In fulfilling these objectives, municipal managers have a few options before them. In the past, municipal government aimed to provide services almost exclusively through the municipal machinery. Some may have enabled communities and NGOs to become involved in service delivery to fill gaps in delivery to low-income areas, but the role of the formal private sector in municipal functions was non-existent and capital inflow from outside sources was minimal.
So what has changed that enables a new actor to enter into the realm of municipal service delivery? Notwithstanding the critical role of Anglo-American donors in promoting the shift towards the private sector, globalisation and localisation processes have both been key factors influencing the new municipal agenda. Whereas the processes of globalisation can take some time to reach municipal actors, localisation processes in many countries have been both powerful and unavoidable. Policy change in relation to democratisation and decentralisation to local levels of government, which arose in the 1980s, took hold in the early 1990s. National governments (often pressured by development agencies to bring government closer to the people) instigated a process of handing increased authority and responsibility to local government. In many parts of the world a form of local governance that includes all parts of society has replaced the traditional top-down processes of decision-making and budgetary control.
The decentralisation process has taken various forms with vastly different meanings, from the extremes of the state government of Kerala in India (with its motto 'planning for the people by the people') to the decentralisation processes in Nepal, where the delegation of authority has not been accompanied by the allocation of financial resources and control. Nevertheless, the very process has changed the status of municipalities, along with the location of some decision- making over municipal functions and with it the actors' capacity to approach the delivery of municipal services in new ways. The process of decentralisation, however, has not only brought with it increased responsibility and opportunity for municipalities. In most, if not all cases, it has also led to severe financial deficits. The changing role of the municipality is thus closely aligned with the weakening of finances. Municipalities have been led into a position in which it is not only desirable but also necessary to re-examine the means through which they deliver municipal services.
Simultaneously, the process of globalisation has led to significant increases in international, private capital flows to developing counties, and has introduced the private sector as a key actor in the economies of developing countries.3 The shift from foreign-aid-based development to privately financed economic growth has occurred because many governments have established a more market-oriented economy, and because many national governments have adopted a liberalised trade regime and an openness to foreign investment. While it is still necessary to ask where this increased private capital has been targeted, it seems clear that this shift in the sources of financing has not been accompanied by a concern for capacity. Despite the opportunities offered in the context of globalisation and increased private capital flows, it is unsurprising that the weakest institutions are often marginalised from these possibilities.4 Indeed, those chronically deficient municipalities most affected by decentralisation are also those least likely to attract private sector capital, or able to climb on the ladder of support towards private sector participation - a ladder frequently offered by various external agencies. Whereas grant aid often brought with it technical assistance for institutional strengthening, and thus support to use funding more effectively, private sector funds have mostly been unaccompanied by the capacity development necessary to strengthen the government organisations responsible for decision-making and coordination.
Box 3.3 Why Involve the Private Sector in Service Delivery? |
An Operator's Perspective |
Through the involvement of the private sector, municipalities are generally anxious to ensure and accelerate the changes that they think are necessary in terms of water and sanitation service delivery. Some of the municipalities around the world provide an excellent service to their customers. Nevertheless, many of them acknowledge that they suffer drawbacks, which inhibit adequate service delivery: bureaucracy, financial constraints, excessive political interference, etc. |
Through its various contracts with large municipalities like Buenos Aires, Casablanca, Atlanta, Santiago and Jakarta, and also with smaller municipalities and government departments, Ondeo-Lyonnaise des Eaux (formerly Suez Lyonnaise-des-Eaux) has demonstrated that such inhibitions can be overcome so long as both partners (public and private) are fully committed to the partnership. |
Under the above-mentioned conditions, an experienced and competent private partner is able to bring the added value requested to the partnership. It can: |
• enable a decision-making culture based on business principles and not on political or bureaucratic considerations; • motivate and empower the personnel through the implementation of comprehensive training programmes and the introduction of performance management systems; • align the personnel to a customer-focused approach; • develop innovative and alternative service delivery options to the low-income communities; and • establish a sustainable utility through the implementation of cost-effective processes, and also through the injection of the necessary capital investment funding. |
The injection of private funding is obviously of great interest to many municipalities. They aim at concentrating their financial resources for capital investment on services such as roads and parks, which don't attract direct revenue and therefore cannot be 'ringfenced'. |
Of the various models of PSP, the concession remains the most efficient; the private operator can optimise the total cost by deciding daily how to arbitrate between operating and capital investment costs. The result is that through its optimisation of the service operation, the private operator enables the financial resources to be made more productive, thus increasing the achievable capital investment programme. For example, Aguas Argentinas, the Buenos Aires operator managed by Ondeo, is investing around US$200 million annually, which represents 40% of the company revenue. |
In comparison, the privatisation model implies that the operator has to buy existing assets or pay a licence fee, as in the UK, Chile or for some US and Central European companies. In this case, the operator has to bill the customers for the cost of past investments, which doesn't contribute to an improvement in current and future service. |
The change to customer-focused and business-orientated services is greatly facilitated when private utilities such as Ondeo, which supply more than 110 million people, can add expertise and experience from their various contracts around the world. As such, Ondeo has considerable expertise through a network of specialists in terms of water services provision to low-income communities. Inexperienced private companies would certainly experience enormous difficulties in bringing affordable and adequate services to such communities, which represent a large proportion of the various metropolis populations. |
The establishment of such partnerships with experienced private companies requires sound regulatory frameworks. It also requires fair returns as well as a clear and fair balance of risks between the various parties. This means that the consumers, the decision-makers and the private partner all need to be satisfied. |
Jean Pierre Mas, Operations Executive, Johannesburg Water Management (JOWAM) |