The private sector is seen as a potential source of the expertise, efficiency, and capital, which are required to improve and expand service, but which are often lacking in the public sector. In many cases, the private sector has been able to successfully partner with public utilities to the advantage of consumers. However, experience has shown that many private operators were unable or unwilling to improve or expand services to low-income groups (LIGs), at least in the short to medium term. The underlying cause is that the private sector may have little incentive to extend services to low-income areas due to the high cost of providing the service and low profits due to lack of a payment culture, lack of tenure, low consumption, and low-cost structures for those customers.
The concerns voiced by consumers, NGOs, and representatives of civil society have translated into new, targeted approaches to the needs of LIGs within the rubric of PPP structures. The most explicit of these approaches is a new approach called output-based aid or OBA. However, there are other ways in which the PPP process and the basic forms of PPP can be approached from a pro-poor perspective. When this approach is combined with tailored interventions to alleviate service constraints, PPPs can provide adequate incentives to the private sector, involve the LIGs, and balance the financial and social risks and rewards to all stakeholders.