformanceIndex

SPS SanPedroSula

UNICEF UnitedNation’sChildren’sFund

USAID UnitedStatesAgencyforInternationalDevelopment

UNDP UnitedNationDevelopmentProgram

USCL UnidaddeSupervisiónyControlLocal/LocalUnitforSupervisionandControl

USD UnitedStatesDollars

WHO WorldHealthOrganizations

WSP WorldBank’sWaterandSanitationProgram

WSS WaterSupplyandSanitation


Acknowledgements

ThePublicExpenditureReviewof theWaterSector inHonduras is the result of a team effort led by DavidMichaud,SeniorWaterandSanitationSpecialistoftheWorldBankcomposedof:

• LuisGuillermoVelezAlvarez,WaterandSanitationEconomist

• JoseDonaldoOchoa,WaterandSanitationEconomistandin-countrycoordinator

• AntonioRodriguez,WaterandSanitationSpecialist,WorldBank

• YoonheeKim,UrbanEconomist,WorldBank

The team would like to thank the collaboration andinputs of Victoria Flamant and Manuel FernandezSierra (World Bank consultants), Blanca Lopez (JuniorProfessional Associate), Calvin Zebaze Djiofack(Economist),aswellastheHondurasWorldBankofficestaffmembersandconsultants:RicardoMairena,MarcoAntonio Agüero, Mario Roberto Salgado Barrientosand RosaNelyOchoa Salgado. Significant and helpfulcomments were provided by the peer reviewersKirstenHommann(SeniorEconomistattheWorldBankTWI Department) and Fernanda Ruiz Nuñez (SeniorEconomistattheWorldBankSustainableDevelopmentNetwork’sInfrastructurePolicyUnit).

This sector background paper has been used as animportant input to theHonduras Public ExpenditureReview 2008-2012 prepared by a team co-led byGeeta Sethi (AES), Laura Zoratto (LCSPS) and LucRazafimandim (LCSPE), under theoverall supervisionandguidanceofOscarCalvo-Gonzalez(LeadEconomistand Sector Leader, LCSPR). The team included, inalphabetic order, Calvin Zebaze Djiofack (LCSPE),David Carias (consultant), Denis Medvedev (SASEP),Gustavo Ezequiel Miranda (LCCHN), Karina Ramirez(LCSPS), Lorena Viñuela (LCSPS), Natalyia Biletska(PRMPS),NuriaTolsaCaballero (LCSPE),RamonArias(LCSPS) and Rong Qian (LCSPE). The final editingwas performed by Maria Lorena Madrid Umaña,(Knowledge Management and Operations Officer,LCSWS, World Bank). Layout design and publishingprocess was performed by Yehude Simon and JuanChong(CommunicationsSpecialists,TWILC).

The preparation of the paper was made possiblethrough the financing from the World Bank’s Waterand Sanitation Program, the Water Anchor’s GAC inInfrastructuretrustfundandtheSwissCooperationandDevelopmentAgency(SDC).

09Honduras

Document Overview

This public expenditure review in the water supplyand sanitation sector in Honduras aims to shed lighton the sector’s current financing structure and thenationalandsub-nationalpublicexpenditure levelsofgovernment. Italsoexaminestheeffectsof thewatersector’sdecentralizationuponitsfinancingandserviceprovision under varying governance and politicaleconomy conditions. It concludes by presenting themain conclusions and policy recommendations fordecision makers that informed the World Bank’sHonduras Public Expenditure Review 2008-2012.

This work is based upon the analysis of availableinformation fromwidely distributed sources, includinggovernment budget documents, allocations andactual expenditures from sector ministries and keysector institutions. Its content provides contextualinformation on the sector’s institutions; policies, andchallenges; analyzes the financing flows; and focuseson the performance of urban service providers underthe decentralization. It also unfolds the results of aneconometricanalysisoftheregulator’sdatafor92urban

serviceprovidersthatcover85percentofthetotalurbanpopulation and field data captured from eleven casesstudies.

I. DECEntRAlIzAtIon In ContExt

Sector overview

In Honduras, coverage levels are increasing but remain unequal, and service quality continues to be limited. Theexistinginfrastructuresallowusingonly5 percent ofwater resources available in nature, andthe provision of safe and sustainable drinking waterandsanitationservicestoalltheinhabitantsremainsachallenge.In2011,89percentofthepopulationhadaccesstoanimprovedsourceofwater,and81percentofthepopulationhadaccesstoanimprovedsourceofsanitation, comparedwith81percentand65percentrespectively in2000.1Assuch,Hondurashasachievedthe Millennium Development Goal (MDG) targets2 for sanitation. However, this apparent success maskssignificant disparities between urban and rural areas,

2004

100%

80%

60%

40%

20%

0%2006

Q1

Q2

Q3

Q4

Q5

2008 2010

Access to flush toilets

1 WHO/UNICEFJointMonitoringProgrammeforWaterSupplyandSanitation(2013UpdateEstimates)2 TheMDGtarget forwaterandsanitation is toensure that88percentof thepopulationhasaccess to safedrinkingwaterand75percentof the

populationhasaccesstobasicsanitationby2015.


ofHonduras(GoH)setambitiousnationaltargets5inthePovertyReductionStrategyPaper(PRSP),andmandatedforacoherentlegalframeworkandstrongerinstitutionsto achieve these targets. Consequently, in 2003, theDrinking Water and Sanitation Sector Framework Lawwaspassedtomandatethedecentralizationofallwaterand sanitation services. Since then a Strategic Plan fortheModernizationof theWater Supply and SanitationSector(PEMAPS)wasadoptedin2005;subsequently,in2011aWaterSupplyandSanitationNationalPolicywasprepared by theDrinkingWater Supply and SanitationNationalCouncil (CONASA).Thecurrentadministrationadopted the Vision of the Country 2010-2038 andNationPlan2010-2022,settingnewsectortargets6 and policy measures. Among the policy measures was thetransferenceofthe17watersystemsstillbeingoperatedby the Servicio Autónomo Nacional de Acueductos yAlcantarillados(SANAA),amongthemTegucigalpa’swatersystem.While theresponsibility forserviceprovision isattributedtothemunicipalities,thereisawiderangeofserviceprovisionmodelsinpracticethatdifferfromcityto

andamongpovertyquintilesinHonduras.Thefactmorethan1millionpeopledonotobtaintheirdrinkingwaterfromimprovedsources,and2.2millionHonduransdonotuseimprovedsanitationfacilities,mostoftheminruralareas,isparticularlystark.3

Honduras still lags behind most other Latin Americancountries where the average coverage in 2010 was 94percentforwaterand80percentforsanitation.Evenforthepopulationwithcoverage,servicequalityislimited,andthefinancialsustainabilityofserviceprovidersremainschallengingregardlessofthedecentralizationlevel.

Sector Institutions and Policies

the decentralization of the sector is incomplete, with governance being both a central issue in itself and a concern for the sector’s financing. Thereareanumberofpolicies and strategies governingHonduras’water sector. Aiming beyond the targets set by theMillenniumDevelopmentGoal(MDG),4theGovernment

Interrelation of entities working in the water & sanitation sector

CONASA

Executive Secretary

Technical Secretary

MUNICIPALITIES

SANAA

Regulative Body

Municipal Control

Institutional and not InstitutionalDialogue spaces:

RAS-HON

Service Operators Water Committees

Responsabillity orAuthority

Technical relationship, cooperation

3 UNICEF(2011).StudyonExclusioninthewaterandsanitationsectorinHonduras.14percentofthepopulationhasnoaccesstosafedrinkingwaterand29percentofthepopulationhasnoaccesstobasicsanitationin2010.

4 TheMDGtargetsforwaterandsanitationaretoensurethatby201588percentofthepopulationhasaccesstosafedrinkingwaterand75percentofthepopulationhasaccesstobasicsanitation.

5 ThePRSPtargetslargelysurpasstheMDGtargets,aimingtoprovideaccesstowaterandsanitationto95percentofthepopulationby2015.6 VP/PNcoveragetargets:93percentofruralhouseholdswithdrinkingwater,and60percenthouseholdwithsanitarysewerageby2022.Surprisingly,

thefirstGovernmentPlan2010-2014under theNationPlan,passed later in2010hasadopted thePRSP targetsofensuringaccess towaterandsanitationto95percentofthepopulationby2014,whichseemtobeunattainable,asthesectorisoff-tracktomeetthetargets,evenby2015.

11Honduras

city.Currently,only60percentofthepopulationisbeingsuppliedbyadecentralizedautonomousserviceproviderinconformitywiththeFrameworkLaw. Theremaining40 percent of the population is still being supplieddirectlybythemunicipalitiesorbySANAA,Honduran´smain utility that operates 13 systems providing waterandsanitationservicestoover1.5millionpeople.

Sector Financing Arrangements

the water and sanitation sector in Honduras is financed through a combination of three funding sources. ThesefundingsourcesadherewiththeOrganizationforEconomicCo-operationandDevelopment’s(OECD’s)FrameworkforWater Supply and Sanitation Sector Financing. The firstsourceoffinancingcomesfromtariffscollectedbyserviceprovidersbasedoneithervolume,eithersocio-economicconditions,oracombinationofboth.

Thesecondsourceoffinancingcomesfromtaxesthathelpsupplementoperatingcostsandsomeinvestmentcosts not covered by tariffs. Taxes generally flowin the form of budget assignation from national ormunicipaladministrationstoserviceprovidersorsectorinstitutions;aswellasindirectlythroughfiscaltransfersfrom the national to the municipal governments.Further sector financing, mostly for investments, isprovidedbyexternaltransfersintheformofgrantsor

creditsprovidedbyexternaldonorstonationalorlocalinstitutionsandserviceproviders.

Sector targets and Investment needs

Investment needs in Honduras’ water and sanitationsector are largely greater than the investmentsplanned. The distribution of necessary investmentsvariesdependingonthesector’stargetsbeingusedandthedesiredserviceprovisioning levels.Asmentioned,there are various targets co-existing for the watersupply and sanitation sector (MDG, PRSP, PN/VP),underscoringtheneedfortheGoHtodefineauniquesetoftargets.ForthisPublicExpenditureReview(PER),twomainscenariosareconsidered,bothofwhichcomedirectlyfromtheMAPASexercise:a)TheMDGtargetsaiming to attain 88 percent water coverage and 75percent sanitation coverage for Honduras’ populationby2015.Thistargethasbeenachieved,butsustainingthe coverage levels and ensuring that the quality ofthe services provided meet sector standards wouldrequireanannualinvestmentof6,200MHNL,includingnew capital, replacement cost of capital stock, andrehabilitation,andb)NationPlanadoptingPRSPtargetsforthesectorintermsofaccesstowaterandsanitationto 95 percent of the population by 2022. In order toachieve this target an overall annual investment of7,572MHNLwouldberequired.

Financial Structure of the Water & Sanitation Sector

Budget allocation

In-kind words

Grant

Tariff

SubsidiesInvestment grants / in-kind words

Fisc

al tr

ansf

er

Cred

its a

nd g

rant

s

ERSAPS,CONASA SANAA

ONGs Users External donors

Rural Providers

Municipalproviders

FHIS

SEFIN

Municipalities

Taxation


7 Theinformationavailableislimitedandthereisnoconsolidatedandharmonizedsourceofinformation,exceptfortheyears2005and2010wereasignificanteffortwasconductedbytheSecretariatofInteriorandPopulation,SEIP,leadingtoanextensivedatabaseofmunicipalfinances,minedforthisreport.

8 Inmunicipalitieswithoutautonomousserviceprovider,WSSservicesareoftenpaiddirectlytothemunicipalcashierandarenotfurtherdistinguishedinmunicipalaccounting.Thus,inthisparagraph,someofthemunicipal-levelfundingmightactuallyreallybefromtariffs,althoughbecauselargersystemsareautonomous,theeffectisnotlikelytobeverysignificant.

9 AsperUNDPandWHOrecommendations.Otherorganizationshaveotherproposedothervalues(OECD2.6percent,EPA4percent).

II. DECEntRAlIzAtIon AnD FInAnCIAl FloWS

Sector Funding

Fundingatthenationallevelcomeslargelyfromdonorsand is complemented by some national funds. Onaverage, between 2002 and 2011, funding from thenationallevel(off-budgetdonors,in-budgetdonorsandnationalgovernment)represented550MHNLperyear;fromwhichdonorfundingwasaround70percent.Thelargest fundersare (indecreasingorder) Spain,whichprovided very significant support in the first half ofthedecade, the IADB,which increased lending in thesecond half, Japan, USAID and the Central AmericanBankforEconomicIntegration(CABEI).

Municipal levelfunding, includingfiscaltransfersfromnational government, represents an important sourceoffundingforthesector,andhasincreasedsignificantlybetween2005and2010.7 The fundingcomesmostlyfrom general transfers from the national governmentandthemunicipalities’ownresources,mostlyrealestate

Evolution of national vs. Foreign Funding in the Sector

Mill

ions

HN

L pe

r yea

r

900

800

700

600

500

400

300

200

100

-

Donorsfunding

Nationalfunding

% ofdonorfunding

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

taxes. This significant increase, 191percent (in actual2010HNLempiras),canlikelybeexplainedbythefactthatfiscaltransfershaveincreasedoverall;sometariffsmightalsohavebeenadjustedandincreased,resultingin higher municipal income;8 and possibly in greaterawareness that WSS service provision is a municipalresponsibility, in the same time span, approximately150,000urbandwellershavestartedreceivingservicesfrommunicipalutilitiesinsteadofSANAA.

The analysis also shows a significant income increaseduetotariffs,reachingabout70percent(inrealterms)overtheperiodbetween2002and2011.Presumably,partof this increase canbederived froman increaseinthenumberofusers,whichincreasedby36percentoverthesameperiod,andacombinationofimprovedbillingandcollectionpractices.

There is a large variance in tariff levels in the casestudied, and in someplaces tariffsmight be reachingaffordability limit for the lowest income quintile,assumedtobe3percentofhouseholdincome.9Anin-

13Honduras

depthanalysisofexistingcross-subsidyschemeswouldberelevanttoassesstheirdistributionalimpact.

Sector Spending

Investment levels and Structurenational investments levels in the sector are below international standards, and trending down. According to the Human Development Report (HDR2006),countries suchasHondurasmust investat least1percentoftheirGDPinwaterandsanitation.Between2002 and 2011, the average was only 0.13 percent.Investment levels by the national Government anddonorsintheWSSsectorhavegenerallybeendecreasingoverthelast10yearsbothinabsolutenumbersandasashareofoverallnationalbudget.

Thelargestshareoftotalinvestmentiscurrentlyallottedtowaterinurbanareas.Onaverage,from2002to2011,69percentoftotalWSSsectorinvestmentswereusedfor

waterprojectswith46percentallottedtourbanareas.Sanitation, which is significantly lagging behind waterin terms of coverage, received only 31 percent of thesector’sinvestment;ofwhich23percentwasinvestedinurbanareasandtheremaining12percentinruralareas.

the current levels of investment are insufficient to reach the Government’s own targets.

Dependingonwhichsetof targets isadopted(MDGs,or thegovernment’sVP/PNsetof targets) theannualinvestment needed varies between 4,900M HNLand 6,000MHNL. This compares to an actual currentinvestmentlevelof488MHNL,excludingapproximatemunicipalinvestmentsof218MHNLin2010;orgenerallyonlyabout10percentofthetotalinvestmentneeds.Inotherwords, there isahigh riskofnotsustaining thelevel(s) of coverage achieved because of populationgrowthandthelackoffundingforthereplacementandrehabilitationofinfrastructure.

Municipal, donors and national investment funding in 2005 and 2010

Development fee revenue, investment levels and urban population (2002-2011) in the cities of studies

2005

54

103

166

157+291%

245+48%

88-14.5%

2010

Municipal fundsDonorsNational funds

Mill

ons H

NL

/ ye

ar

600

500

400

300

200

100

0

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

300%

250%

200%

150%

100%

50%

0%

Population increase Tariff income increased Investments w/o SPS, AMDC, Puerto Cortes


operation and MaintenanceThe limited information available points to sharplyincreasing salary costs, and to a lesser extent,O&Mcosts for SANAA. The trend is particularly troublingbecausetheriseappearstocoincidewiththepassageof the Framework Law decentralizing services anddownscaling SANAA. Nonetheless, salaries andbenefits expenditures have significantly suffered a

95 percent increased, which not only presents theutility with financial sustainability challenges butalso proportionally increases the cost of severancesto be paid for further decentralizations. As a result,salaries represented an average of 55 percent of total costs during the period,much above the usual30-40percent.

turnover and average accessibility in 2010 for a sample of service providers

Distribution of Investments (national and providers) per Sub-sector (2002-2011)

Lem

pira

s/m

onth

600

500

400

300

200

100

0PuertoCortes,Cortes

DistritoCentral,FanciscoMorazan

San PedroSula,

Cortes

La Ceiba,Atlantida

Danli,El Paraiso

Siguatepeque,Comayagua

La Paz-Cane

Jesus deOtoro,Intibuca

3% average income

3% of income for bottom quintile

Mill

ion

HNL

for y

ear

1,200

1,00

800

600

400

200

02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average

13%19%22%

46%

Rural sanitation Rural water urban sanitation Urban water

15Honduras

III. DECEntRAlIzAtIon AnD PERFoRMAnCE.

The analysis of the performance of urban water andsanitationserviceprovision10 inthecontextoftheon-goingdecentralizationprocessisbasedonthepremisethatanumberofexternal,political andpolicy factorsinfluencetheperformanceofutilities.

Performance of utilities was assessed based on dataavailable from theRegulatorandonefficiency, tariffs,servicequalityandinvestmentlevels.

Inaddition,asaproxytoassesstheoverallperformanceof the utilities, a simple performance index (SPI)wasdeveloped using the following five parameters:11 i)Employeesper1000connections,ii)Levelofmetering,iii)Levelofcontinuity,iv)Levelofdisinfectionofwater,andv)Tariffeffectiveness (average tariffoveraveragecost). For eachparameter, a scorewas assigned from1 (worst) to 3 (best) based on international goodpractices.

The statistical analysis of overall performance (SPI)showsthatmostoftheserviceprovidersarestillstepsbehindfromreachingasustainableandefficientservice.Theanalysisclearlysuggeststhatmunicipalcompaniesand water boards perform better than SANAA andmunicipalities.

Thescoresummationyieldedanoverallscore(rangingfrom 5-worst to 15-best) used to classify the serviceproviders into low, medium and good performanceutilities.

Size and poverty levels. The analysis did not showstatisticallysignificant linkagesbetween(a)thesizeofthe serviced area, or (b) the poverty category of themunicipality and, (c) utility efficiency or investmentlevels.

Decentralization paths. ForcingSANAAtodecentralizeserviceprovisiontounwillingmunicipalitieshasbeenarecipeforfailure;conversely,followingademand-driven

Comparison of actual and estimated annual investment needs to achieve targets

Inve

stm

ents

(HN

L M

)

2,0001,8001,6001,4001,2001,000

800600400200

0Rural Urban

Water Sanitation

Rural Urban

95% in 2022

MDS 2015

Average2002-2011

10 Datafor92urbanserviceproviderscovering85percentoftotalurbanpopulation,forwhichtheregulatoryagencyhascollectedserviceprovisionindicatorsfortheyear2010.

11 These indicatorsdonotcovercompletelyautility’sperformance; rather, theywereselectedbasedon the limited informationavailable fromtheregulator’sdatabase.


Evolution of o&M and staffing costs in SAnAA-managed services

Conceptual Framework for utility performance analysis

Performance of utility

- efficiency - tariffs

- service quality ...

Size

Povertylevel

Local politicaleconomy

Decentralizationpath

Managementmodel

Externalfactors

Politicalfactors

Politicalfactors

1,200

1,000

800

600

400

200

0

Staff costs

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

OM costsM

illio

ns H

NL

per y

ear

17Honduras

decentralization path, where municipal authoritiesare interested in engaging in the creation of anautonomousserviceprovider,appearstoleadtobetterutilityperformance.Decentralizationyieldsshort-termimprovements in efficiency and cost recovery, butthesedonottranslateimmediatelyintoservicequalityimprovements.

local political economyfactorsoftenplayanimportantroleindeterminingsuccessorfailure.Forexample,thefirst 20 years of coherent and consistent policies andpolitical will, that imposed broad-based water meterinstallation and raised water use awareness amongcitizens, played an important role in the success ofAguas de Puerto Cortes, which also benefitted fromHonduras’ National Port Authority’s* steady income,whichbuys35percentofthedistributedwateratL30percubicmeter.

Management Models

the operational efficiency of service providers differs considerably among different management models: the more autonomous the service providers are the more efficiently they operate.

Metering

TariffStalfing

Servicecontinuity Disinfection

Municipal companyWater boardMunicipalitySANAA

More sustainableprovider

Better service

Operaciónmás eficiente

More professionalservice

Service Provider Performance by SPI parameters

Performance (base on SPI):

1

7

4

18

3

6

1Num

ber /

% o

f mod

els o

bser

ved

Municipalcompany

Municipality Water board Privateconcessionaire

SANAA

poor medium good

100%

80%

60%

40%

20%

0% 1

111

2

Service Provider Performance by Management Model

*EmpresaNacionalPortuariadeHonduras


Slow Ascendant Filters.

The analysis of investments at a municipal levelsuggeststhatthedecentralizationofserviceshasbeeneffective atmobilizing strongermunicipal resources.Municipalities with a decentralized management

model, such as water boards and municipalcompanies, allocate more resources to water andsanitation infrastructure than thosewhere SANAA isstillprovidingwaterservices.

19Honduras

RECoMMEnDAtIonS FoR DECISIon-MAkERS

MAIn ConCluSIonS

• Sector informationavailable topolicymakers is insufficient to inform theon-goingdecentralizationprocess.

• Public Expenditure levels are insufficient to achieve the Government’s own objectives; they aredecreasingandtheircompositiondoesnotfullymatchtheactualneeds.

• PublicInvestmentefficiencyisdifficulttoassess,andthesignificantgrowthofoperationalexpenses,inparticularsalariesofSANAAstaff,putsatrisktheserviceprovisionsustainability.

• Sectorfinancingcompositionischangingduetodecentralization;andcurrentlydecentralizedfundsbyfarrepresentthelargestsourceoffinancing.

• Regulatory data reviews show that governancemodel and decentralization path strongly influenceperformanceofurbanserviceproviders.

• Improvetheinformationbasisonservicequalityandfinancing,andthedatacollectionmechanismtosystematicallymonitoringandevaluatingserviceproviders’performance.

• Increasenationalandmunicipalinvestmentlevelandimproveitsqualityandalignmentwithgovernmenttargets.

• Continuetosupportdecentralizationofservicetomunicipalitiesinasmartway,promotingprogramsthat offer technical and financial support to municipalities to set-up or strengthen autonomousmunicipalutilitiesandimprovewaterandsanitationservicequalityandcoverage.

• Adaptfinancingthroughpublicexpenditurestoadecentralizedsector,adoptingafinancingpolicytopromoteefficientserviceproviders,encouragecostrecoveryprimarilythroughtariffs,defineasubsidyschemethatallowsaffordableservicesforpoorercitizens,andestablishbasicprinciplesforinvestmentfinancingtoreachserviceproviders.

• Ensurestrongnationalinstitutionsthatcanprovideadequateregulation,policyandtechnicalassistancefunctions,andultimatelysupportthecreationandstrengtheningofautonomousmunicipalutilities.


Background of the reviewI

in rural areas, is particularly stark.20 Honduras stilllags behind most other Latin American countries (in2010, average coveragewas 94 percent forwater and 80percentforsanitation);andtheseapparentsuccessesmask significant inequalities between urban and ruralareas. Even for the population with coverage, servicequality is limited, and the financial sustainability ofservice providers remains challenging. Furthermore,a more detailed look at disaggregated figures revealstroubling trends; forexample, theproportionofurbandwellerswithaccesstoimprovedwaterhasactuallygonedownsince1990,largelyduetorapidurbanization;andpoorpeoplehavingsignificantlylowerlevelsofaccesstoservices.

In Honduras, service provision in rural areas hastraditionallybeentheresponsibilityofcommunity-levelwater boards; while in urban areas the responsibilitymovedfromprivateormunicipalutilitiesattheturnofthe20th century to a centralizedprovider. Followingregional trends in the early 60s, SANAA, the nationalwaterutility,becametheserviceproviderinmostlargeandmanysmallcities,(withtheexceptionofSanPedroSula.. The adoption of the Municipality Law in 1990againmadewaterandsanitationservicesamunicipalresponsibility, marking a trend reversal. However,little decentralization was observed until 2003, whenthe Government passed a landmark Drinking Waterand Sanitation Sector Framework Law which madeservice provision an attribution of municipalities

1. IntRoDuCtIon

Hondurashasoneofthehighestincidencesofpovertyandinequalityinthewesternhemisphere.Itisthethirdpoorestcountry12inLatinAmericawithapopulationofroughly 8.3 million inhabitants13 of which more than 60percentlivesbelowthenationalpovertyline.14Urbanpopulationcontinuesgrowingrapidly,makingHondurasapredominantlyurbancountrysince2008,eventhoughitisestimatedthatupto48percent15ofthepopulationstilllivesinruralareas(theaverageruralpopulationinLatinAmericais21percent);16urbanizationisexpectedtocontinue.

While water resources are abundant and available innature,withaglobalwaterofferof87,000hectometersper year, the existing infrastructures allow using only5 percent17 of this water, and the provision of basicservicessuchassafeandsustainabledrinkingwaterandsanitation toall the inhabitants remainsa challenge inHonduras. In 2011, 89 percent of the population hadaccess toan improvedsourceofwaterand81percentofthepopulationhadaccesstoanimprovedsourceofsanitation compared with 81 percent and 65 percentrespectively in2000.18As such,Hondurashasachievedthe Millennium Development Goal (MDG)19 for waterand sanitation. However, the fact that more than 1million people in Honduras do not get their drinkingwaterfromimprovedsourcesand2.2millionHonduransdonotuseimprovedsanitationfacilities,mostofthem

12 RepublicofHonduras(”VisióndePaís2010-2038yPlandeNación2010–2022”)13 INE(2012)14 WorldBank(2012)15 INE(2012)16 WorldBank(2010)17 RepublicofHonduras(”VisióndePaís2010-2038yPlandeNación2010–2022”)18 WHO/UNICEFJointMonitoringProgrammeforWaterSupplyandSanitation(2013UpdateEstimates)19 TheMDGtargetforwaterandsanitationistoensurethatby201588percentofthepopulationhasaccesstosafedrinkingwaterand75percentofthe

populationhasaccesstobasicsanitation.20 UNICEF(2011)

21Honduras

(decentralization), mandating that such service beprovided by an autonomous entity on behalf of themunicipalities (de-concentration)andreformedsectorinstitutions at a national level to help them adapt tothenewsectorstructure.Thelawdidnotsignificantlyimpact service provision in rural areas, and to date,servicesareprovidedbycommunity-levelwaterboardsthatarerecognizedasautonomousserviceprovidersintheirrespectivecommunities.

The government’s decision to decentralize the waterserviceprovisionwasmadewith theviewto improvethe sector’s21 technical, planning and regulatoryperformance.TheDrinkingWaterandSanitationSectorLaw called for ‘the transition towards a nation-widedecentralizationofservicesby2008inwhichatransferofresponsibilitytomunicipaloperatorswilloccurfortheoperation,maintenance,disinfectionandexpansionofthesystemscurrentlyoperatedbySANAA’.22However,adecadeaftertheadoptionofthislandmarklegislation,its implementation still faces significant challenges,including the lack of strong national-level institutionsandanincompleteimplementationofdecentralizationandserviceprovisionde-concentration.

2. oBjECtIVES oF tHIS REVIEW

Theobjectiveof thisPublic ExpenditureReview (PER)istoshedlightonthecurrentstructureofwatersupplyandsanitationsectorfinancingandpublicexpenditureboth at the national and sub-national levels ofGovernment,aswellasexaminehowdecentralizationhasaffectedthesector’sfinancingandserviceprovisionunder varying governance and political economicalconditions.

In PERs, traditionally thedocument includes a reviewof the entire sector’s investment flows; however, thisPER also includes sections more particularly focusedon the impact of decentralization, with limits to theurbanwatersector.Thisissobecausedecentralizationhashadonlylimitedeffectsonserviceprovisioninruralareasanddataisalmostnonexistent.

3. StRuCtuRE oF tHIS DoCuMEnt

Toachieve theobjectives, thedocument is divided inthefollowingchapters:

• Chapter II: Contextual information onthesector’sinstitutions, policies, financing mechanisms andchallenges.

• Chapter III: Sector Finance flow analyses detailstheuseofpublicexpendituresfortheentiresectorand looks at sources of funding and spendingcategories, particularly in the urban water andsanitation subsector. It concludeswith a completebalance of funding and spending for urban waterandsanitation.

• Chapter IV: urban service provider performance under the decentralization. Shows results of aneconometricanalysisofregulatordatafor92urbanservice providers that cover 85 percent of totalurbanpopulation in thecountryandseveral casesstudies.

• Chapter V: Conclusions and recommendations from the Public Expenditure Review

21 Dickson(2006)22 Ibidp.1


4. AnAlySIS MEtHoDoloGy, InFoRMAtIon SouRCES AnD BounDARIES

KeyStudyQuestions:

i. WhatarethecurrentfinancingmechanismsofWSSservicesandhowhavetheychangedthroughoutthedecentralizationprocess?

ii. Whathavebeentheeffectsofdecentralizationonthequality,efficiencyandfinancialsustainabilityofWSSservice?

iii. Whathasbeentheinfluenceofvariousgovernancemodelsanddecentralizationpaths,aswellas localpolitical economy, on the performance of urbanservicesproviders?

While the first question is addressed for the entiresector(urbanandrural),thesecondandthirdquestionsareexaminedmostly in theurban context, given thatthe on-going decentralization reforms most affecturbanareas.

The study is based on available information froma variety of sources including government budgetdocuments, allocations and actual expenditures fromsectorministriesandinstitutions,suchastheSecretariatof Finance (SEFIN), the Secretariat of Planning(SEPLAN),Ministry ofHealth (MINSA), the Secretariatof Interior and Population (SEIP), the Association ofHonduran Municipalities (AMHON), the HonduranSocialInvestmentFund(FHIS)andtheNationalServiceofAqueductsandSewage(SANAA),and dataonthequality of water service obtained from the DrinkingWaterandSanitationServiceRegulator(ERSAPS).Dataonpopulationandservicecoveragelevelswasobtainedfrom theNational Institute of Statistics (INE) and theJointMonitoringProgram(JMP).

Thestudywasalsoabletosignificantlydrawontheon-goingMonitoringCountryProgressinWaterSupplyandSanitation(MAPAS)initiative,ledbytheDrinkingWaterSupplyandSanitationNationalCouncil(CONASA)withthesupportoftheWorldBank’sWaterandSanitationProgram. The background work completed to collectandprocessasignificantamountoffinancialinformationfor MAPAS was particularly useful. To complementthe available information, site visits were conducted

in 11 service providers covering 12 municipalities,investigating the following: a) the influence: SanAntonio de Flores, Teupasenti, Danlί, La Paz-Cane,Jesús de Otoro, Puerto Cortés, Santa Rita, San PedroSula,Tegucigalpa,Siguatepeque,andLaCeiba.Duringthesevisitsinterviewswerecarriedoutwithmunicipalleaders,localwaterproviders,civilsocietyorganizationsand service users. Additional interviews wereconductedwith local representatives from a cadre ofinternational cooperationandfinancingorganizations:theWorldBank,theInter-AmericanDevelopmentBank,the Spanish Agency for International DevelopmentCooperation, the Swiss Agency for Development andCooperation,andtheEuropeanCommission.

All financial datawas consolidated in a national-levelfinancialmodelfor2002to2011thatwasusedasthebasis for sector-level financing analysis; furthermore,simplermodelswerealsopreparedforeachcasestudypreviouslymentioned.Finally,aneconometricanalysis

23Honduras

of the ERSAPS data was also used to look largely at(a) the influence of management models, (b) size ofservices providers and poverty level ofmunicipalitiesserved, and (c) their service provision performance.Additional information about the methodologicalapproachisprovidedineachchapter’soverview.

Whileeveryeffortwasmade toensure thequalityofthis data, it is important to note that the availabilityandqualityofinformationobtained,particularlyatthemunicipal level, leavesmuchtobedesired; therefore,thestudyresultscanonlybeseenas indicative.Morespecifically, amunicipal-level coveragedata couldnotbeobtained,norwasitpossibletoobtaininformationpermitting the assessment of access differences toservices across regions or income categories. Thelastcensus inHondurasdatesbackto2000,and laterhousehold surveys are not statistically significant atmunicipalordepartmentallevels.


Decentralization in contextII

1. oVERVIEW

Thischapterprovidestheinformationalframeandcontextfor the sector’s current policies, institutions, financingmechanisms and some challenges. Numerical detailsaboutexpendituresorserviceprovisionperformancearenotprovided,butareincludedinsubsequentchapters.

2. SECtoR InStItutIonS AnD PolICIES

Honduras’ water sector’s governing policies and strategies are numerous. In 2000, theMDGs set forHondurasto increasetheproportionof itspopulationwithaccesstosafedrinkingwaterandbasicsanitationto88percentand75percentrespectivelyby2015.Ayearlater, the Honduran government drafted the Strategyfor Poverty Reduction (PRSP) which ambitiouslyaimedtoprovideaccesstowaterandsanitationto95percentof thepopulationby2015.23Additionally, thePRSP highlighted the need for stronger institutions inwater and sanitation and a coherent legal frameworkunder which they could act to achieve the target.Furthermore,theDrinkingWaterandSanitationSectorFramework Law (Ley Marco del Sector Agua Potable y Saneamiento, 2003) addressed these concernsby mandating the decentralization of all water andsanitation services and creating new institutions tostrengthenthesector’ssustainabilityanddevelopment.Following the Framework Law, a Strategic Plan forthe Modernization of the Water & Sanitation Sector(PEMAPS) was adopted in 2005. The latter focusedon laying out a policy, strategy and plan of action tosupportthedecentralizationandlocaldevelopmentofwater and sanitation services.While it has served astheconceptualbasis fordonorengagement, includingtheWorld-Bank fundedProject for theModernization

oftheWaterandSanitationSector(PROMOSAS),ithasnot played the role of a sector roadmap as originallyexpected,andfurthereffortstoconsolidatethesectorand implement the reformhavenotdirectly followedtheoriginalvisionsetbythePEMAPS.

the current administration has adopted a national Plan, (Plan de Nación (PN) 2010-2022) with significant targets for 2022. TheVisionoftheCountry2010-2038(VisióndePaís(VP)2010-2038)andNPadoptedin2010,have setpartial sector targetsand indicators for ruralhouseholds:93percentcoverageofdrinkingwaterand60percenthousehold access to sanitary sewerageby2022.Surprisingly,thefirstGovernmentPlan2010-2014under the Nation Plan, passed in 2010, adopted thePRSPtargetstoensureaccesstowaterandsanitationfor95percentofthepopulationby2014,whichseemedunattainablebyaseeminglyoff-trackpatternoftarget

Water flowline PROMOSAS archive.

23 ThisgoallargelysurpassestheMDGof88percentaccesstosafedrinkingwaterand75percentaccesstobasicsanitationby2015.

25Honduras

achievement, even by 2015. The Government Plan2010-2014alsoproposed, amongpolicymeasures, tocomplete the decentralization process by transferringthe17watersystemsoperatedbySANAA,includingtheTegucigalpa’ssystem,tothemunicipalities.

In 2011, a Water Supply and Sanitation national Policy was prepared and proposed for approval of the Drinking Water Supply and Sanitation national Council (ConASA). WhileuniversalaccesstowaterandsanitationasaHumanRightisconsideredinthepolicyvision,theproposaldoesnotsetcorrespondingtargets,leaving them for planning documents to be preparedunderthisnewPolicy,once it isofficiallyapprovedbytheNationalCongress.

Historically, the national Autonomous Water and Sanitation Service (SAnAA) has played an important role in the provision of water and sanitation. Previousto the passing of the Framework Law, SANAA24

administered a largeportionof thewater supply andsanitation services provided in urban areas.25 Serviceduring this time was characterized by low waterquality, high financial losses and low incentives toexpand services, especially to poor communities.26 WhiletheMunicipalLawwaspassedin1990to‘permitmunicipalitiestoprovidepublicservices,eitherthroughdirect management or by transferring operationalresponsibility to private-public enterprises, fewmunicipalities managed to gain control of water andsanitationprovisionintheirarea.27Serviceprovisioninruralareaswas,andcontinuestobe, largelyprovidedbywaterboardswith the technical supportofSANAAandwaterboardassociations.

In 2003, the passing of the Water and Sanitation Sector Framework law redefined water and sanitation provision in Honduras withthegoalofensuringthebestpossible coverage, quality and possible regardless ofthe consumer’s geographical location, and to increase

the sector’s accountability and transparency.28 Thelaw introduced important changes by decentralizingthe responsibility forwaterand sanitationprovision tothemunicipal level and creating new national entities(CONASA and ERSAPS) to coordinate and regulate thesector. Under the new legislation, CONASA, a councilrepresenting all relevant ministries and institutions,became responsible for the adoption of policies andstrategiesandfortheplanningofthewaterandsanitationsector’s development. ERSAPS became responsible forthestandardization,coordinationandregulationof thedrinking water and sanitation service provision in thecountry.Upontransferofserviceprovisiontomunicipalutilities, SANAA was to remain an important entity inthe sector acting as CONASA’s technical secretariat inaddition to providing technical assistance to rural andurbanserviceproviders.

Figure1illustratestheinteractionofnationalinstitutionsandserviceproviderssince thepassingof theDrinkingWater and Sanitation Sector Framework. Nonetheless,assignaledinthe“remainingchallenges”section,realitydoesnotfullyadheretothespiritoftheruleoflaw.

Service provision is an attribution of the municipalities, but the way in which those services are provided differs widely from city to city. Inprinciple,theserviceshould be provided by one or various autonomousproviders, and the municipality must form a unitto supervise and control all service providers in itsterritory (USCL – Unidad de Supervision y Control Local). Inreality,notallmunicipalitieshavebeenabletoestablishaUSCL,orautonomousserviceproviders.Table1highlightthecurrenttypesofserviceprovidersandpresentsanestimateofthetotalpopulationbeingservedbyeachtype.Asthetableshows,inruralareas,serviceprovisionismostlydonebyruralwaterboards.Inurbanareas,manydifferentmodelscoexist.Insomecases,servicesareprovideddirectlybythemunicipality(for example by the civil works department) or by a

24 SANAAwascreatedbytheGoHin1961.25 22 urban areas in total (PEMAPS). Sewer serviceswere always the responsibility of themunicipalities;SANAA never provided services to them,

exceptingTegucigalpa.SeeTable3forfurtherinformation..26 Talavera(2006)27 Cotlear&Urbina(2010)28 PEMAPS(2005)


dedicated,autonomousmunicipalprovider(forexamplea self-standing entity separated from the municipaladministration and finances). Additionally, in manycities,urbanwaterboardsorcitizen’sassociationshavebuiltandoperatesmallersystemsinareasnotcoveredbythe“formal”provider.SANAAalsocontinuestobeanimportant serviceprovider inHonduras stilloperating13systemsprovidingwaterandsanitationservices toover1.5millionpeople.

In summary, approximately 60 percent of the population is served by a decentralized provider in conformity with

the Framework law. Astable1shows,61percentofthetotalpopulationisservedbyadecentralizedautonomousserviceproviderinconformitywiththeFrameworkLaw;afurther26percent isservedbyaproviderthat isnotinagreementwiththelegalframework,eitherbecauseit is not decentralized (SANAA, 20 percent) or not de-concentrated (municipal departments, 6 percent); andfinallythelast13percentdoesnothaveservice.However,mostoftheserviceprovidersthatoperateinagreementwiththeframeworklawarelocatedinruralareas,wherethe Framework Law recognized existing arrangementswithoutrequiringchanges.

FIGuRE 1.

Source: Water for People (2006) p. 14

CONASA

Executive Secretary

Technical Secretary

MUNICIPALITIES

SANAA

Regulative Body

Municipal Control

Institutional and not InstitutionalDialogue spaces:

RAS-HON

Service Operators Water Committees

Responsabillity orAuthority

Technical relationship, cooperation

Interrelation of entities working in the water & sanitation sector

27Honduras

tABlE1. Service Providers types and Population Served

Service provider type

Description # of service

providers

Population served

(thousands)

% of total

population served

According to

Framework law?

SANAA Nationalwaterandsewerageutility(whereservicehasn’tbeendecentralizedyet).

129 1,550 20% No

Municipality(directly)

Servicesaredirectlyprovidedbyamunicipaldepartment,usuallyinmunicipalitieswithsmallerurbanpopulations.

4730 490 6% No

AutonomousMunicipalProvider31

Publicutilitywithindependentgovernancestructureandbudget;predominantinmid-sizecities.

12 510 7% Yes

PrivateConcession AprivatefirmprovidingservicewithinaspecificgeographicalareawiththeagreementofthegovernmentOnlyoneexampleexists,inSanPedroSula.

1 720 9% Yes

Patronatos and UrbanWaterboards

Alocaldevelopmentcommitteeorcommunitybasedorganizationoperatinginurbanareas,sometimeswithbulkwaterfromanotherprovider,forexampleSANAA.Prevalentinmanycities.

300-50032 450 6% Yes

Urbandwellerswithoutorganizedwaterservices

Noservicefromorganizedserviceprovider(self-provision).

N/A 200 3% No

RuralWaterboards

Acommunity-basedorganizationoperatinginruralareas.Thisisthequasi-exclusivemodelinruralareas.

5,00033 2900 38% Yes

Ruraldwellers Noservicefromorganized N/A 770 10% No

Withoutorganizedwaterservices

Serviceprovider(self-provision).

29 Currentlyserving13citiesand2ruralcommunities(basedon‘AcueductosOperadosporSANAA-propuestatentativadeentrega’).30 AsregisteredbyERSAPS.Theactualnumberislikelytobehigher.31 Evenwithin this category, thereare several differentmodels, ranging fromadecentralizedunitwithinmunicipal administrationwithbudget and

managerialautonomy,toacommercialcompanywith(partial)municipalownership.32 Estimated.33 CONASA(2011).


3. SECtoR FInAnCInG ARRAnGEMEntS

the water and sanitation sector in Honduras is financed through a combination of three sources inadherence with the OECD Framework for Water andSanitationSupplySectorFinancing.34 Refer toChapterIIIfornumericalfigurestotheconceptspresentedhere.

• The first source of financing comes from tariffs collected by service providers based on the feethattheyimposeonendusersinexchangeforthewater and/or sanitation services provided. Thisfee is based either on volume, socio-economicconditions or a combination of both. The tariffscollectedgenerallyfinancepartof theoperationaland maintenance expenses, and in some casespart of the investments. Following theRegulator’smethodology, the tariffs should be proposed bythe service provider to cover the cost of service,including thenecessary investments, andmust beapprovedbytheMunicipalCounselafterareviewbytheRegulator.Inadditionthelawexplicitlyrequirestheproviders to establish subsidymechanisms forlow-incomeusers.Inpracticethough,thetariffsareartificiallymaintainedbelowcostrecoverylevels,inmanycasesforpoliticalreasons,asdiscussedlaterinChapter4.

• Thesecondsourceoffinancingforthesectorcomesfromtaxeswhichhelptosupplementoperatingcostsand some investment costs not covered by tariffs.Taxesgenerallyflowintheformofbudgetassignationfromnationalormunicipaladministrationstoserviceprovidersorsector institutions;aswellas indirectlythrough fiscal transfers from the national to themunicipal governments.35 In some cases, there arealso implicit transfers in the form of non-paymentof liabilities by service providers (especially theirelectricitybill),whichmustthenbecoveredfromthegeneraltaxbase.

• Further sector financing, mostly for investments,is provided by external transfers, in the form ofgrants or credits provided by external donors tonationalor local institutionsandserviceproviders.InHonduras’context,themainsectorfinanciersaretheInter-AmericanDevelopmentBank,theCentralAmericanBankofEconomicIntegration,theSpanishCooperation, the Japanese Cooperation and theEuropeanUnion.Theirfundinggenerallygoeseitherindirectlythroughnationalinstitutions(SEFIN,FHISor SANAA), themost common case, or directly tomunicipalitiesorserviceproviders.SomeNGOsalsoprovidedirectgrantstoserviceproviders.

Figure2illustratesthesector’sfinancialflows.

34 OECD2009.35 Thosetransfers,whicharelaterdescribedingreaterdetail,havenospecificrelationstothewatersector;theiramountdependsonthesizeofthe

municipalityandaformulathattakesintointoaccountthemunicipality’spovertyclassification,asshowninAnnex2.

29Honduras

4. SECtoR tARGEtS AnD InVEStMEnt nEEDS

Investment needs in Honduras’s water and sanitation sector vary depending on the targets used and the level of services to be provided. Thesector´stargetsarethemain factordefining the levelof required investment.As mentioned previously, there are various targetsco-existing for thewater supply and sanitation sector(MDG,PRSP,PN/VP),underscoringtheneedfortheGoHtodefineauniquesetoftargets.Populationprojections,togetherwiththesector´sbaselinecoveragestatusandtarget,determinethenumberofpersonstobeservedbythetargetyear.AspartoftheMAPAS36exercise,allkeysector institutionsanddecisionmakersdiscussedandagreedonestimatesofotherfactorsaffectingthelevelofinvestmentneeds,suchas:levelofservicesexpectedand unit cost of the range of technology chosen toprovide these services, which vary significantly fromurbantoruralfacilities;assumptionsabouttechnologylifespan,whichdeterminethereplacementcostofnewandexistingcapitalstockorestimatesofrehabilitationrequirementsandusers’contributions.

the distribution of the necessary investments varies depending on the target set. For this PER, and inparticularthedatapresentedinChapterIIIwheretwomain scenarios proceeding from the MAPAS exerciseareconsidered:37

• Scenario 1. MDGs: TheMDGtargets,asmentionedpreviously,aimstoattain88percentwatercoverageand 75 percent sanitation coverage for Honduras’overall population by 2015. Althought this targethas been achieved,38 sustaining these levels ofcoverage and ensuring that the services providedto the population meet the standard of qualityproposedby theGoHwould require an estimatedannual investmentof2,441MHNLfornewcapital,plus 3,563M HNL for replacement cost of capitalstock (new and existing), and an additional 196HNLMforrehabilitationrequirements,summingupanannualtotalinvestmentrequirementof6,200MHNL.Consideringgovernmentestimatesthatuserswouldcontributewithapproximately1,300HNLM,

FIGuRE 2. Financial Structure of the Water & Sanitation Sector

Source: authors’ elaboration

Budget allocation

In-kind words

Grant

Tariff

SubsidiesInvestment grants / in-kind words

Fisc

al tr

ansf

er

Cred

its a

nd g

rant

s

ERSAPS,CONASA SANAA

ONGs Users External donors

Rural Providers

Municipalproviders

FHIS

SEFIN

Municipalities

Taxation

36 MAPAS(2012-13).37 MoredetailedinformationaboutassumptionsandfurtherscenariosarepresentedintheMAPAS2013report.38 JointMonitoringProgrammeforWaterSupplyandSanitationUNICEF/WHO(Data2013).


the annual public investment required would be approximately4,918MHNL.

• Scenario 2. nation Plan:Considering that theVisionoftheCountry2010-2038andtheNationPlan2010-2022 called for the achievement of Health-relatedMDGandPRSPtargetsby2022,thisscenarioassumesPRSPtargets forthesectorwereadoptedtoprovideaccess towater and sanitation to 95 percent of thepopulationby2022,despitethattheVP/PNsetmorespecifictargetsandindicatorsforruralareas.Inordertoachievethisgoal,anoverallannualpublicinvestmentof 6,040M HNL would be necessary together withan estimated users’ contribution of 1,532M HNL tomeet the total annual investment requirement of7,572MHNL,divided into3,118MHNL/yearfornewcapital,4,258MHNLforreplacementcostofnewandexistingcapitalstockand196MHNLforrehabilitationrequirements.

5. REMAInInG CHAllEnGES

Coverage levels are increasing but remain unequal. In 2011, 89 percent of the Honduran population hadaccess to drinking water and 81 percent had accessto sanitation up from 81 percent and 65 percentrespectively in 2000. As such, Honduras has achievedtheMDGtargetsforwaterandsanitation.However,thesignificant disparities between urban and rural, withinHonduras, and among poverty quintiles, show thattheprogressmadehasonlybeenpartial(seeFigures3and).Inparticularitisworthsignalingthatthenumberofurbandwellerswithout access to improved serviceshasactually increasedbetween1990and2010,astarkreminderofthechallengesofrural-urbanmigrationandthe resulting urbanization.39 Nonetheless, rural areascontinuetosignificantlytrailurbanones;andsanitationremainsthesector’spoorcousin.Infact,nowadaysmorethan1MHonduransdonotgettheirdrinkingwaterfrom

Based on WHO/UNICEF Joint Monitoring Program data

FIGuRE 3. Evolution of Access to Water & Sanitation (1990-2010)

Access to water Access to sanitation

Popu

latio

n (t

hous

ands

)

Popu

latio

n (t

hous

ands

)

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

01990 1995 2000 2005 2010 1990 1995 2000 2005 2010

Urban

Ruralpiped

non-piped

unimproved

piped

non-pipedunimproved

Urban

Rural

unimproved

unimproved

improved

improved

open defecation

open defecation

39 Inthesametimespan,theshareofurbanpopulationincreasedfrom40percentto52percent.

31Honduras

Access to piped water

Access to flush toilets100%

80%

60%

40%

20%

0%2004 2006 2008 2010

Q1 Q2 Q3 Q4 Q5

100%

80%

60%

40%

20%

0%2004 2006 2008 2010

Q1 Q2 Q3 Q4 Q5

improved sources and 2.2M,mostly dwelling in ruralareas,donotuseimprovedsanitationfacilitiesFinally,theaccesslevelstohigh-qualityserviceslikepipedwaterandflushtoiletsvarysignificantlybetweenthepoorestandrichest quintile, although trends show an encouragingconvergenceinrecentyears.

Service quality continues to be limited regardless of the decentralization level. In summertime, water isrationed in most cities under SANAA management,withwaterbeingprovidedonlytwiceperweek,orlessforafewhoursofserviceonaverage.Thesituationisnotnecessarilybetter in thosemunicipalities thataredirectlymanaging theirWSS, and in fact less than30percentoftheurbanpopulationreceivescontinuousornear-continuous supply.Continuity tends tobebetterfor the population served by autonomous serviceproviders,butcontinuoussupplyisnotthenormeither.Cost recovery levels are generally low and the sectordependslargelyonexternalfinancingforitsinvestmentneeds.ChapterIVpresentsamoreextensivediscussionofthevaluesanddifferencesamongmodels.

Many service providers lack staff with the capacity to effectively perform administrative and financial

Source: Authors calculation based on EPHPM

FIGuRE 4. Share of Population with Access to Piped Water and Flush toilets by Poverty Quintile

management. In smaller service providers that alsooftenhappentobelongtopoorermunicipalities,staffoften lacks the necessary training and experience toimplement processes and modern tools to managecashflow,financingandothercontributions;optimizeoperating expenses, or meet investment needs. Inthese municipalities staff is often appointed directlyby the mayor with little consideration for technicalcapacity.Andwhencompetenceisadequate,incentivestrategiesarenotinplacetorewardgoodperformanceeitherfortheindividualorforservicesrendered.

the decentralization of the sector is incomplete.The2003 Water and Sanitation Sector Framework LawthatmandatesthedecentralizationofSANAAandthetransferofassetstothemunicipalitiesbyOctober2013,isonlypartiallyimplemented.Sincethelawwaspassed,serviceprovisioninfourmid-sizecitiesand12smallercities, has been transferred to the municipal level;however, decentralization has often been unplannedandnotwell implemented,asdiscussedinchapter IV.Inaddition,thethreelargestSANAAserviceproviders40 continue to operate and in many municipalities theservice is not provided through an autonomous,decentralized entity. The decentralization was meant

40 Tegucigalpa,LaCeiba,andElProgreso.


Panoramic view of FIME Plant, Municipality of Jesus de Otoro, FHIS Archive.

tobeaccompaniedby thecreationof strongnationalinstitutions for policy-setting (CONASA), regulation(ERSAPS) and technical assistance (SANAA’s new role)but de facto only ERSAPS is starting to operate inaccordancewiththeFrameworkLaw.

A central issue and concern of the GoH is governance. TheWSS utilities find themselves locked in a viciouscycle difficult to escape. This spiral combines weak

performance incentives;customer’s lowwillingnesstopayandpoliticianstochargecost-recoverytariffs;andinsufficientfundingformaintenance,ultimatelyleadingtoadeteriorationofassetsandservice.Decentralizationtothelocallevelandde-concentrationtoautonomousservice providersweremeant to improve services bymaking providers more accountable to consumers.However,implementingthereformsisalargetaskgivenlimitedcapacityatthemunicipallevel.

33Honduras

Decentralization and financial flowsIII

1. oVERVIEW

Thischaptershowstheoverallsectorfinancialflowsfora10yearperiod(2002-2011)onthebasisofthenationalbudget data obtained from various institutions.41 Themain sources of funding are described, followedby the main spending items. Additionally, there isfurther discussion with respect to the current flowsfor both investment and operation andmaintenance,and their proper alignment with sector needs andrespectiveefficiencies.Thechapterconcludeswiththeestablishmentofanoverallbalanceoffundingsourcesand spending, showing all numbers in a consolidatedformanddetailingthesourcesfromwhichthevariousspendingcategoriesarefinanced.

Note:Throughoutthechapter,exceptwhenotherwisementioned, the numbers represent actual expensesinsteadofbudgetedones,oftentimes the latterbeingsignificantlyhigher (seeFigure16).Likewise,numbersareinconstant2010HNL.InflationadjustmentsusetheGrossDomesticProduct(GDP)implicitpricedeflator.

2. SECtoR FunDInG42

Sectorfundingoriginatesfromthreesources:national-level,includingforeignandbudget;municipal-levelandtariffs, as illustrated in the graph showing the urbanwatersectorfundingdistributionin2010.

2.1 national-level funding

Funding at the national level comes largely from donors and is also complemented by some national funds. On average, funding from the national level represented550M HNL yearly, and included off-budget donors,in-budget donors and national government. Donors’funding was approximately 70 percent.43 However,bothnumbers variedwidely over the 10 year period;election years usually represented significant dips, asdid the year thatwas characterizedby theMicheletticaretaker administration following the ousting ofPresidentZelaya.Clearly,thewidevariationoffundingfromthedonors,atraditionalchallengeinmanydonor-dependentcountries,isalsoaffectingHonduras’watersector.

FIGuRE 5. urban Water Sector Funding 2010

Donors 15%

Nationalfunds 5%

Municipalfunds 19%

Tariffs 61%

41 Datacollectedonmunicipalandserviceproviderspendingisnotreliableenoughtobeincludedinthestudy;therefore,onlynationalspendingwillbeexaminedinmostofthissection;however,fortwodatayears(2005and2010)municipalinformationwasobtainedandanalyzed.

42 Thenationalandmunicipalsectionsarelimitedtofundingforinvestments(notoperationandmaintenance)becausedisaggregatedinformationisnotavailableforallyears.

43 Theyear2002representsacompleteoutliersincealmostnodonorfundingwasprovided.Thatyearwasanelectionyear,anditwasalsothelastyearbeforetheFrameworkLawwasadopted.Somedonorsweremaybeholdingofftheirinvestments;however,itdoesnotfullyexplainthesignificantdip.Anotherpossibilityisthatreportingsystemsdidnotaccuratelycapturetheinformation.


Amongdonors, the largestprovidersof fundingare (indecreasingorder):Spain,whoprovidedverysignificantsupport in the first half of the decade; the IADB,whoincreasedlendinginthesecondhalf;Japan;USAIDandthe Central American Bank for Economic Integration(CABEI).TheWorldBankwasnotamongthefivelargestfinanciers of the sector, although it has a significantnumber of projects associated with the water sector,includingonecurrently supporting thedecentralizationprocess inurbanareas; after significant investments inthepost-Mitchera,theEuropeanUnionisagainengagingthrougharecentDevelopmentPolicyLoanthataimsatsupportingspecificaspectsofthesectormodernizationanddecentralizationagenda.

2.2 Municipal-level funding

Specific municipal-level funding information is limited due to the lack of consolidated and harmonized

FIGuRE 6. Evolution of national vs. Foreign Funding in the Sector

sources of information. In2010however,asignificanteffort conducted by the Secretariat of Interior andPopulation (SEIP), led to the creation of an extensivemunicipalfinancesdatabase.Earlierin2005,theteamwasabletoprocessreturns frommostmunicipalities;however, theseearlierdatadidnotprovide the samelevelofdetailasthe2010database,andmoreover,didnotestablishtheprovenanceofmunicipalfunds.

Municipal level funding, including fiscal transfers from national government, represents a significant source of funding for the sector. The funding comesmostlyfromgeneral transfers from theGoH,44 aswell as themunicipalities’ownresources,mostlyrealestatetaxes.Adetailedbreakdownofthesourcesoffundinggoinginto the water sector for 2010 is shown in Figure 7;unfortunately,thisbreakdownisinexistentforpreviousyears. As depicted in the diagram, the main sourceof WSS funding at the municipal levels are transfers

Mill

ions

HN

L pe

r yea

r

900

800

700

600

500

400

300

200

100

-

Donorsfunding

Nationalfunding

% ofdonorfunding

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

44 At present there are no earmarked transfers from the national government for the WSS sector, but WSS expenditures are eligible and manymunicipalitiesusesomeoftheirtransfertocoverfinancinggapsleftbyinsufficienttariffsandinefficientserviceproviders.

35Honduras

received from the national government; the 108.8MHNL actually exceeds 87.5M HNL funded directly bythenationalgovernmentthatyear,aclearsignthatthedecentralizationismovingforward.

Municipal funding levels do not appear to depend significantly on the municipality’s poverty level; however, the funding share that comes from national transfers increases in poorer municipalities. AsdepictedinTable2,the2010percapitafundingdidnotseemtovary significantly acrossmunicipal poverty categories.However, the fundingshare thatcomes fromnationaltransfers,asopposedtobeingself-resourcedincreasessteadily fromricher topoorermunicipalities, showingthat,appearingtoshowthatatleastinthecaseofthewater sector the formula behind national transfers ishavingitsintendedeffect.

Municipal level funding has increased significantly from 2005 to 2010. This +291 percent increase is probablydue to the overall increase of fiscal transfers. Some

FIGuRE 7. Sources for funding for municipal WSS expenditures for 2010

Municipal poverty category Per capita funding (Hnl/cap) Share from national transfers (%)

A 64 35%

B 122 57%

C 118 79%

D 74 88%

HNL 250

HNL 200

HNL 150

HNL 100

HNL 50

HNL 10

Mill

ions

HN

L

Other funds

PRSP

Transfers

Loans

Own funds

tABlE 2. Municipal-level funding across municipal poverty categories. 2010


FIGuRE 8. Municipal, donors and national investment funding in 2005 and 2010

2.3 tariffs

tariffs represent the sector’s largest source of funding; they have been increasing significantly over the past 10 years. Figure9 results fromthecasestudiesof11citiesdescribed inChapter IV,anddepicta significantincreaseoftariff-drivenincome,reachingapproximately70percent(inrealterms)between2002and2011.Partof that increase stems from a 37 percent increase ofthenumberofconsumersduringthesametimeframe,coupledwithimprovedbillingandcollectionpractices..

there is a large variance in tariff levels, and in some places they may reach the affordability limit. Figure11showstheaveragetariffforafewselectedutilitiesandthelimitinaffordabletariffsforthelowestincomequintile,46 assumed to be 3 percent of householdincome.47 In most major Honduran cities the tariffreaches an affordability level where it may becomean issue for some population segments, althoughtariffsstilldonotcoverthefullservicecost.Giventhewidespreadexistenceofdifferenttariffcategoriesandthe unavailability of recent income information at acity-level,more in-depth analysiswould be necessarytodefinewhetheraffordabilityisindeedaconcernandhowtobestaddressit.

Mill

ions

HN

L pe

r yea

r

1,400

1,200

1,000

800

600

400

200

02000 2002 2004 2006 2008 2010 2012

FIGuRE 9. tariff Income Increase (2002-2011) in the case studies cities

2005

54

103

166

157+291%

245+48%

88-14.5%

2010

Municipal fundsDonorsNational funds

Mill

ons H

NL

/ ye

ar

600

500

400

300

200

100

0

tariffshavealsobeenadjustedandincreased,resultingin higher municipal income;45 and possibly in a raisedawarenessthatWSSserviceprovisionisnowamunicipalresponsibility. In this same time span, approximately150,000urbandwellershave started receiving servicesfrommunicipalutilitiesinsteadofSANAA.

45 Inmunicipalitieswithoutautonomousserviceproviders,WSSservicesareoftenpaiddirectlytothemunicipalcashierandarenotfurtherdistinguishedinmunicipalaccounting.Thus,inthisparagraph,someofthemunicipal-levelfundingmightactuallybefromtariffs,althoughbecauselargersystemsareautonomous,theeffectisnotlikelytobeverysignificant.

46 Sincenorecentmunicipal-levelpovertydataisavailablethenationalquintileisused.47 AsperUNDPandWHOrecommendations.Otherorganizationshaveotherproposedothervalues(OECD2.6percent,EPA4percent).

37Honduras

FIGuRE 10. Evolution of tariff Income, Investment levels and urban Population (2002-2011) in the case studies cities

FIGuRE 11. Average bill and affordability for 2010 for a sample of service providers

Finally, this study did not include an in-depth analysis of subsidies and their distributional impact; on one hand, there is not even an implicit national-levelsubsidy scheme since water utility electricity costsare not subsidized, and all large utilities are expectedtocovertheirownO&Mcosts. Ontheotherside,thenecessarybasic informationtoconductadistributionalanalysisisunavailable.However,mostcitieshavesometypeofcross-subsidyschemeinplace,usuallytargeted

geographicallybyneighborhoodandothertimesbasedon consumption levels, namely increased-block tariff.However, the latter is not as common due to limitedmeteringlevels.Moreover,perversesubsidiesmostlikelyrepresentlessofachallengethaninothercountriesgiventhatalmostallnationalandexternalfundsaredesignatedfor investments as opposed to O&M; nonetheless, amoredetailedanalysis could revealotherfindings thatcouldproverelevant.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Population increase

Tariff income increase

Investments w/o SPS,AMDC, Pto. Cortes

300%

250%

200%

150%

100%

50%

0%

Lem

pira

s/m

onth

600

500

400

300

200

100

0PuertoCortes,Cortes

DistritoCentral,FanciscoMorazan

San PedroSula,

Cortes

La Ceiba,Atlantida

Danli,El Paraiso

Siguatepeque,Comayagua

La Paz-Cane

Jesus deOtoro,Intibuca

3% average income

3% of income for bottom quintile


3. SECtoR SPEnDInG

Sector spending is distributed among investments,salaries and O&M, as illustrated in Figure 12, UrbanWaterSector’sSpendingDistributionin2010.

3.1 Investment levels and Structure48

the sector’s national investments levels are below international standards, and trending down. Accordingto the Human Development Report (2006), countriessuchasHondurasmust investat least1percentof itsGDPinwaterandsanitation.Between2002and2011,the average was only 0.13 percent. The investmentlevels from national Government and donors havegenerallybeendecreasingoverthelast10yearsandintheoverallnationalbudgetshare.Figure14showsthetrendsinrelativeandabsolutetermsmarkingacleardipinthe2008and2009timeframesignalingtheimpactoftheconstitutionalcrisisoftheMichelettiadministration.Investment levels have since recovered in absoluteterms, but as the overall budget has also increasedsubstantially,inrelativetermsthesectorstillrepresentsasignificantlysmallerbudgetshareexpendituresthanin 2003 when the sector’s decentralization mandatetookplace.Assumedly,aportionofthedecreasecould

FIGuRE 12. urban Water Sector Spending in 2010

Salaries43%

O&M 25%

Investments32%

FIGuRE 13. Evolution of national investment in Water and Sanitation (2002-2010)

Mill

ions

HN

L pe

r yea

r

Perc

enta

ge o

f nati

onal

bud

get

800

700

600

500

400

300

200

100

0

1.80%

1.60%

1.40%

1.20%

1.00%

0.80%

0.60%

0.40%

0.20%

0.00%2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

48 Forthissection,givennotallsourcesofinformationhavethesamelevelofdetail,theverticalscope(provider–municipality–nationalgovernment)variesfromgraphtographbasedontheavailableinformation.Thisisindicatedinthetitle.

39Honduras

FIGuRE 14. Distribution of Investments (national and providers) per Sub-sector (2002-2011)

derive frommunicipal investment increases followingthedecentralizationprocess,butdataarenotavailablefor the entire time series to clearly corroborate thisassumption.

the largest share of water investments is assigned to urban areas. Investmentsinthesectoraretraditionallydivided between urban and rural, and water andsanitation.Onaverage,from2002to2011,69percentof the total water and sanitation sector investmentswereusedforwaterprojectswith46percentassignedto urban areas and 23 percent assigned to ruralareas. Sanitation,which is significantly laggingbehindwater in termsof coverage, only received 31 percentof the sector’s investment. Of this 31 percent, thedistributionwas23percent forurbanand12percentforrural.Essentially,urbanareasreceived65percentofinvestments,andruralareas35percent.Generally,theurban/rural division appears to be sound given lowerinvestment costs in rural areas; however, sanitation,

the one that lags behind significantly in with regardstocoverageandcanbeassociatedwithsignificantunitcosts especially in urban areas. Sanitation also lagsbehind in terms of investment levels. These overallproportiontrendshavenotvariedsubstantiallyoverthelast10years.

Interestingly, for those years where municipal information was available, most of the municipal investments went to urban sanitation. The averageannualmunicipalinvestmentsof~155MHNLdistributedapproximately50percent tourbansanitation,and29percenttoruralwater.Thesenumbersseemconsistentwith the fact thatmunicipal sanitation is traditionallya responsibility of the municipality even before thedecentralization, as opposed to SANAA or urbanproviders.Urbanserviceprovidersarenotresponsiblefor rural water investments; hence, municipalitiesappeartodirecttheirlimitedresourcestothoseareasperceivedashavinggreaterneeds.

Mill

ion

HNL

for y

ear

1,200

1,00

800

600

400

200

02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average

13%19%22%

46%

Rural sanitation Rural water urban sanitation Urban water


the current levels of investments are insufficient to reach the MDGs or the GoH’s own targets. Whether the MDGs or the government’s targets are, the annual investment needs vary between 4,900M Hnl and 6,000M Hnl (see Chapter II). Both these targets include reaching 95 percent coverage in urban and rural areas for water and sanitation. This comparesto an actual current investment level of ~488MHNL,excludingmunicipal investments,whichapproximatedcloseto218MHNLin2010,translatinginto~10percentof the total investment needs. In other words, eventhoughthecoveragetrendsindicateHondurashasmettheglobalMDGs,itisbeinganticipatedthatitwillfailtomeet the urbanwater target. There is also a highrisk of not sustainingMDG targets due to populationgrowth, especially in urban areas. Furthermore thelevelofservicesmightalsosufferfromlackoffundingforthereplacementandrehabilitationofinfrastructure.Finally, the GoH’s own “Plan de Nación” targets 95percentcoverageby2022;thistargetcurrentlyappearstobeunreachable.

not all budgeted funds are actually expended; donor funding, especially, is affected by relatively low levels

of actual spending. Inadditiontothefactthatthesectorisunderfunded,alargeportionofthefundsbudgetedforwaterandsanitationprojectsarenotexecuted.Thisis the cause is a lack of technical capacity in variousagenciestoplanandexecuteprojectswiththeavailablefunds.Whileallnumberspresentedthusfarhavebeenactualexpendedamounts,acomparisonwithamountsbudgeted (see Figure 17) shows that sector spendingcould be higher if better implementation processeswereinplace,especiallywithregardstoexternalfunds.Nationalfundsaregenerallylargelyexpended,probablybecausesectorinstitutionsareawarethatdonorfundscan usually be re-programmed to subsequent years,whilenationalfundswillnotnecessarilybe.

Investments’ effectiveness and efficiency are difficult to estimate given the lack of information on specific targets and outputs/outcomes of budget lines or donors programs. An analysis of the evolution ofcoverage and spending shows no direct correlationbetween theamounts invested in the four subsectors(water/sanitationandurban/rural)andtheactualgainsin coverage in the same period (see Figure below).49 Furthermore, since the budget is not results-based

FIGuRE 15. Comparison of actual and estimated annual investment needs to achieve targets

Inve

stm

ents

(HN

L M

)

2,0001,8001,6001,4001,2001,000

800600400200

0Rural Urban

Water Sanitation

Rural Urban

95% in 2022

MDS 2015

Average2002-2011

49 Giventhatatleastpartoftheinvestmentsgotoactivitiesotherthancoverageextension(forexample,wastewatertreatment,rehabilitationofexistinginfrastructures,additionalwatercatchmentcapacity),thelackofacleartrendisnotentirelysurprising.

41Honduras

andprogramsandprojectstypicallydonotuseunifiedperformance indicators, it is very difficult to estimatetheefficiencyofthoseinvestments.

3.2 operation and Maintenance (o&M)

the limited information available points to sharply increasing salary costs, and to a lesser extent, o&M costs for SAnAA. Operation and Maintenance costdata are limited, because the budget ofmostwaterutilities isnotsystematicallyreportedatthenationallevel, andanumberof smallermunicipalitiesdonotactually separate their water operation(s) from therest of their budget. Nevertheless, the existing dataseemstopointtosharplyincreasingO&Mcostsinthesector, startingwith salaries and benefits in SANAA.The trend is particularly worrisome because theincreaseappearstocoincidewiththepassageofthe

FIGuRE 16. Execution Rate of Budgeted vs. Expended Funds (2002-2011)

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

External funds

National funds

Travel over the pipeline path, Agua Blanca, Los Arcos and Santa Rosita Communities, Copán Ruinas, Copán.


FIGuRE 17. number of people gaining access to water and sanitation services, and sector spending

Urban water spendingUrban sanitation spendingUrban water increased accessUrban sanitation increased access

Rural water spendingRural sanitation spendingRural water increased accessRural sanitation increased access

Mill

ions

HN

L

Years

Addi

tiona

l per

sons

with

acc

ess

600

500

400

300

200

100

0

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

02002-2004 2005-2007 2008-2010

Framework Lawdecentralizing services, andas such,in principle, downscaling SANAA dramatically. Since2003, SANAA has decentralized service provision inseveral largerand smaller cities; and theFrameworkLaw itself prevents SANAA from indiscriminatinglyhiring additional staff. Nonetheless, salaries andbenefits expenditures have significantly increased to95percent.Thisnotonlyposesfinancialsustainabilitychallengesfortheutilities,butalsoincreasesthecostofseverancestobepaidforfurtherdecentralizations

proportionately. As a result, salaries represented anaverageof55percentoftotalcosts,muchabovetheusual30-40percent.50

In non-SAnAA utilities increases – driven mostly by rising energy costs and minimum salaries – have been limited. TheFigurebelowshowstheaggregatedcostofaseriesof8non-SANAAutilities,includingmostofthelargestserviceproviders. Increasesover theperiodofobservationhavebeenmodest.

50 Forcomparison,inthecaseofnon-SANAAutilitiestheaveragewasonly21percent.

43Honduras

FIGuRE 18. Evolution of o&M and staffing costs in SAnAA-managed services

FIGuRE 19. Evolution of o&M and staffing costs in non-SAnAA utilities

Mill

ions

HN

L pe

r yea

r

350.00

300.00

250.00

200.00

150.00

100.00

50.00

0.002002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Staffing costs, non-SANAAO&M costs, non-SANAA

1,200

1,000

800

600

400

200

0

Staff costs

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

OM costs

Mill

ions

HN

L pe

r yea

r


4. oVERAll uRBAn SuB-SECtoR FInAnCIAl FloWS

Basedonthedatapresented, it ispossibletodevelopan overall financing balance of funding sources andspendingliststoshowthefinancialflowsgoingthroughthe urbanwater and sanitation sub-sector.Note: Therural WSS sub-sector is excluded because the tariffand cost information among the 5000+ rural serviceprovidersisinsufficient).

The financing balance is based on the national-levelinformation available from budgets and other officialsourcesandthecasesstudiesdetailedinChapterIVthatcovermorethan60percentoftheurbanpopulation.Insomecases,when informationwasmissing,educatedassumptions and data extrapolation fromother years

FIGuRE 20. Evolution of financing and spending in urban WSS sub-sector between 2005 and 2010

Mill

ions

HN

L pe

r yea

r

0

200

400

600

800

1000

1200

1400

1600

1800

Salaries O&M Investments Salaries O&M Investments

Tariffs Municipal funds National funds Donors

2005 2010

hadtobemade..Consequently,thedegreeofmunicipal-leveldataavailableonlyallowedbalancefigurestobeestablishedfor2005and2010,butthisdataalonestillshowstheevolutiontowardgreaterdecentralization.

The following points resulted from the financingbalanceexercise:

• overall sector financial flows are increasing. Figure20andinformationdiscusseddemonstratethatmostof the increase is driven by provider-level incomeandgreaterinvestmentsfrommunicipalities;

• Decentralization appears to be reflected in the sector’s financial flows. Whilemunicipal spendingrepresented 10 percent of the overall sector’sfinancingin2005,it´sshareincreasedto19percent

45Honduras

in2010mostlyatthecostofnationallevelspending,whichdeclinedfrom8percentto5percent.Inthesame timeframe, the donors’ investments shareremainedstable.

• Salaries have been growing faster than average. Asdiscussedpreviously,SANAA-managedserviceshaveseenaverystrongincreaseinsalaryexpenditures,which results in the spending increase of salaryshares throughout the sector. The increase rangesfrom33percentto43percent,anotherworrisometrend.

• Perhaps most importantly, the largest source of funding in the sector continues to be the tariffs that cover only close to three fifths of the total service cost. Although the numbers appear to indicate a

slightdownwardtrendinthetotalspendingsharesfinanced from tariffs, they still represent ~60percentoftheoverallfinancing,leaving~onefifthofothersourcesformunicipalfundingandonefifthfor national level funding, including both donorsandthenationalgovernment.However,accordingto the Framework Law, tariffs should cover allcosts linked with service provision, including theproviders’owninvestmentplans.

• When focusing only on investments, the national-level funding share is ~60 percent. This is animportantinsightbecauseitmeansthatthenationallevelinstitutionshavemostoftheirleveragethroughinvestment funding and through policies, namelyregulationsthatmightaffecttariffsandcostrecoverylevelsthatrepresentthesector’smainfunding.


Decentralization and performanceIV

1. oVERVIEW

Thischapteranalyzestheperformanceofurbanwaterandsanitationserviceprovisioninthecontextoftheon-goingdecentralizationprocess.Theanalysisisbasedonthepremisethatanumberofexternal,politicalandpolicyfactorsinfluencetheperformanceofutilities,asshownonFigure21.Morespecifically,thischapteranalyzestheeffectsofmunicipalpovertyclassificationandsize,andthemanagementmodelonperformanceofurbanserviceprovision.Italsolooksatwhetherthedecentralizationpathorapproachfollowed,includingthepoliticaleconomysurroundingit,hadanimpactoncurrentperformance.

FIGuRE 21. Conceptual Framework for utility performance analysis

Performance of utility

- efficiency - tariffs

- service quality ...

Size

Povertylevel

Local politicaleconomy

Decentralizationpath

Managementmodel

Externalfactors

Politicalfactors

Politicalfactors

47Honduras

Tocompletethisanalysis,datafrom92urbanserviceproviderscovering85percentofthetotalurbanpopulationin2010wasused.Forthisyear,ERSAPS,theregulatoryagencyhascollectedserviceprovisionindicators.Inaddition,variablesobtainedfromtheSecretariatof InteriorandPopulationwereaddedforsectormunicipalspendingthatsameyear.Unfortunately,nowaterandsanitationservicescoverageinformationiscurrentlyavailableatthemunicipallevel51soanalyzingattheefficiencyofinvestmentspendinginadetailedmannerwasimpossible.Table3summarizessampleanalysisinformation.

type of Provider Frequency Percentage of Poverty Classification

Sample Segment A B C D total

SAnAA 10 11% 91% 6 3 1 10

Autonomous municipal utility

12 13% 88% 9 2 11

Municipality 49 53% 54% 6 13 18 10 47

Community-based organization

21 23% 22% 2 2 13 6 23

total 92 100% 74% 23 20 32 16 91

Note: Poverty classification as used by the GoH; A is richest, D is poorest.

The service providers’ performance was evaluatedindividually based on the following five indicatorsavailablefromERSAPS:

• Employeesper1000connections• Levelofmetering• Levelofcontinuity• Levelofwaterdisinfection• Tariffeffectiveness(averagetariffoveraveragecost)

In addition, inorder to assessoverall performanceofthe92serviceprovidersfoundintheERSAPSdatabase,

tABlE 3. types of Service Providers Classified by Poverty levels

asimpleperformanceindex(SPI)wascreated.TheSPIwasdevelopedbasedonthesamefiveaforementionedparameters.52 For each parameter, a score from 1(worst)to3(best)wasassignedbasedoninternationalgood practices. The sum of all scores yielded anoverall score ranging from5 (worst) to15 (best). TheSimple Performance Index was used as a proxy foroverall utility performance. For the purpose of someoftheanalyses,weusedtheoverallscoretocategorizethe service providers as low, medium and goodperformanceutilities. DetailedperformanceindexforeachparameterisprovidedinAnnex2.

51 Thelastcensusismorethan10yearsoldandintermediaryhouseholdsurveysdonothavethenecessarysamplesizetomakeinferencesatmunicipalorevenatdepartmentallevel.

52 Theseindicatorsdonotcompletelycovertheutility’sperformance.Theyalsodonotincludecostrecoverylevels,coverage,orevencollectionrates,aswould theproposedAPGARscoredevelopedunder IBNET (The IBNETWater Supply andSanitationPerformanceBlueBook: The InternationalBenchmarkingNetworkforWaterandSanitationUtilitiesDatabook,WorldBankPublications,December23,2010).Rather,theywereselectedbasedonthelimitedinformationavailablefromtheregulator’sdatabase.Itshouldbenotedthatthelackofinformationoncoverage,inparticular,mightnotbesuchasignificantshortcominggiventhatinHondurasthereisgenerallynoexpectationthatutilitieswillself-financeandimplementcoverageextension.


In addition, to overcome the lack of systematic dataavailable at the municipal level, 11 urban serviceproviders’ case studies were examined. The casestudieswereselectedtorepresentdiversesituationsindecentralizationstatus,size,povertylevelandperceivedperformance. Additionally, data gathering effortsrequired organized field visits in each municipalityyielding better, albeit incomplete data. Constructingtimeserieswasespeciallychallengingdueinformationunavailability.

The data gathering effort was complemented by anattempt to capture non-quantitative dimensions ofservice provisioning success or failure for each city.While a complete political economy analysis was notpossible for each city, the main actors and elementsthat were responsible for the current outcomes forserviceprovisioningwereexamined.

2. InFluEnCE oF VARIouS FACtoRS on utIlIty PERFoRMAnCE AnD InVEStMEntS

2.1 Size and Poverty levels

Size and poverty category do not seem to have a correlation with the investment levels. An extensiveOrdinary Least Squares (OLS) regression analysiswas conducted on the available data and showed norelationship that was statistically significant betweeneither size of the serviced area or themunicipalities’poverty levels and outcomes such as efficiency orinvestment levels. As shown in Chapter III, paragraph2.2thesourcesoffundingdifferfromrichertopoorermunicipalities, but the existing transfer mechanismsappear account for the variable financial capacity ofthemunicipalitiesandoverallinvestmentlevelsarenotsignificantlydifferent.

Water Entrance Chamber, JAPOE, Jesus de Otoro Municipality, FHIS Archive.

Girl drinking water directly form the faucet. SDC Archive.

49Honduras

likewise, it is difficult to establish a correlation between the municipality’s ‘size or poverty and the utilities´ efficiency and overall performance. ThesameOLSregressionanalysisdidnotdemonstratestatisticallysignificantlinkagesbetweensizeorpoverty,andarangeofperformanceindicatorssuchasthoseusedtocalculatethesimpleperformanceindex.Thisresultcomesagainstexpectationsthatsizewouldbeaparticularlyimportantefficiencydriverbecauseofthepotentialforeconomiesof scales and professionalization of service provision.However,othermorepolitical factorsseemtoprevail,asshallbefurtherdiscussed,renderingthepotentialforsucheconomiestoremainunfulfilledinlargerutilities.

2.2 Management Models

the analysis of investments at the municipal level suggests that municipalities with decentralized management models, such as water boards or municipal providers, allocate more resources to water and sanitation infrastructure, in spite of the limited magnitude of their differences, than those where SAnAA is still providing water services. On average,municipalities where SANAA is operating the water

system,it invested68lempiraspercapitaonwaterandsanitation infrastructure in 2011, compared to 109lempiras when community based organizations wereoperating,and93 lempiraswhenthemunicipality itselfwasprovidingservicesdirectly(seeTable4).ThesimpleOrdinaryLeastSquares(OLS)regressionanalysisconfirmsthesameexpenditurepatternsbymanagementmodels:thathigherexpenditureinadecentralizedmanagementmodelofwaterboardsandmunicipalprovisioningthanthose of SANAA are statistically significant (refer toAnnex 1 for details). This unsurprisingly confirms thatdecentralizationhasbeeneffectiveatmobilizingstrongermunicipalresources.

In addition, further analysis suggests that municipalities where SAnAA operates, though they invest less overall, focus most of their spending on sanitation investments. this fact is not surprising given that sanitation services are generally managed by municipalities, even when they have SAnAA provides water servicesMoreover,withregardstoexpenditurepatterns, there seems to be no significant statisticaldifferencebetweenurbanandruralareas.

tABlE 4. Average Investments per Capita by Management Model

type of Management Model

lempiras

total Water Investment per Capita

total Sanitation Investment per Capita

total Investment per Capita

SANAA 11.1 56.7 67.8

Municipality 35.7 57.4 93.1

Autonomousmunicipalityentity 40.0 46.1 86.1

Communitybasedorganizations 39.6 69.1 108.7

Average total 33.4 57.2 90.5


the operating efficiency measured by employees per 1,000 connections differs considerably among different management models; more autonomous service providers are more efficient. Figure 22 shows the importantdifferencesofstaffingefficiencyfordifferentmanagementmodels.WhileSANAAhasmorethan6employeesper1,000connections,concessionarywaterutilitiesandwaterboards;oppositesinthesizespectrum,barelyhavemorethantwoemployeesper1,000connections.TheOLSanalysisconfirmsthistrendtobestatisticallysignificantwithinthesample.

Similarly, the analysis of financial and operational efficiency measured by tariff effectiveness, service continuity, and disinfection suggests that more independent service providers have better performance indicators than those without autonomy. Tariff effectivenessmeasured by the ratio of average tariff over average cost is significantlymore effectiveamongwaterboardsandmunicipalcompaniesat2.62and 1.38 respectively, compared to 1.23 and 1.21 bySANAAandmunicipalitiesrespectively.Itwouldappearthat service providers further removed from politicaldecision-making, and its associated possibility ofreceivingoperatingsubsidies,havemorefreedomandmorepressuretosettariffsatcostrecoverylevels.

With regards to service continuity, community-basedwater boards fare better than SANAA and other

managementmodels.Ofallthemanagementmodels,water boards have the highest service continuity andSANAA has the lowest, possibly because the formerareclosesttotheircustomersandareheldaccountabledirectlyfortheirservicequality.

Interestingly, for water metering levels, SANAA hasthehighestproportionofmeteredwater connectionsofallthemanagementmodels..However,accordingtothestatisticalanalysis,thereseemstobenostatisticalsignificance for water metering across managementmodels.Asforthedisinfectionindicator,itisobservedthatmunicipalcompaniesfarebetterthanSANAA,whiledirect service provision by municipalities lag behindSANAA’s. Also noteworthy is that municipal directservice and water boards have very low disinfectionrates compared to SANAA and municipal companies.

FIGuRE 22. Employees per 1,000 Connections Based on type of Service Provider

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0SANAA Municipality Municipal

company

Increased autonomy

Water board Privateconssecionaire

51Honduras

Service provider tariff effectiveness53

Percentage of water treated

Metering%

Continuity Index54

SANAA 1.23 0.63 11% 1.4

Municipality 1.21 0.05 2% 1.8

MunicipalCompany 1.38 0.87 10% 1.6

WaterBoard 2.62 0.07 N/A 2.5

Weighted average 1.60 0.32 5% 1.9

FIGuRE 23. Service Provider Performance by SPI parameters.

tABlE 5. A few characteristics of distinct service providers’ categories

The statistical analysis of overall performance (SPI)suggests clearly that municipal companies and waterboardsperformbetterthanSANAAandmunicipalitiesthemselves. The scores of municipal companies andwaterboardsareoverhalfapointhigherthanSANAA’sand reflect a 95 percent and 99 percent statisticalsignificance. In addition, the poorest municipalitiesseemtoperformbetter,perhapsbecausetheytendtobeservedmostlybywaterboards.

The analysis of SPI parameters shows that most ofthe service providers still lag behind from reaching asustainable and efficient service. The Water Boardsand municipal companies perform better in staffing,mainlybecauseoftheirproximitytocustomers.SANAAandthemunicipalcompaniesperformbetter inwatertreatment,whilstthewaterboardsarefacingdifficultieswithdisinfection.Thesefindingsaremainlyduetotheinherentchallengesofbeingasmallserviceprovider.

the overall performance of autonomous service providers, as are municipal companies or water boards, is better than that of the national utility, SAnAA, or direct municipal service provision.SystemsmanagedbySANAAaremostlyratedaspoorintermsof

Perhapsthisisduetothelowestlevelofprofessionalizationofservicesassociatedwiththesetwomodels.TheseobservationsweretestedbythesimpleOLSregressionanalysisandthegeneraltrendsarestatisticallysignificant(seeTable5andAnnex3fordetails).

Metering

TariffStalfing

Servicecontinuity Disinfection

Municipal companyWater boardMunicipalitySANAA

More sustainableprovider

Better service

Operaciónmás eficiente

More professionalservice

53 Calculatedasaveragetariffoveraveragecostofservice.54 Continuityindex3isforcontinuitygreaterthan20hours,2for5-20hoursand1forlessthan5hours.


theiroverallSPI,asdiscussedandsummarizedinFigure24.Incontrastwithmunicipalcompaniesandwaterboardsthatproportionallyhavefewersystemsratedas“poor”.Thisfindingleadstoconcludethatdecentralizationperseisnotsufficienttoimprovesectorperformance;rather,itshouldbeaccompaniedbyanappropriatemanagementmodelwithinstitutional,legalandfinancialautonomy,inotherwords,de-concentration,andalsoadequatecapacityalignedwithfinancialand institutional incentives.All this inorder to realize theexpectedbenefitsand impactofdecentralizationonsectorperformance,whereasremainsconsistentwiththespiritoftheFrameworkLaw.

FIGuRE 24. Service Provider Performance by Management Model55

2.3 Path to decentralization

As mentioned, in order to review the influence ofthe decentralization path on its final outcome(s) ,aseriesofcasestudieswereanalyzed.Thetablebelowsummarizes results. To thispoint, the11 case studiesrepresent 2.2M users from 4.1M urban inhabitants;andincludesthe3largestcitiesandsomemuchsmallercommunities,and6ofthe12largestserviceproviders..

The story of decentralization in the case studies isreflective of the various decentralization paths of thesector and can generally be separated in four maingroups,dependingonhowtheprocesstookplace:

Chlorine application in the distribution tank, Pueblo Viejo community, Santa María La Paz.

55 Themodelsarerankedbyincreasinglevelofautonomyfrompoliticalinfluence.

Performance (base on SPI):

1

7

4

18

3

6

1Num

ber

/ %

of m

odel

s ob

serv

ed

Municipalcompany

Municipality Water board Privateconcessionaire

SANAA

poor medium good

100%

80%

60%

40%

20%

0% 1

111

2

53Honduras

tABlE 6. Summary of the Case Studies

56 Scoresawardedforthemostrecentyearofavailabledata,(generally2010,usingthesimpleindexdescribedinthepreviouschapter.Insomecasestheindexmightnotreflectthecurrentsituationasatransferhasrecentlytakenplace.

57 In reality there isnosignificantprivatecapital,assharesarenothandledatmarketvaluebut insteadsoldatsymbolicvalue to localcivil societyorganizationstoensureautonomy.

58 JuntaAdministradoradeAguayDisposicióndeExcretasdelMunicipiodeJesúsdeOtoro.59 Bothmunicipalitiesusethesameaqueductsystem.

Mun

icip

alit

y

Serv

ice

Prov

ider

Man

agem

ent

Mod

el

Mun

icip

alit

y Cl

assi

ficat

ion

Wat

er

Bene

ficia

ries

Dat

e of

D

ecen

tral

izat

ion

Curr

ent

Perf

orm

ance

56

SanPedroSula

AguasdeSanPedro

30-yearconcession A 725,000 Historical(concession in2001)

15

LaCeiba SANAA Nationalwaterutility

A 180,000 Notdecentralized 9

Siguatepeque AguasdeSiguatepeque

Decentralizedunitofmunicipaladministration

A 50,000 2007 11

Tegucigalpa SANAA Nationalwaterutility

A 1,060,000 Notdecentralized 8

SantaRitadeYoro

AguasdeSanRita


B 15,000 Histórica(unidadmunicipalcreadaen el2012)

NA

PuertoCortes AguasdePuertoCortes

Mixedcapitalcompany57

A 70,000 1999 14

JesusdeOtoro

JAPOE58 Municipalwaterboard

C 10,000 Historical(creation ofJAPOEin1993)

11

LaPaz-Cane59 SANAA Nationalwaterutility

B/C 25,000 Notdecentralized NA

Danli AguasdeDanli


A 50,000 2011 9

Teupasenti AguasdeTeupasenti


C 20,000 2011 NA

SanAntoniodeFloresyJicaroGalan

Waterboard D 5,000 2006 NA


• Historical path: Forcitieswhohavetakenthispath,traditionally, theserviceshavebeendecentralized.All the same, changesmayhaveensued regardinglocal governance. However, through SANAA, thenationalgovernmenthasneverbeenresponsibleforserviceprovision.Thismodelapplies toSanPedroSula,JesusdeOtoroandSantaRitadeYoro.

• Pull path: Thispathincludesmunicipalitieswherethelocalauthoritiesactivelysoughtthedecentralizationof water services from SANAA into autonomousmunicipalentities.Thisquestwasusuallysupportedby national institutions and an external donor –.Mostcitiesinthiscategoryaremid-sizecities,largeenoughtohavecreateddonorinterestforsupport,and small enough to make political challengesassociatedwiththetransfermanageable.ThisisthecaseofSiguatepeque,DanlíandPuertoCortés.

• Push Path: Includes municipalities where SANAAdecentralizedservicewithoutacleardemandfrom

the municipality itself nor with donor supportor national institutions. These relatively smallmunicipalities,werevictimsofSANAA’spressuretodecentralizesystems,whetherthisincludedhavingtoshowtheprogressofthedecentralizationagenda,ortoalleviatecostswhenlargercitiesnearbyweresimultaneouslydecentralized.ThismodelappliestoTeupasenti,whichwastransferredatthesametimeas Danlí, San Antonio de Flores and Jícaro Galan,whichweretransferredaspartofalargerpackageofsmallersystemsdecentralizedatthebeginningoftheZelayaadministration.

• Status Quo: thislastcategorycorrespondstothosemunicipalities where services are still providedby SANAA; generally because political will has notexisted–whetherfromSANAAorfromthemunicipalside – for a transfer, or because the political orfinancial implicationsare too significant. This is thecaseofTegucigalpa,LaCeibaandLaPaz/Cane.

Furthermore, the case studies show that size and balance of power have been important factors in the type of decentralization path followed. Although thedataissomewhatincomplete,Table7showsanumberofparametersforwhichsignificantdifferenceswerenotedbetween thedifferentdecentralizationpathsdescribedpreviously.Thetablecoupledwithsectorevidenceshowsthat the“push”municipalities tendtobesmaller; thusallowingSANAAtousethebalanceofpowerinitsfavorand imposedecentralization. “Pull”municipalities tendto be larger, mid-size cities where the mayor decidestousethewateragendaasoneofhisorherpriorities,and SANAA sees no loss from giving in. Nonetheless,that approach has tended to fail in the very largemunicipalitieslikeTegucigalpaandLaCeibawhereotherpolitical interests, including SANAA’s unions have beenmorepowerfulandhavesuccessfullyimpededachangeinthestatusquo,resultinginthe“stuck”categories.

Dinamic Filter, Puerto Cortés, SDC Archive.

55Honduras

Decentralization yields short-term improvements in efficiency and cost recovery, but these do not translate immediately into service quality improvements. Asstated,SANAA’scoststructureisnotoriouslyinefficient,owing in part to overstaffing, to higher-than-averageremunerations and benefits, and to poor control ofenergy costs. Recent decentralization stories haverevealed spectacular improvements in that respect,for example, during the 2008 decentralization,Siguatepeque moved from 5.5 employees per 1000connections, to 2.3; its electricity costs decreasedafterthenewlyformedmunicipalutilityrequestedtheinstallationof electricitymeters in all of itswells anddiscovereditwasbeingbilledforpumpsthatwerenotoperating.Moreover,collectionratiowentupfrom35percent to 113 percent. As a result, its cost recoverylevel jumped from 63 percent to 123 percent withintwoyears.However,continuitydidnotimprove,andfor

politicalreasonsthemunicipalityhasdeclinedtoadjusttariffsforthreeyearsinarow,leadingtoaslidebacktoaround100percentcostrecovery.Thedecentralizationin Danlí took place too recently inmid-2011 to yieldconcrete conclusions, but early indicators show asomewhat similar story, with employees per 1,000connectiondecreasing,albeitthoughlessdramatically,andcollectionratesgoingup.SimilarlytoSiguatepeque,thedecentralizationhasbeenaccompaniedbyfrictionatmunicipallevelsregardingtheutility’sgovernance.

Service providers with a long tradition of decentralized services, and autonomy or independence, have the best performance. In the case studies, those serviceproviders with a long tradition of providing servicethemselveshaveserviceproviders rankingamong thebest in country. Services in San Pedro Sula, PuertoCortésandJesusdeOtorohaveallbeeninautonomous

Parameter60 Decentralization path

Historical Push Pull Status Quo

Numberofwaterusers 36,516 536 9,638 59,391

Averagebill 198 66 184 295

Collectionratio 81 NA 94 74

Costrecoverylevel 214 72 96 67

Averageinvestmentpercapita 20 4 92 96

Overallperformance61 15 14 9

tABlE 7. A few indicators for utilities going through different decentralization paths

the case studies also show that the performance of “push” decentralization cases appear to be significantly lower than other cases, at least from a financial standpoint. Investment levels, cost recovery levels, and tariffsarealldramatically lowerforthosecasestudies,somethingthatcannotbeexplainedonlybythesize-biasmentionedinthepreviousparagraph,giventhatthisinformationshowednostatisticallysignificantinfluenceonperformancesize.Differencebetweentheothermodelsdonotappeartobesignificantlydifferent.Interestingly,thetarifflevelsarehighestintheSANAA-managedsystems,althoughtheircostrecoverylevelsarelower,probablyascribabletotheverysignificantlaborcoststhatSANAAfaces.

60 Becauseofthesmallsamplesizeandthepartialinformation,thoseaveragesandtherespectivedifferencesbetweengroupsdonotpretendtobestatisticallysignificantandarepresentedasanecdotalevidence.

61 Usingthesimpleindexdescribedinthepreviouschapter,formostrecentyears,generally2010;theindexmightnotreflectthecurrentsituationasatransferhasrecentlytakenplace.


municipalhands formore than20years,andallhavewell-performing autonomous service providers thatboast near-continuous supply; ably cover their O&Mcosts and possess near-complete metering levels.Notwithstanding, their commencements were notwithout challenges, but once they started operatingthey steadily improved or maintained good servicequalityoveralongperiodoftime.

once a service provider has settled on a track, changes are difficult to come by. Broadlyspeaking,settingasidethosemunicipalitiesthatwentthroughrecentchanges,it is striking to see that most service providers haveremained, whether good or bad, on the same trackformost of the time series. For example, the overallSPI rating of La Ceiba revolves around 8 for 2004 to2011.PuertoCortésisrated14from2007to2011.Theonlysignificantchangeshappen inthecaseofserviceprovisionmodels;forexample,inSiguatepeque,wherethe rating jumps from8 in2007,prior to the transferandcreationoftheautonomousserviceprovider,to11afterthetransfer.Thiswasmostlybecauseofdramaticimprovements in the utility’s financial situation andnumberofemployeesper1,000connections.

2.4 Political Economy

External factors (political fortunes, customer base, and external support) often play a key role in performance.62 Thecasestudiesalsoshowthatfactorsoutsideofthesector’ssphereofinfluenceoftenplayanimportantroleindeterminingsuccessorfailure.Forexample,thereareseveralexternalfactorswhichhaveplayedanimportantrole in the successofAguasdeCortés.Thefirst is20years of coherent and continuous policy and politicalwillthatimposedtheinstallationofwatermetersandtaughtcitizenstobeconsciousoftheirwateruse.Thesecond is a steady income coming from the NationalPortAuthorityofHonduraswhichbuys35percentofthewaterdistributedbyAguasdeCortésat a rateof30lempiraspercubicmeter.Conversely,inTegucigalpathemisalignmentofpartiesbetweenthemunicipalandnationalgovernmentpreventedatransferinthemiddleofthelastdecade.Afterthe2010elections,therewasanalignmentofthepoliticalpartiesonboththenationalgovernmentandthemunicipalityofTegucigalpa,butby Puerto Cortes Filtro lento. COSUDE.

thenthemunicipalityhadstoppedseeingthetransferasastrategicpriority.

overall Perspective

the results of the analysis conducted in this chapter suggest that the decentralization process has had some positive impacts on the sector’s performance, for instance, municipal companies, most of which were created after the decentralization process, perform better than SAnAA.Itshouldalsobehighlightedthatcommunity-basedwaterboardsinHondurasworkquitewell,servingasmallnumberofclientelebutprovidingadecentqualityof serviceandoperatingwithin theiravailable financial resources. However, the analysisalso suggests that decentralization cannot be seen asa panacea to solve all the problems the sector faces.In fact, we see that in many cases, direct municipalservice provision does not perform aswell as SANAAormunicipalcompanies.Thesector’sdecentralization

62 Seeannex5formoredetails.

57Honduras

process, whether it is decentralized to autonomousservice providers or local government, should beaccompaniedbyappropriatemanagementmodelsandcapacitybuilding,bundledwithautonomyandincentivestructuresinordertoreapthebenefitsofsectorreform.

the analysis also suggests that the factors that affect most the performance of utilities are also those that sector policies can directly influence most. Sector policies cannot change poverty level and in light of

recentexperiencescanonlyhave limited influenceonserviceproviders’size,butthesetwopointshaveprovenlessrelevanttoutilityperformancethanexpected.Ontheotherhand,choosinganappropriate,autonomousmanagementmodel, and following a demand-driven,“pull” decentralizationpath appears to lead to betterutilityperformance.Those two factorscanbedirectlyinfluencedbythestrictapplicationoftheexistinglegalframework and the implementation of solid supportprogramsfortheon-goingdecentralizationprocess.


Conclusions and recommendationsV

1. MAIn ConCluSIonS

the sector information currently available to policy makers is insufficient to inform the on-going decentralization process. Whilenationallevelfinancialinformation is readily available and of good quality,thatinformationonlycoversasmallpartofthesector’sfinancing,forinstance,in2010,onlyabout15percent;information about spending by the municipalities,20 percent of total sector financing is not availablein a consolidated manner; and information aboutthe spending of autonomous service providers,representing65percentofsectorfinancing,istypicallynot available at all. Furthermore, information abouttheperformanceofserviceprovidersisonlyavailableforaselectednumberofproviders:92urbanserviceproviders covering 85 percent of the total urbanpopulation in 2010. Finally the last municipal-levelcoverageinformationdatesbacktothe2000census;laterhouseholdsurveysarenotstatisticallysignificantat municipal or departmental level, meaning it ischallenging to identify where real gaps betweeninvestmentlevelsandneedsarelocated.

Current levels of Public Expenditures are insufficient to achieve the GoH’s own objectives; they are decreasing and their composition does not fully match the actual needs. As shown in chapter II, the currentlevels of national-level spending, which decreasedin real terms over the last decade, are significantlybelow international sector recommendations aswell as investment estimates to sustain the MDGstargets achieved or to reach the GoH’s own targets.Furthermore, a significant amount of spending goestowardsthewatersubsector,whereasthelargestneedsare in the sanitation subsector. Finally, the sector is

largelydependentfromdonors’spending,constituting70percentofnational-level investments,whichvarieswidelyfromyeartoyear.

the efficiency of Public Investments is difficult to assess, and the significant growth of operational expenses (in particular salaries of SAnAA staff) is disturbing. While funds are regularly left unused inannual budgets, the corresponding share, 90 percentfornationalfundsand42percentfordonorsfunds, isnot as significantly low as found in otherWater PER.However, thevery sharp increaseobserved in staffingcostswithinSANAA,74percentinrealtermswithin10years,withvirtuallynoclientbasegrowth,aretroubling.SANAA, and in a lesser measure municipalities, arealsoaffectedbyoverstaffing.Non-SANAA’soperationalexpenditures have been growing much slower thanSANAA’s,butservicequalityislimitedandmightpartlybe explained by utility under-spending on operationssuchaspumpingandchemicals,andmaintenance.

the composition of sector financing is changing due to decentralization; and decentralized funds now represent by far the largest source of financing. Largerservice providers (including SANAA) do not benefitfromoperational subsidiesandasa result cover theiroperationalcosts,namelysalaries,operationandsomemaintenance from tariffs. As a result, decentralizedfunds like tariffs and municipal funding represented79 percent of all funding in 2005 and 80 percent in2010, with national funds decreasing from 8 percentto 5 percent and stabledonors being 13percent and14 percent. When focusing only on investments,representing approximately one third of total sectorspending,decentralizedfundingrepresentsabouthalfasmuchasnationalandexternalfunding.

59Honduras

Conclusions and recommendationsA review of regulatory data shows that governance model and decentralization path, more than decentralization per se, strongly influence performance of urban service providers. Both SANAA andmunicipalitiessufferfrompooroverallperformanceasmeasuredbyanaggregate,ad-hocsimpleperformanceindex developed for this PER. Performance onlyimprovedwhen the governancemodel of the serviceprovider allows for stronger financial andmanagerialautonomy, for example in the case of autonomousservice providers or water boards. Furthermore, areview of case studies appear to indicate that theprocessbywhichthedecentralizationtookplace,alongwithotherfactorsexternaltothesector,stronglyaffecttheoutcomeofthedecentralization.

2. RECoMMEnDAtIonS

In light of the conclusions of this study, the mainrecommendationsfortheGoHare:

• Improve the information basis, data collection and M&E mechanisms on performance indicators. Municipal-level financial level information shouldbe collected and systematically consolidated, inparticular SEIP’s Municipal Information System(SINIMUN), an essential tool to monitor thefinancial dimension of decentralization. ERSAPSshould continue to expand its effort to conductperformance benchmarking of service providers,ensuring that indicators cover service quality,financial performance and efficiency. The quality,consistencyandcoverageofthisdatamustincreasewithtime,andtheinformationshouldbeusedmorevisibly to hold service providers accountable fortheirperformance.

• Increase the level of investments and improve its quality and alignment with GoH targets. Whilethe country has achieved MDGs, investmentlevels shouldbe significantly increased inorder tosustain the coverage levels achieved, ensure thatthequalityoftheWSSservicesprovidedmeetthenationalstandards,andenabletheachievementofthecountry’sownsetoftargetstoprovidenear-fullcoverageby2022.TheGoHneedstodefinehowitintendstobridgetheverysignificantfinancinggapbetween current funding sources (tariffs, national

and municipal subsidies and donor funding) andsectorneeds.Thatbridgewillhavetoconsideramixof resources, including tariffs, and not only donorfunding,whichhasshowntobeunpredictableanddifficulttosteertotheGoH’spriorities.Inaddition,theGovernmentshouldseektoimprovethesectorefficiency in transforming the resources currentlyavailable in the sector towards more appropriatesolutionstoprovidequalityandsustainableservicestothepopulation.

• Continue to support decentralization in a smart way. Forcing SANAA to decentralize serviceprovision to unwilling municipalities has been arecipe for failure; conversely, where municipalauthoritiesareinterestedinengaginginthecreationof an autonomous, modern and efficient serviceprovider,performanceandservicequalityhasoftenimproved.Inthatsense,theGoHshouldcontinuetopromoteprogramsthatoffertechnicalandfinancialsupport to municipalities to setup or strengthenautonomousorindependentmunicipalutilitiesandimprovewaterservicequalityandcoverage.

• Adapt financing through public expenditures to a decentralized sector. The current publicexpenditures going into the sector are mostlydesigned to respond to a pre-decentralizationmodel. InvestmentsubsidiesgoingthroughSANAAbenefit only SANAA-managed municipalities andrural areas; there is no mechanism for donorfunding to systematically reach decentralizedmunicipalities; and the limited national funds arenot used to incentivize stronger performance orexpand coverage in poor areas. The GoH shouldadopt and enforce a sector financing policy toactivelypromote tariffs coveringO&Mand, to theextent necessary, investment costs within passingon inefficiencies to the consumers; define a fairsubsidy scheme thatwould allow the provision ofaffordableservicesforpoorercitizens;andseektoestablishbasicprinciplesforinvestmentfinancingtoreachserviceprovidersinamannerthatisfairbutalsorewardsgoodperformance.

• Foster strong national institutions to provide adequate regulation, policy and technical assistance functions. In a decentralized sector,


functions such as regulation, policy-setting andtechnical assistancebecomeevenmore importantto ultimately supporting the creation andstrengthening of autonomous municipal utilitiesand sector performance improvement. ThosefunctionsandtheassociatedinstitutionsofERSAPS,CONASA, and SANAA as a technical agent, havegreatimpactontheoverallsectorperformance;but

VIthey also generate a cost that today is not bornebytheGoH.Asaresult,therelatedinstitutionsareatthemercyofthegoodwillofdonorsandcannotdevelop strong frameworks to improve sectorperformance. Likewise,other traditionalmunicipalallies, suchasAMHONandSEIP,canbe importantactorsinensuringadequatecapacitybuildingatthemunicipallevel.

61Honduras

ReferencesVI

• CONASA2011.AnálisisdelaSituacióndelSectorAguaySaneamientoenHonduras.Tegucigalpa,Honduras.

• Cotlear,B.andUrbina,D.2010.IntroducingAccountabilityandTransparencytoWaterandSanitationServicesinHondurasthroughEnhancedEndUserParticipation.WorldBankInstitute[online]http://siteresources.worldbank.org/INTSOCACCDEMSIDEGOV/Resources/28718131200515311988/4577172-1271445400159/notes01_honduras.pdf

• Fay,M.&Yepes,T.2004.InvestinginInfrastructure–WhatisNeededfrom2000to2010?PolicyResearchWorkingPaper#3102”.

• Dickinson,E.2006.ManagementModelsofWaterandSanitation:ApproachestoDecentralizationinHonduras.[online]http://siteresources.worldbank.org/EXTGOVANTICORR/Resources/3035863-1291223960989/Honduras_User_Participation_in_Management_Improves_Water_2.pdf

• INE2010.ProyeccionesdePoblación.[online]http://www.ine.gob.hn/drupal/node/205

• OECD2009.StrategicFinancialPlanningforWaterSupplyandSanitation.

• RepúblicadeHonduras2001.EstrategiaparalaReduccióndelaPobreza.Tegucigalpaagostode2001.Page57.

• RepúblicadeHonduras2005.PlanEstratégicodeModernizacióndelSectorAguaPotableySaneamiento.Tegucigalpa,Honduras.

• RepúblicadeHonduras2010.VisióndePaís2010–2038yPlandeNación2010-2022.Página144.[online]http://www.seplan.gob.hn/images/documentos_institucionales/

• SANAA2012.CuadrodeInformaciónBásicayCalendarizacióndeTraspasodeAcueductos.

• SistemadeNacionesUnidas2003.InformesobrelasMetasdelMilenioHonduras2003.Tegucigalpa,Honduras.

• Talavera2006.TheWaterandSanitationLawandSectorReforminHonduras.[online]http://projecthonduras.com/conference/conference2006/presentations/Water_Law_CarlosTalavera.pdf

• VandenBerg,C.&Danilenko,A.2010.TheIBNETWaterSupplyandSanitationPerformanceBlueBook. WorldBank.

• WaterforPeople2006.HondurasCountryStrategy,2007-2011.[online]http://ww2.waterforpeople.org/pdfs/international/Honduras/HondurasCountryStrategy2007-2011.pdf

• WHO&UNICEF2010.JointMonitoringProgramme-Honduras.[online]http://www.wssinfo.org/data-estimates/table/

• WorldBank2012.Data-Honduras.[online]http://data.worldbank.org/country/honduras?display=graph


AnexosVII

1. SuMMARy oF olS – WAtER SECtoR ExPEnDItuRE

log total Budgetper user

log urban Budgetper user

log Rural Budget per user

log Water Budget Per user

log Sanitation Budget Per user

type of Provider (SAnAA omitted)

1.WaterBoard,MunicipalBoardandCommunityBoards

1.032* 0.965 1.527** 0.0452 0.172 1.065 1.627*** 0.222 1.037 1.251*** 1.054* 1.434*** 0.124 0.517 0.825

(0.533) (0.688) (0.642) (0.732) (0.965) (0.760) (0.598) (0.684) (0.784) (0.398) (0.555) (0.527) (0.582) (0.864) (0.721)

2.Municipality 0.478 0.280 0.592 0.0729 0.325 0.462 0.607 -0.477 0.0791 0.793*** 0.652** 0.839** -0.104 -0.0877 -0.0367

(0.491) (0.560) (0.535) (0.618) (0.804) (0.697) (0.531) (0.537) (0.585) (0.251) (0.283) (0.318) (0.518) (0.666) (0.553)

3.MunicipalUtility 0.391 0.337 0.367 0.337 0.262 0.248 0.678 0.923 1.199 0.743 0.774 0.456 0.203 0.149 0.390

(0.628) (0.629) (0.687) (0.700) (0.792) (0.691) (0.730) (0.686) (0.946) (0.460) (0.546) (0.573) (0.602) (0.633) (0.616)

LogMunicipalPopulation 0.428 0.0633 0.277 -0.195 0.821** 0.148 0.428* 0.264 0.296 0.149

(0.291) (0.250) (0.381) (0.228) (0.311) (0.317) (0.216) (0.218) (0.384) (0.261)

LogReceivingPopulation(users) -0.412 -0.0421 -1.434*** -0.461 -0.110

(0.363) (0.517) (0.363) (0.353) (0.485)

Classification of Poverty (A omitted)

B 0.201 -0.296 1.022 -0.0163 0.851

(0.540) (0.540) (0.778) (0.449) (0.545)

C -0.262 -0.726 1.079 -0.202 0.189

(0.490) (0.490) (0.833) (0.443) (0.574)

D -0.499 -3.299*** 1.789* 0.228 -0.656

(0.745) (0.683) (1.039) (0.753) (0.899)

Constant 4.440*** 4.008* 3.695 4.232*** 1.608 6.612** 3.110*** 9.048*** 0.890 3.434*** 3.473 0.704 4.247*** 2.115 2.247

(0.455) (2.259) (2.823) (0.564) (3.395) (2.665) (0.429) (2.333) (3.636) (0.182) (2.519) (2.409) (0.448) (3.086) (2.956)

Remarks 72 63 63 54 47 47 57 49 49 67 58 58 61 53 53

RSquared 0.068 0.124 0.124 0.006 0.041 0.363 0.104 0.305 0.182 0.073 0.128 0.112 0.008 0.046 0.148

Dependentmovingaverage 4.986 4.894 4.894 4.330 4.321 4.321 3.916 3.769 3.769 4.279 4.202 4.202 4.248 4.221 4.221

StandardDeviationDependentVariable 1.186 1.169 1.169 1.342 1.339 1.339 1.656 1.638 1.638 1.168 1.102 1.102 1.351 1.355 1.355

Robuststandarderrorsinparenteshis*** p<0.01, ** p<0.05, * p<0.1

63Honduras

Anexos

log total Budgetper user

log urban Budgetper user

log Rural Budget per user

log Water Budget Per user

log Sanitation Budget Per user



1.032* 0.965 1.527** 0.0452 0.172 1.065 1.627*** 0.222 1.037 1.251*** 1.054* 1.434*** 0.124 0.517 0.825

(0.533) (0.688) (0.642) (0.732) (0.965) (0.760) (0.598) (0.684) (0.784) (0.398) (0.555) (0.527) (0.582) (0.864) (0.721)

2.Municipality 0.478 0.280 0.592 0.0729 0.325 0.462 0.607 -0.477 0.0791 0.793*** 0.652** 0.839** -0.104 -0.0877 -0.0367

(0.491) (0.560) (0.535) (0.618) (0.804) (0.697) (0.531) (0.537) (0.585) (0.251) (0.283) (0.318) (0.518) (0.666) (0.553)

3.MunicipalUtility 0.391 0.337 0.367 0.337 0.262 0.248 0.678 0.923 1.199 0.743 0.774 0.456 0.203 0.149 0.390

(0.628) (0.629) (0.687) (0.700) (0.792) (0.691) (0.730) (0.686) (0.946) (0.460) (0.546) (0.573) (0.602) (0.633) (0.616)

LogMunicipalPopulation 0.428 0.0633 0.277 -0.195 0.821** 0.148 0.428* 0.264 0.296 0.149

(0.291) (0.250) (0.381) (0.228) (0.311) (0.317) (0.216) (0.218) (0.384) (0.261)

LogReceivingPopulation(users) -0.412 -0.0421 -1.434*** -0.461 -0.110

(0.363) (0.517) (0.363) (0.353) (0.485)


B 0.201 -0.296 1.022 -0.0163 0.851

(0.540) (0.540) (0.778) (0.449) (0.545)

C -0.262 -0.726 1.079 -0.202 0.189

(0.490) (0.490) (0.833) (0.443) (0.574)

D -0.499 -3.299*** 1.789* 0.228 -0.656

(0.745) (0.683) (1.039) (0.753) (0.899)

Constant 4.440*** 4.008* 3.695 4.232*** 1.608 6.612** 3.110*** 9.048*** 0.890 3.434*** 3.473 0.704 4.247*** 2.115 2.247

(0.455) (2.259) (2.823) (0.564) (3.395) (2.665) (0.429) (2.333) (3.636) (0.182) (2.519) (2.409) (0.448) (3.086) (2.956)

Remarks 72 63 63 54 47 47 57 49 49 67 58 58 61 53 53

RSquared 0.068 0.124 0.124 0.006 0.041 0.363 0.104 0.305 0.182 0.073 0.128 0.112 0.008 0.046 0.148

Dependentmovingaverage 4.986 4.894 4.894 4.330 4.321 4.321 3.916 3.769 3.769 4.279 4.202 4.202 4.248 4.221 4.221

StandardDeviationDependentVariable 1.186 1.169 1.169 1.342 1.339 1.339 1.656 1.638 1.638 1.168 1.102 1.102 1.351 1.355 1.355

Robuststandarderrorsinparenteshis*** p<0.01, ** p<0.05, * p<0.1


Score level 1 2 3

Employees per 1,000 connections Greater than 7 Between 4 and 7 Less than 4

Level of metering 0-40% Greater than 40% -70% Greater than70%-100%

Level of continuity Less than 5 hours 5-20 hours Greater than 20 hours

Level of disinfection of water Less than 0.5 Less than 0.8 Greater than 0.8

Tariff effectiveness63 Less than 1.0 Between 1-1.19 Greater than 1.20

2. Standard Performance Index defInItIon

3. regreSSIon analySIS on Performance IndIcatorS

Score tariff Score continuity Score employees Score metering Score desinfection overall practice

type of Provider (Sanaa omitted)

1. Water Board, Municipal Board and Community Boards

0.900** 0.745 0.492 1.022*** 0.839** 0.987** 1.100*** 0.614* 0.519 -0.200 0.104 0.107 -0.756** -0.432 -0.450 0.633*** 0.596*** 0.549**

(0.347) (0.536) (0.500) (0.256) (0.372) (0.400) (0.234) (0.326) (0.364) (0.130) (0.0865) (0.0971) (0.287) (0.393) (0.374) (0.153) (0.207) (0.225)

2. Municipality 0.548* 0.635 0.593 0.404* 0.406 0.445 0.675*** 0.388 0.385 -0.169 0.0722 0.0774 -0.809*** -0.600* -0.590* 0.0765 0.197 0.197

(0.316) (0.391) (0.371) (0.221) (0.274) (0.295) (0.244) (0.288) (0.286) (0.134) (0.0915) (0.101) (0.267) (0.303) (0.301) (0.126) (0.135) (0.165)

3. Municipal Company 1*** 1.018*** 1.029*** 0.156 0.0999 0.0441 0.755*** 0.730*** 0.750*** -0.0182 -0.0101 -0.0291 0.566* 0.588* 0.632* 0.627*** 0.627*** 0.581***

(0.340) (0.341) (0.371) (0.276) (0.274) (0.303) (0.260) (0.232) (0.230) (0.221) (0.203) (0.210) (0.326) (0.325) (0.325) (0.215) (0.210) (0.208)

Municipal Population -0.0866 -0.0877 0.424*** 0.420** -0.0152 -0.0297 0.0824 0.0728 -0.0828 -0.0640 0.0581 0.0161

(0.229) (0.245) (0.149) (0.161) (0.132) (0.140) (0.0499) (0.0473) (0.0802) (0.0946) (0.0683) (0.0818)

Receiving Population 0.112 0.192 -0.274* -0.317* -0.183 -0.153 0.109* 0.0993 0.194 0.233* 0.0364 0.0413

(0.242) (0.245) (0.159) (0.170) (0.137) (0.143) (0.0548) (0.0665) (0.130) (0.136) (0.0937) (0.0920)

classification of Poverty (a omitted)

B -0.205 -0.183 -0.0401 -0.104 0.171 -0.397*

(0.409) (0.316) (0.279) (0.0997 (0.314) (0.209)

C 0.470 -0.331 0.190 -0.0617 0.186 -0.0416

(0.496) (0.366) (0.321) (0.115) (0.355) (0.256)

D 1.042** 1.005*** -0.405 -0.0323 0.117 0.679**

(0.461) (0.320) (0.299) (0.118) (0.366) (0.255)

Constant 1.600*** 1.375 0.540 1.444*** -0.418 0.159 1.700*** 3.846*** 3.675** 1.200*** -0.908 -0.656 1.889*** 0.745 0.0497 1.100*** 0.0506 0.595

(0.262) (2.180) (2.677) (0.171) (1.445) (2.001) (0.209) (1.275) (1.466) (0.130) (0.559) (0.533) (0.254) (1.486) (1.846) (0.0977) (0.955) (1.119)

Remarks 61 55 55 67 59 59 68 62 62 68 62 62 60 54 54 70 62 62

R Squared 0.135 0.119 0.208 0.181 0.181 0.238 0.229 0.218 0.241 0.064 0.210 0.222 0.508 0.512 0.517 0.265 0.206 0.347

Dependent moving average 2.213 2.145 2.145 1.896 1.797 1.797 2.382 2.323 2.323 1.074 1.081 1.081 1.467 1.519 1.519 1.371 1.323 1.323

Standard Deviation Dependent Variable 0.897 0.911 0.911 0.800 0.761 0.761 0.692 0.696 0.696 0.315 0.329 0.329 0.769 0.795 0.795 0.543 0.536 0.536

Robust standard errors in parenteshis*** p<0.01, ** p<0.05, * p<0.1

63 Average tariff over average cost.

65Honduras

Score tariff Score continuity Score employees Score metering Score desinfection overall practice



0.900** 0.745 0.492 1.022*** 0.839** 0.987** 1.100*** 0.614* 0.519 -0.200 0.104 0.107 -0.756** -0.432 -0.450 0.633*** 0.596*** 0.549**

(0.347) (0.536) (0.500) (0.256) (0.372) (0.400) (0.234) (0.326) (0.364) (0.130) (0.0865) (0.0971) (0.287) (0.393) (0.374) (0.153) (0.207) (0.225)

2.Municipality 0.548* 0.635 0.593 0.404* 0.406 0.445 0.675*** 0.388 0.385 -0.169 0.0722 0.0774 -0.809*** -0.600* -0.590* 0.0765 0.197 0.197

(0.316) (0.391) (0.371) (0.221) (0.274) (0.295) (0.244) (0.288) (0.286) (0.134) (0.0915) (0.101) (0.267) (0.303) (0.301) (0.126) (0.135) (0.165)

3.MunicipalCompany 1*** 1.018*** 1.029*** 0.156 0.0999 0.0441 0.755*** 0.730*** 0.750*** -0.0182 -0.0101 -0.0291 0.566* 0.588* 0.632* 0.627*** 0.627*** 0.581***

(0.340) (0.341) (0.371) (0.276) (0.274) (0.303) (0.260) (0.232) (0.230) (0.221) (0.203) (0.210) (0.326) (0.325) (0.325) (0.215) (0.210) (0.208)

MunicipalPopulation -0.0866 -0.0877 0.424*** 0.420** -0.0152 -0.0297 0.0824 0.0728 -0.0828 -0.0640 0.0581 0.0161

(0.229) (0.245) (0.149) (0.161) (0.132) (0.140) (0.0499) (0.0473) (0.0802) (0.0946) (0.0683) (0.0818)

ReceivingPopulation 0.112 0.192 -0.274* -0.317* -0.183 -0.153 0.109* 0.0993 0.194 0.233* 0.0364 0.0413

(0.242) (0.245) (0.159) (0.170) (0.137) (0.143) (0.0548) (0.0665) (0.130) (0.136) (0.0937) (0.0920)


B -0.205 -0.183 -0.0401 -0.104 0.171 -0.397*

(0.409) (0.316) (0.279) (0.0997 (0.314) (0.209)

C 0.470 -0.331 0.190 -0.0617 0.186 -0.0416

(0.496) (0.366) (0.321) (0.115) (0.355) (0.256)

D 1.042** 1.005*** -0.405 -0.0323 0.117 0.679**

(0.461) (0.320) (0.299) (0.118) (0.366) (0.255)

Constant 1.600*** 1.375 0.540 1.444*** -0.418 0.159 1.700*** 3.846*** 3.675** 1.200*** -0.908 -0.656 1.889*** 0.745 0.0497 1.100*** 0.0506 0.595

(0.262) (2.180) (2.677) (0.171) (1.445) (2.001) (0.209) (1.275) (1.466) (0.130) (0.559) (0.533) (0.254) (1.486) (1.846) (0.0977) (0.955) (1.119)

Remarks 61 55 55 67 59 59 68 62 62 68 62 62 60 54 54 70 62 62

RSquared 0.135 0.119 0.208 0.181 0.181 0.238 0.229 0.218 0.241 0.064 0.210 0.222 0.508 0.512 0.517 0.265 0.206 0.347

Dependentmovingaverage 2.213 2.145 2.145 1.896 1.797 1.797 2.382 2.323 2.323 1.074 1.081 1.081 1.467 1.519 1.519 1.371 1.323 1.323

StandardDeviationDependentVariable 0.897 0.911 0.911 0.800 0.761 0.761 0.692 0.696 0.696 0.315 0.329 0.329 0.769 0.795 0.795 0.543 0.536 0.536

Robuststandarderrorsinparentheses*** p<0.01, ** p<0.05, * p<0.1


4. SuMMARy oF CASE StuDIES, outCoMES AnD SIGnIFICAnt FACtoRS

Municipality outcome64 Supporting factors Impeding factors

SanPedroSula Success Largeamountsofexternalinvestment($41million)wentintothesystem’sinfrastructureinthelate1980s

Transparent,IDB-supportedconcessionawardprocess

Continuousinvestmentsbytheconcessioninthesystem

Tensionbetweentheconcessionandthemunicipalityfrom2002-2010hamperedtheconcession’sabilitytoexpandinfrastructure,installnewwatermetersandinvestmentinwastewatertreatment

LaCeiba Failure Apparentwillingnesstoengagebycurrentmunicipalauthorities

Existingautonomousmunicipalserviceproviderforwastewaterservices(OMASAN)

SecondlargestSANAA-managedsystem,makingforveryvisibletransferprocessforbothpoliticalauthoritiesandtheunions,andcostlypaymentofseverances

Discontinuouspositionofpastmunicipalauthorities

Industrialusersleavingserviceproviderinfavorofdirectgroundwaterextraction

Siguatepeque Partialsuccess

StronginitialcommitmentfromtheMayorandthecivilsocietyrepresentativesinthemunicipalcommission

SupportfromnationalinstitutionsandWorldBank–financedproject.

Politicalconflictinthedecentralizedunitofmunicipaladministrationwhichisaffectingitsautonomy(installationofnewmetersandtariffincreaseblockedbymunicipality)

Tegucigalpa Failure CurrenttarifflevelscoverO&Mcostsafterrecentincreases

SANAAseenasapoliticalpremiumandlaunchingboard;wouldlosetremendouspower,moneybygivingupTegucigalpa,it’slargestsystem(TegucigalpasubsidizesmostofSANAA’soperation)

Differentpoliticalagendasbetweennationalandlocalgovernmentsoverpastdecade

Highfinancialcostoftransfer(forseverancepayment)andorganizedresistancefromtheunionsmakeitunappealingfornationalgovernment.

SantaRitadeYoro

On-going,too early to tell

SignificantinvestmentswithIDBfinancing

Willingnessfrommunicipalauthoritiestoseekbetterserviceprovisionarrangement

Strongresistanceinlocalpopulationagainstmetering,tariffincreases

64 Basedontheauthors’appreciationofgeneraldevelopmentsinthetenyearscoveredbytheCaseStudy

67Honduras

Municipality outcome Supporting factors Impeding factors

PuertoCortes Success Strongpoliticalwilland20yearsofcontinuouspoliciesbytwosuccessivemayors(thesecondonebeingaformermanagerofthewaterutility)

LargeamountsofexternalinvestmentandtechnicalsupportbyIDBtopromotesuccessstory

PresenceoftheNationalPortAuthorityasthelargestbyfarclient,subsidizingtheoperationofthecompany

Recentdifficultieswithtariffadjustments

Complacencyofmanagementafter20yearsofsuccess

JesusdeOtoro Success LongstandingsupportbyexternalNGOleadtosetupofanautonomousserviceproviderwithsolidgovernanceandstrongcommunityparticipation

Excellentacceptancebypopulationoftariffadjustmentstocovercosts

Serviceproviderhasstrongrelationshipwithexternaldonorsandwasabletoobtainexternalfinancing(successattractssuccess)

N/A

LaPaz-Cane65 Failure N/A Sharedwatersourceanddistributionsystemamongtwodifferentmunicipalitiesmakesanydecisiondifficult

CurrentMayorfromCanewantsdecentralizationbutnotmayorfromLaPaz

Extremelypoorservicequalitymeanspopulationunwillingtopaymore

Danli On-going,too early to tell

StronginitialsupportbyMayorandmunicipalauthorities

SupportfromnationalinstitutionsandWorldBank–financedproject

InternalTherearetwodifferentboardsthatarecompetingtomanagethedecentralizedunitofmunicipaladministration

Teupasenti On-going,too early to tell

Despitethepushnatureoftheprocess,allpoliticalforcesalignedtoseeksuccessofthenewlyformedserviceprovider

Noexternalsupportfromnationalinstitutionsorexternaldonors

SanAntoniodeFloresyJicaroGalan

Failure Goodwillfromthemunicipalauthoritiesandnewserviceprovidertoimprovethesituation

Nosupportfromexternalinstitutionsaftertransfer

Smallsizedoesnotallowforsolidtechnicalmanagement

65 Bothmunicipalitiesusethesameaqueductsystem

The World Bank | www.worldbank.orgHeadquartersLatin America and the Caribbean Water Supply and Sanitation Unit1818 H Street, NWWashington, DC 20433 USA

Water and Sanitation Program Honduras Country OfficeEdificio Corporativo 777, Ninth floorSan Juan Bosco Boulevard, Lomas del Guijarro SurTegucigalpa, [email protected]

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