There is a great deal of variation in the level of sophistication of business in developing countries, but at their core, the nationally owned medium- to large-scale businesses working in water and waste services in developing countries display the same characteristics as international operators, although on a smaller scale. They are fundamentally concerned with profit, controlled by their owners and driven to improve efficiency in order to decrease costs and increase profit margins. They have access to investment capital, normally varying with the industry and scale of the business, and some will have access to national capital markets to fund expansion.
Yet in many ways, nationally owned and managed businesses are a far cry from the large international operators that benefit from state-of-the-art management, technical expertise and experience, and access to greater resources. These large operators provide greater comfort to financial backers or donors. Many national business managers are less skilled than government leaders; many have enjoyed little or no competition for decades, and have thrived on just one or a few clients who are highly dependent upon inter-personal relationships. In the context of municipal service delivery, with the clear exception of solid waste management in Latin America, experience is limited.
Despite this, and for many other reasons, there is a growing trend towards national private sector participation (PSP) in municipal service delivery. This participation appears to arise where national enterprises are included in large consortiums as local partners (often as a tender condition); where international companies will not risk local economic conditions; and where enterprises are expanding their competencies to fill gaps in an existing market. To some extent, the first circumstance applies to water supply, and the latter to non-network (including both solid waste and sanitation) waste services.
In the case of solid waste management, there is a vast range of successful national businesses of various scales operating and managing solid waste services in cities in developing countries. Indeed, while there is an increasing interest from international operators - keen to enter lucrative and established markets, or keen to merge urban water and sanitation with solid waste activities - the norm in municipal solid waste management over the last few decades has been for contracts to be won by national companies. In Latin America and the Caribbean, where many large cities have undertaken large-scale contracting-out, 40-50 per cent of the urban population is served by private operators.6
Other companies have arisen through expansion from one business to another, often in response to market demand. This is exemplified by the initiatives of a pipe-manufacturer-turned-network-installer in Warangal in India,7 and SILT in Nepal. Originally a consultant engineering firm, SILT expanded its activities into solid waste management in Biratnagar and, later, Kathmandu. While this was originated in dubious circumstances (see Box 6.7 describing the fraudulent conduct of the international operator), the initiative has sustained itself due to the level of local knowledge, the (forced) low level of investment and an unambitious approach to sweeping, collection and transfer activities. On the other hand, SILT has struggled because of the lack of finance, skilled management and experience in the service sector, and because of an overly ambitious contract that inexperience led it to sign.
Working alone, the national private sector - whether of a large or a medium scale - can offer opportunities that municipalities might not be able to realise with international operators. Since the success of national companies is closely associated with national economic and business performance, they often have a greater commitment to projects. Typically, they do not require guarantees, are willing to take on more risk, and are willing to work in lower-profile locations - perhaps even in less lucrative secondary cities - than their international counterparts. While they may bring fewer skills and lower levels of investment, their contribution may provide a sound basis, and a more level playing field, on which to launch a private sector partnership.
In the delivery of municipal water and sanitation services, by far the most common involvement of national businesses is in consortia comprising international operators. National businesses bring a number of key benefits to such consortia, and many international operators place a great deal of value upon having a well-established and astute local partner. Benefits include:
• knowledge of the local context, problems and idiosyncrasies, including local traditions and etiquettes;
• local contacts and networks - who's who and how the system works;
• local legitimacy that enables better interaction with government; and, frequently,
• better knowledge of the technical viability of project solutions.
In South Africa, the association between the national construction company G5 and Ondeo-Lyonnaise has resulted in a successful international and national profile. The national partner brings local legitimacy that allows the partner to interact with government as a constituent as well as a business. It can also lead to greater confidence on the part of government that the partnership is serious, since the national business keeps a much greater proportion of its business within the country and will be heavily affected by non-performance.
Involvement in non-exploitative partnerships8 clearly benefits national businesses. Not only are such partnerships lucrative (and present risks that are acceptable to international businesses), but the transfer of management know-how and environmental technology can be invaluable in preparing the national business for independent activities elsewhere. Governments often seize these advantages, and actively promote consortia that involve national companies as a strategy to build the capacity of their national business sectors.
Box 6.7 A National Solid Waste Operator | |
Following the disappearance of the private operator Americorp's managing director from Biratnagar (see Box 9.2), a national consulting engineer, SILT, established itself as a committed and stable partner in municipal solid waste management in Biratnagar. The arrangement under which the operator now undertakes solid waste services in Biratnagar is a complex agreement with the Biratnagar sub-municipal corporation. It comprises the spurious initial contract, a number of informal agreements and an additional service contract. While many aspects of the Biratnagar case are unusual and unlikely to be widely replicated, the very existence of this PPP is instructive to municipalities as it describes the sort of irregular partnerships that can develop. It also describes the formation of a national solid waste management business expanded from traditional engineering consulting services. Given its history of both international and national operators, the Biratnagar case addresses a number of issues in relation to these different actors. It illustrates, for instance, the sort of inappropriate technical and financial options that might be proposed by international operators inexperienced in the specific needs and problems of developing cities. The initial scheme proposed for Biratnagar offered a technically inappropriate and financially unviable proposition, and there is little question in hindsight that it was unsuitable in the socio-economic context of Biratnagar. Based on figures provided by the UN, Nepal appears to have one of the lowest rates of urban solid waste generation (at 0.50 kilograms per capita per day), and this is expected to increase only marginally by 2025 (World Bank, 1999). Despite this, the original operator suggested, and the council accepted, a proposal relevant for the waste generation rates of highly developed cities in the North. One of the simple lessons of the Biratnagar case thus relates to the lack of viability of high-technology proposals and the high levels of investment proposed at the outset. The national operator was quick to amend the proposal to include more appropriate solutions for the landfill site, the compactors were replaced by simple tractor trailers, and the household containers have been simplified. Knowledge of what is financially and technically viable in the Nepalese context has been a critical element in the sustainability of the initiative. The Biratnagar case also demonstrates that the capacity of national level private operators can be limited. Neither the municipality nor the operator have had experience in managing an integrated solid waste management programme. Both parties have had to learn from experience and experiment with systems and procedures. The main capacity deficiencies have been concerned with contract formulation and negotiation, technical analysis of waste management operations, financial analysis and management, integrated waste management practices, public consultation processes, alternative waste management systems, the role of NGOs and CBOs, and community participation in waste operations. As a result, the mayor of Biratnagar argues that the current scope and content of the partnership is probably limited in the medium to long term. He argues that the national operator does not have the resources and technical capacity to undertake all the waste- related activities required by the city. However, in relation to the existing service, there is also some question over the capacity of the operator to replicate the initiative and significantly increase the scale of the operation. In particular, the makeshift and ad hoc nature of the operations (seen in the proposal for leasing a site for a compost plant from a friend) and the personal attention paid to each facet of the operation by the general manager, suggest that significantly greater coverage and replication may not be achieved without increased systematisation. While the operator is not skilled in working with the poor and the various dimensions of poverty reduction, it is noticeable that the scale of its operations has enabled it to develop small-scale and ad hoc initiatives with the poor where it sees a potential benefit to its operations. Be it in a small way, its ability to adopt new processes and involve new actors is a particular dimension of the way the initiative has developed. The primary area of concern in relation to the poor is the terms and conditions of the employment of (poor) individuals. In many partnerships one of the key benefits of the private sector is the ability to promote and sustain better work practices. While it may be argued that conditions are not worse than municipal conditions, it is also notable that the national private sector operator has not promoted or felt any obligation to improve health and safety arrangements for workers. The partnership arrangement is a complex one filled with uncommon practices. Yet despite this, the mayor reports that the majority of councillors are quite satisfied with the performance of the partnership, and that the council is in favour of further private sector initiatives in service delivery. From an objective viewpoint, however, there would appear to be fundamental problems with this solid waste initiative that are not being addressed by municipal decision-makers. Foremost among these is that the partnership, under the current terms, is unviable and unsustainable for the operator. | |
Source: Plummer and Slater, 2001 | |
Box 6.8 Water Tanker Service Delivery in Peri-urban Areas | |
The participation of small-scale independent providers, together with a successful community mobilisation programme on the periphery of Lima, has contributed to a significant upgrade in the quality, quantity and reliability of water supply to poor residents of the informal settlements. In the late 80s, poor households in the municipality of Villa María del Triunfo obtained water from tankers informally providing urgently needed water to the rapidly expanding hillside settlements in the outlying areas of the city. The only option was for residents to pay high prices for untreated water delivered by water tankers. The settlements were riddled with water- and faecal- borne diseases and skin complaints because of the poor water quality and arid conditions. In 1990, an outbreak of cholera prompted the government to take action and an agreement was made to channel EU (Spanish) aid finance into a potable-water supply programme. This programme comprised a number of physical improvements, as well as social and institutional development components. The most innovative characteristic of the programme was the creation of a tri-sector partnership involving the municipality, the communities and the private water-tanker drivers. The decision to include previously exploitative small-scale providers recognised that this fleet of ad hoc tankers represented an asset and not a liability to be discarded. The design of the programme for safe water thus strategically included these small-scale water suppliers as a vital link in the arrangement. Efforts were then made to regulate the quality and price of the water supply to ensure that the system became fair, viable and sustainable. Perhaps the most significant step in this process was the formalisation of the water tanker provision, through registration as small businesses and the development of tanker driver associations. The new system requires that the tanker drivers obtain treated water from one of the four official pumps provided for this purpose by SEDAPAL (Sanitation and Potable Water Company of Lima). Although sometimes insufficient in quantity, this water is of the same quality as that supplied to the city network. The tanker drivers pay the utility per tanker. The tankers are annually contracted by the COVAAPs (the community management organisations) to provide regular water to the water reservoirs, built as a storage facility, to which a small independent network is then constructed. The tanker drivers are paid a fixed amount agreed by the community and regulated by the municipality. These small enterprises vary. Some are single owner-drivers; others are local businessmen with 5-10 tankers, employing 10-20 workers. They have invested US$6000-9000 per vehicle. In order to ensure ongoing work, the businesses maintain their tankers regularly (although there is some concern about the hygiene standards). At the city level, monitoring of the service is carried out by the Directorate of Environmental Health (DIGESA) in the national ministry, which monitors the quality of water supplied at the pump and the conditions of the tankers, and issues an authorisation for water transportation. The municipality regulates and monitors the service at the local level. Initially operated for some years in the informal sector, the tanker enterprises were brought under the umbrella of the programme in 1996. This required them to become registered businesses and perform in accordance with the standards established by the programme and the municipality. A key characteristic of these businesses is their lack of managerial and administrative capacity. They have had no opportunities for developing skills in formal accounting and management or technical proficiency. Consequently, they noticeably lack a knowledge of their responsibilities as water distributors and in relation to taxation and fees. Although the tanker drivers argue that there is not much difference in their profitability (and they must pay taxes), establishing themselves as formal sector businesses has improved their access to credit, enabling them fund expansion of the businesses. It has also allowed them to expand their client base to include commercial businesses, not just the COVAAPs in the local settlements. They have also been able to create jobs for unskilled and semi-skilled local workers. They argue that the main benefit of the arrangement for them is their legitimacy, primarily reflected in their being able to purchase good quality water from SEDAPAL, and thus ensure their own sustainability as service providers. Apart from the benefits for these SSIPs, the people of the peri-urban areas of Lima have been the primary stakeholders to benefit from the initiative (in all its facets), including the partnership with the water tanker drivers. A good quality service now reaches the households in the marginal areas (both in terms of terrain, distance and informality) of Lima. Over 300,000 people now have improved access to safe and adequate drinking water. The process of community empowerment in this context is described in Box 6.15. | |
Source: Ecociudad/GHK, 2001 | |