Shifting Governance Shifting Governance Models in Urban Water Models in Urban Water and Sanitationand SanitationPaper prepared for the “The 21st Century Indian City: Developing an Agenda for Urbanization in India”March 22-24, 2011

Alison PostAssistant ProfessorPolitical Science and Global Metropolitan StudiesU.C. Berkeley

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Outline of presentationOutline of presentationPlace Indian case in comparative

perspective through discussion of reform initiatives in other countries in developing world

Will focus on two main reform initiatives:◦Decentralization◦ Institutional reforms designed to isolate

service providers from political pressure◦Argument: both initiatives based on

unrealistic assumptions about politics of service provision and hence did not solve problems

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Historical backdrop to Historical backdrop to reformsreformsDuring import substitution (ISI)

era, national agencies managed systems in many developing countries

In periods when governments had good access to finance important gains in coverage, esp. under democratic regimes

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Problems emerged with the Problems emerged with the national provisionnational provisionSeveral problems emerged by

the 1970s and 1980s ◦Focus on new infrastructure rather

than system maintenance and commercial management

◦Difficult politically to raise tariffs in line with inflation system financing via general tax revenue

◦Model difficult to sustain in the wake of the 1980s debt crisis

◦Led to “low level equilibrium” 5

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Diagnosis: Incentives Diagnosis: Incentives ProblemsProblemsCommon diagnosis in policy circles

and international financial institutions problems of sector derive from two incentive problems: ◦Systems managed at too far a distance

from the citizens who consumed their services

◦Systems deprived of tariff revenues leaving little money for maintenance because of influence of politicians with short-run concerns

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DecentralizationDecentralizationDecentralization would ensure

service provision more responsive to local conditions in two senses:◦managers would have better

information about service needs◦would be held more accountable to

local populations

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Insulation from PoliticsInsulation from PoliticsIncentive problem: politicians’ electoral

and patronage concerns prevent them from enforcing payment and levying sufficient tariff revenue to finance maintenance and system expansion

Low tariffs in short-run interest of consumers, but in long run detrimental to health of population

Proposed solution: shield systems from the direct influence of elected officials through:◦ Delegation of services to ring-fenced special

purpose agencies◦ “Contracting out” to private service providers

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Experiences with Experiences with DecentralizationDecentralizationDuring the 1980s and 1990s, a large

number of developing countries decentralized services◦International financial institutions promoted

this shift through lending programs◦National politicians decentralized when it

was consistent with domestic political incentives (fiscal motives common)

Trend particularly strong in Africa, Latin America, Eurasia, and the Asia-Pacific region

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Responsibility for Urban Responsibility for Urban Water and Sanitation Water and Sanitation Systems in 2008Systems in 2008 Region Local or

Intermediate Tier of Government

National Government

Percentage of Countries with Local Management (Full or Partial)

Africa Algeria, Benin, Cameroon, Egypt, Gabon, Ghana, Guinea, Cote de’Ivoire, Kenya, Madagascar, Mali, Morocco, Mozambique, Niger, Nigeria, Senegal, South Africa, Togo, Tunisia, Uganda, Zambia

100%

Data source: United Cities and Local Governments (2008). 11

Responsibility for Urban Responsibility for Urban Water and Sanitation Water and Sanitation Systems in 2008Systems in 2008 Region Local or

Intermediate Tier of Government

National Government

Percentage of Countries with Local Management (Full or Partial)

Asia-Pacific Australia, China, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Korea, Thailand, Vietnam

100%

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Responsibility for Urban Responsibility for Urban Water and Sanitation Water and Sanitation Systems in 2008Systems in 2008 Region Local or

Intermediate Tier of Government

National Government

Percentage of Countries with Local Management (Full or Partial)

Eurasia Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan

100%

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Responsibility for Urban Responsibility for Urban Water and Sanitation Water and Sanitation Systems in 2008Systems in 2008 Region Local or

Intermediate Tier of Government

National Government

Percentage of Countries with Local Management (Full or Partial)

Latin America Argentina, Bolivia, Brazil, Chile, Colombia, Dominican Republic, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Paraguay, Peru, Uruguay, Venezuela

Costa Rica, El Salvador, Panama

83%

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Effects of Decentralization Effects of Decentralization IINascent literature suggests that

decentralization is not a panacea◦Incentives to keep tariffs low and refrain

from punishing customers for nonpayment of bills are stronger at the local level

◦Pressures to devote firm revenues to patronage employment and new household connections rather than basic maintenance

◦“Accountability” achieved is one that focuses on short-term, rather than long-term consumer interests

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Effects of Decentralization Effects of Decentralization IIIINational and intermediate tiers of

government retain important financial and regulatory roles following decentralization◦Local systems often remain dependent

upon higher tiers of government for the financing of key pieces of infrastructure

◦Presence of shared responsibility makes it difficult for voters to attribute blame or credit to the right political actors

◦“Shared governance” also leads to coordination problems

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Reforms to Shield Providers Reforms to Shield Providers from Politicsfrom PoliticsPublications and lending programs

launched by international financial institutions outlined reforms designed to insulate utility managers from political pressures◦This would free providers from political

pressures for patronage employment, low tariffs, low collection rates

◦Would allow managers to consider long-run objectives such as system maintenance

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Institutional Reforms for Institutional Reforms for Public EntitiesPublic EntitiesPublicly-owned providers could be

improved through institutional changes that gave providers greater operational independence

Would allow service providers to implement a series of controversial policies designed to help them to cover both operational costs and investment through tariff revenue.

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Private Sector Private Sector Participation Participation International financial institutions

and academic analysts promoted a more dramatic variant of these institutional reforms during the 1990s in the context of the Washington Consensus reform package

Range of responsibilities could be “contracted out,” and contract compliance monitored by regulatory agencies

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Effects of Institutional Effects of Institutional Changes IChanges IExisting case studies suggest that

institutional reforms have increased, rather than decreased, politicization ◦De jure independence is not the same

de facto independence Utility directors appointed by elected officials “Independent agencies” can be heavily

dependent upon subsidies for operations and/or the construction of basic infrastructure

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Effects of Institutional Effects of Institutional Changes IIChanges IICost recovery measures introduced by

both public and private increase the salience of and level of political controversy◦NGOs and other groups attack such policies◦Cost recovery measures have, understandably,

elicited stronger attention and controversy when private firms manage services

◦Firm threats to sue their government partners in international tribunals if governments violate contract provisions have added further to tension

Result: uptake of governance reforms and cost recovery policies has been uneven

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Effects of Institutional Effects of Institutional Changes IIIChanges IIIMany governments now opting

hybrid “public-private partnerships” that include less visible roles for private capital ◦Ex.: SABESP, the water and

sanitation provider for the São Paulo metropolitan area, 49% equity sold on New York Stock Exchange

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ConclusionsConclusionsInstitutional reform initiatives in the

water and sanitation sector in developing countries promised to correct incentive problems that trapped service providers in a “low level equilibrium”

Rather than improve accountability, decentralizing reforms have created complex systems of “shared governance”

Efforts to insulate service provision from electoral politics have done anything but that

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