1.  Introduction

Until quite recently, municipalities in developing countries formulated and implemented infrastructure and service projects utilising budgets handed down from higher levels of government. Municipal officials, in some cases influenced by political priorities, conceived, designed, constructed and managed projects and then handed over the finished product to other municipal officials for operation and maintenance. While this may not have been considered effective or sustainable, municipal organisations and officials were geared towards this approach and many have the technical capacity to play these roles. Moreover, the status of municipal officials and their relationships to society as a whole reflected their ability to make financial and technical decisions, select contractors and provide services.

However, in the context of the widespread decentralisation and devolution of responsibility to local levels of government, some municipalities have quickly found that they have neither the human nor the financial resources to meet the extent of their obligations. If national-level policy or donor conditionality are not driving change, enlightened or desperate municipal leaders are recognising the potential contribution - mostly the investment contribution - of the private sector. This is resulting in an ever-increasing shift from public service provision to some form of partnership with the private sector. This shift to private sector involvement is perhaps most marked and contentious in the delivery of infrastructure and other basic services.

In less than a decade, the rapid increase in partnership initiatives has meant that there are a number of public authorities and private utilities testing new ways of working together for mutual gain. Yet the outcomes are not yet fully known. The experiences of most projects are often discussed in terms of inputs and outputs, and success is measured against predetermined (but not necessarily substantiated) contractual requirements set down by a public sector that is unfamiliar with this task. While a number of municipal-private partnerships have been in place for a decade, such local partnerships are still relatively rare. Relationships between the private sector and government, particularly municipal government, are thus still in their infancy. Furthermore, while there are many signs of the benefits of the involvement of the private sector, to date there are few, if any, rigorous assessments of the impacts. In the context of increasing private sector involvement, impact assessments are urgently needed to guide policy-makers and stakeholders as to whether or not a partnership with the private sector is indeed always an appropriate solution, under which conditions such partnerships shine, and in which areas they have failed.

To broaden knowledge of partnerships in the context of developing countries, over the last two years a number of agencies, governments and operators have focused efforts on improving their understanding of public-private service delivery to urban poor communities and low-income areas. Within the partnership debate, the need for improved service coverage and higher levels of investment in unserviced or underserviced areas of the city is coming to the fore, because the constraints of delivering to these areas were not adequately understood at the outset of such partnerships. Performance relating to poor areas was not explicitly built into regulatory frameworks, and supporting mechanisms (such as technical options, service gradation and financing arrangements) were not embodied in contractual agreements. As a result, in many cities the private sector has been unable to meet targets. In some cases targets have created perverse incentives, and in other cases the targets themselves are inappropriate and do not reflect the needs of the poor.

This investigation of the delivery of services to the poor through partnerships - and the dissemination of lessons learnt to date - enabled some recent transactions to adopt more appropriate financial, institutional and technical alternatives. While these (mostly) donor-led initiatives may have reached national-level policy-makers, and may have started to influence contract formulation, it is questionable whether municipal government and implementing agencies at the local level have had access to or benefited from these revised approaches. It is unlikely that municipal officials are any clearer on whether or how private sector participation (PSP) can effectively address the needs of the poor. There is certainly little evidence of any capacity building for them to do so.

Yet despite these efforts and the various initiatives in service delivery at all levels of government, the debate over private sector involvement has not always been fully played out. It is of particular concern that many advocates of the private sector's role in basic services have not yet aligned their ideology with the realities of very poor, institutionally weak cities. Although current rhetoric reinforces the point that private sector participation is not a panacea for the service and infrastructure deficiencies prevalent in the South, actions tend to inherently contradict this, sending an unambiguous message that private sector participation is the answer to most ills. Some initiatives with the private sector are being applied in isolation - often in contexts in which other public/community or NGO partnerships may have been more appropriate - provide mounting evidence of the need for more objective assistance to support municipalities (and higher levels of government) in identifying both goals and solutions. Moreover, assistance is also needed to ensure that undertakings with the private sector are effectively targeted.

In the future, it seems vital that advocates begin to recognise that a central aspect of targeting the poor must consist of a greater synergy between the private sector approach (founded in the economic/financial disciplines) and the broader experiences of poverty reduction that lean towards the importance of social capital and sustainable livelihoods. This means that the development of the basic framework of partnerships (the basic tool proposed in this sourcebook) needs to address a number of key issues. Chapter 5, for instance, expands on some of the primary concerns that arise because public-private partnerships (PPPs) to date have done little to acknowledge this experience. On the face of it, private sector participation has cut down the possibilities for or implementation of integrated solutions to poverty reduction - solutions that ensure that unsustainable single sector interventions are avoided. Some argue that, with the efficient formal private sector delivering a service, outcomes will be different from the failed slum-improvement projects of the past. Others are not so sure, and in line with the approach proposed in this book, they advocate the importance of linking sector partnerships closely with other initiatives in order to bring about improvements in livelihood outcomes.

Closely associated with this discussion is the very closed definition normally applied to the 'private' sector. Notwithstanding the opportunities of investment that come with the large-scale formal private sector, in reality, the small-scale private sector is frequently a key stakeholder in service delivery to the poor, and greater emphasis should be given to initiatives that build on such assets. Accordingly, this book, which is concerned with focusing partnerships, provides information on small-scale providers and includes them as an integral part of the term 'private' in the partnership framework.

Ultimately, this book is aimed at capacity building; it is critical that policy-makers and advocates of municipal-private partnerships begin to understand just how onerous all this is. The shift towards private sector participation in so-called public sector functions may be a new area for formal private sector actors, but for the municipalities it is part of a series of structural and procedural changes to municipal service delivery. The capacity of municipal governments to absorb and implement these new policies is, however, rarely supported by a level of capacity building commensurate with the change envisaged.

Prior to the private sector participation tide, perhaps the most fundamental change in recent years has been the shift towards demand-led service delivery - towards community participation in the planning, implementation and management of services and infrastructure. This shift came about not least because empirical evidence showed that engineering- or supply-led infrastructure and services provided in poor neighbourhoods resulted in only short-term benefits, and frequently resulted in the poorest groups and households being squeezed out of their newly serviced areas due to market pressures. Donor-funded slum-improvement projects, for instance, received massive capital investments in comparison to normal municipal budgets, and such injections of capital proved unsustainable.1 The shift towards demand-led service delivery was considered advantageous to service sustainability and beneficial to the users. It is now widely argued that the process itself is empowering, improving the capacity of individuals and groups to participate in their own development.

In some countries, another important shift resulted in holistic approaches towards poverty reduction. Seeking a sustainability not attained through sectoral service improvement projects, urban poverty reduction responses became multisectoral, emphasising the linkages between sectors (such as water supply and health promotion). This 'integrated' approach has included, for instance, community development, micro-credit, income generation, basic infrastructure and services, health promotion and education. Environmental service improvements are considered a part, albeit the most capital-intensive part, of the overall poverty reduction framework. Programming for service improvements was then revised to fit into an integrated programme of development.

These demand-led and integrated approaches require very different skills and organisational capacity within municipal government, and tasks to be undertaken by municipal officials need to change dramatically. To promote demand-led infrastructure, officials must bring together various actors in the decision-making process and facilitate rather than dictate. Engineers accustomed to making unilateral decisions, measuring success in terms of inputs and outputs and judging performance in terms of time, quality and cost, are expected to master low-cost options, micro-planning and community maintenance, normally without training or support from the engineering profession. To create an integrated approach to poverty reduction, municipal actors are asked to interact, and organisations are asked to achieve a (hitherto unheard of) level of inter-departmental coordination, and in some cases to accept a reshuffling in departmental status and responsibility. Both approaches require massive attitudinal change - a change that frequently sidelines investment and technical concerns and promotes the concerns of sustainable community development.

Within this framework, a new actor - the formal private sector - is introduced into the process of delivering services to a city. Driven by predetermined contractual obligations, programmes and quantitative targets, this policy change demands quite different municipal competencies: understanding alternative forms of contracts, contract preparation, performance monitoring, regulatory frameworks and negotiation. While the process may err towards an engineering-led approach and may be more akin to the technical decision-making of the past, the municipal role in the delivery process is utterly transformed. In most cases, municipal managers and technical officials have been asked to cease being project providers and become managers and monitors. Without adequate capacity building, many have experienced problems and are now, unsurprisingly, accused of micro-managing private sector activities.

Within this multi-layered and somewhat conflicting context, the discussion of pro-poor private sector participation has emerged - introducing a partnership arrangement that often means involving communities and informal service providers as well as the formal private sector and is surely, by any standards, a most complex endeavour for municipal government to embark upon. On the one hand, this delivery process is demand-led and participatory, requiring flexibility; and on the other hand, private sector participation is often investment-led (or at least project-led), and characterised by contractual obligations requiring rigidity and predictability. Furthermore, the role of interested stakeholders is more complex (particularly by the potential inclusion of small-scale providers who are often poor themselves) and objectives such as equity and job creation create an infinitely more ambitious agenda.

Seen in this evolving context, such rapid and significant process changes are considerable, even to a private sector organisation in a developed country. Yet in developing countries, shifts such as these have become common aspects of municipal life. The municipality is expected to absorb these changes effortlessly. Change may be necessary and reform a condition of funding, but it is fundamentally constrained by the inertia of the bureaucracy, by inappropriate skills, and perhaps resistant attitudes among staff. For those municipal leaders who come from the long-established tradition of engineering-led service provision and have not had any experience of such changes, the enormity of the challenge must be constantly asserted in order that capacity building initiatives are given greater importance. Until capacity building initiatives become commensurate with the degree of change envisaged, policy frameworks will remain impractical and out of the reach of all but a few large municipal organisations. In this context of rapid change and somewhat conflicting agendas, what does a municipality need to know to formulate, establish and sustain partnerships that are focused on bringing improvements to the poor?