Professional Documents
Culture Documents
Water and
Sanitation
Program Tapping the Market:
An international Private Sector Financing of
Rural Water Supplies in
partnership to help
the poor gain sustained
access to improved
water supply and
sanitation services Cambodia and Vietnam
F
inancial constraint is a major challenge in scaling up Rural Water Supply (RWS)
service delivery in the developing regions of the world. To meet the Millennium
Development Goal (MDG) of halving the number of people without access to clean
water and sanitation, the World Commission on Water estimates the shortfall of global
RWS resources at approximately 140 percent (US$ 180 billion required vs. US$ 75 billion
available).1 However, there is strong evidence that the private sector, which can provide
up to 100 percent of infrastructure investment costs, can help to effectively fill this gap.
Vietnam and Cambodia provide instructive examples where the private sector has stepped
into RWS provision investing its own funds, and leveraging funds from a fee-paying
consumer base. The growth in private sector investment in RWS in the two countries has
occurred in response to consumer demand that was not being met by public services.
Importantly, Governments in both countries recognize and support these private
sector initiatives.
1
Water A Priority for Responsible Growth and Poverty Reduction An Agenda for Investment and Policy Change,
The World Bank, January 2001.
T
his vibrant if relatively small-scale The RWS experience of the two
and informal private sector countries analyzed here generates a
supplying RWS services clearer appreciation of the relative
throughout Vietnam and Cambodia opportunities and limitations to
consists both of enterprises that sell increased private sector activities in
water and others that install water the sector. The unmistakable
source technologies. Operating in advantages of the private sector in
tandem, they provide either different RWS provision emerging from the
services for different populations or analysis include leveraging of funds
different water to the same consumers to the sector, the benefits of demand
for various end uses. However micro driven services, and the cost
and small-scale, they are able to earn effectiveness not only of the private
a reasonable profit by providing sector but also of the public
services at the market rate. investments made in support of the
Significantly, private sector providers private sector. Both by virtue of its
have shown themselves to be customer-oriented structure and
sustainable operations that grow and because it is able to provide cheaper
tailor their businesses to the shifting more localized services than
demands and preferences of their government suppliers the private
consumer base. sector can provide a viable preferable
While it is difficult to accurately alternative to public investment.
estimate the total annual investment While pointing to a clearly
by these enterprises or by end-users, unstoppable and encouraging future
it is likely that private and/or user for private investment in the RWS
investment in the sector far exceeds sector, the positive experience of
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
T
resources and whether they should he RWS market in Vietnam and
at all invest in infrastructure when it Cambodia is served by a growing
can be financed from non- private sector made up of thousands
institutional resources. Instead, these of micro enterprises that fall into two
public funds are better spent to categories: (i) Technology Supply
create the demand that is required Enterprises, which are primarily
to meet the millenniums water and production/supply chains of
health objectives, as well as fuel end- enterprises that make, distribute, sell,
user investment in support of private and install water access, storage, and
sector suppliers. Of critical value purification technologies. The
also is the channeling of public technologies include tubewells, hand/
funds towards promoting safe water electric/diesel pumps, rainwater
handling and sanitation among storage jars/tanks, and water purifiers.
users to optimize the health Except in the case of large well drilling
2 promoting potential of water. operators these suppliers generally
Piped Water Source and Water Tower
provide household technologies that interesting lessons about financing
enable their purchasers to access, arrangements, experimental regulatory
store or purify water for which they do frameworks, user willingness to pay,
not have to pay. (ii) Water Supply and consumer water use.
Enterprises, which sell water. They The demand for water is such that
range from informal enterprises that consumers are compelled to use more
collect and transport water and sell it than one source of water. The
door-to-door, to piped-water scheme importance of market segmentation to
operators that provide pressurized the end-users is demonstrated by their
metered water directly into individual willingness to pay for water at
households. The latter are essentially differential costs.2 In any private or
small utility companies providing water public investment targeting users, it is
to tens, hundreds or thousands thus imperative to consider consumer
of households. water-habits and preferences.
The nature and size of the private To help devise strategies that cater
sector, and the services it provides, to the diverse and growing volume of
vary from one country or place to water needs and user preferences, a
another, and are inevitably tailored to valuable body of evidence from three
local scenarios including water cases drawn from Cambodia and
resource availability, population Vietnam is presented here.
density, consumer income, user need
and preference, extent of regulation,
and others. In Cambodia these private
The Experience of Cambodia
enterprises have grown rapidly over In the currently unregulated RWS sector
the last decade in an increasingly in Cambodia, private sector activity is
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
investment-friendly environment. The flourishing; from individual informal
lack of sector regulation has provided water collectors and sellers, to small and
an enabling environment for the unregulated family-run piped schemes,
development of thousands of micro to larger experimental piped schemes
water supply enterprises. In Vietnam that supply whole villages.
where markets are more fully Collecting water from open water
developed, in the southern province sources, community pumps, and open
of Tien Giang, for instance, non-state wells, water sellers in rural Cambodia
water companies are serving about 60 transport it for sale generally on trailers
percent of its 1.6 million population. equipped with 200-liter water tanks
These include individually invested pulled by a motorcycle. These informal
utilities generally financed with enterprises with low entry-level costs
borrowed capital; cooperative invested go into business with their own capital.
and managed systems; and user- Typically they sell water at around US$
group systems where the capital is 2.50/ m3. Though untreated, this water
raised upfront by user investors. In is purchased for consumption i.e.
Central Vietnam likewise, households drinking and cooking. Most families
purchase on-site water sources (eg. usually boil this water prior to
handpumps) and in response a consumption, but not always.
private sector supply market has Serving an identical market and
developed. These entrepreneurial operating in tandem are very small
enterprises in both countries offer pump-and-pipe operators that operate
2
For example in a single commune in Cambodia, metered water from a piped scheme costs from 30 to 50
US cents per cubic meter, whilst motorcycle-delivered untreated surface water costs US$ 2.5 per cubic
meter. While rainwater is harvested for free, it is essentially worth US$ 2.5 per cubic meter, as it substitutes
as a source of water for drinking/cooking. 3
in the more densely populated areas with the institutional arrangements, the capital was usually raised from the
of villages. They erect small (2-6 m3) financing, and their ability to collect consumers, by charging a large
water storage tanks usually supported water tariffs. The connection rates upfront connection fee, typically
by wooden structures and supply attained thus far are impressive, and amounting to US $60-100. For this
untreated water drawn from rivers, the water cost lower than for water amount, the users did not own a share
drilled wells, or ponds through pipes supplied by either the water sellers or of the equipment but were still willing
to individual households. Depending the informal pump-and-pipe to finance at this market connection
on the available water source, and operators that were replaced. rate. Alternate management
cost to develop that source for arrangements such as informal user-
extraction, a small enterprise supplying group invested systems (backed by
water to 20-60 households might cost
Piped Water Scheme Development in
commune level government), and
between US$ 1,000 to US$ 8,000. Tien Giang Province in Vietnams
cooperative managed systems also
Mekong Delta
The Mini Reseaux dEau Potable emerged. In these cases, members
(MIREP) program has six ongoing In the Mekong Delta of Vietnam, invested (usually US $60) in a fund
projects to pilot rural village-level drilled water access is prohibitively that was used to build a system.
privately invested and operated expensive for individual households
A Provincial Government decree
schemes. These projects are targeted in some areas. As in Cambodia,
in 1998 banned private investors
to supply full access to villages that almost every household harvests
from raising investment capital from
consist of 250-400 households, and rainwater as well as water from open
their target consumer base, but
their total capital investment ranges water sources such as ponds and
allowed user groups and cooperatives
from US$ 17,000 to US$ 66,000. canals. To a lesser degree than in
to do so. Some private investors
Three of these systems are in Cambodia users also rely on informal
continued to raise capital by providing
operation, and the rest due to become water-seller businesses that source
a reduced water tariff until such time
operational later this year. MIREP water from community handpumps or
as the user investment is repaid. This
supplies institutional, financial, and other available sources, and transport
is an attractive proposition for private
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
3
Of the current 415 schemes in operation, 49 are
invested by state owned enterprises, 80 by private
enterprises, 28 by cooperatives, and 258 by user
groups. Most of these stations supply untreated
groundwater, a few supply treated surface water.
4
In all cases, the government provides technical
design support and has a series of pre-designed
systems that are tailored for varying populations
and water source conditions.
4
Rain Water Storage Jars
Box 1
Creating a Viable Water Supply Enterprise
Mr Nhas water system was built and he would provide reduced
in 2000 to supply water in Long rate water (60 percent of cost)
Vinh Commune, Tien Giang until their US$ 20 was paid off.
Province. It draws water through As a result of the above efforts,
a pipe from a canal that is one the number of connections grew
kilometer away into an 800 m2 to 480 from the original 120.
lined holding tank. From here it Mr Nha now needed to further
is pumped through a simple upgrade the system, and buy a
purification plant, and up to a larger pipeline to feed the station.
water tower from where it is fed to For this final expansion, he
the village. borrowed US$ 9,000 from the
Mr Nha surveyed the target bank at the rate of 0.85 percent
households to assess whether they per month. He anticipates that by
would be willing to pay for puri- the end of 2003 he will have all
fied piped water at the Govern- 600 households connected.
ment ceiling-rate of 25 cents/m3 Currently most of the
(for water extracted from open consumers use the water Mr Nha
water sources). Based on market supplies for drinking, cooking,
research, he invested US$ and animal husbandry. But
14,000 of his own money towards Mr Nha is confident that in the
the system. But he needed more future, more of his consumers
capital to extend the pipeline. He will appreciate the value of safe
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
proposed to the interested house- water and the consumption will Mr Nhas Water Tower
holds that they pay him US$ 20, further increase.
percent now have access to piped Financing individuals, cooperatives, and user
water, mostly through schemes Of the total capital invested in piped groups was respectively 27, 17, and
developed since the mid to late RWS schemes in the province, 56 percent. High user-group
nineties. The current rate of investment by private investors and investment is on account of a social
development of new schemes (70-80 water users accounts for 61 percent, structure that reaches right down to
per year) is so rapid that the remaining by state enterprises for 29 percent, and the hamlet level and ensures such
35 percent of the population will likely subsidy from state budgets for 10 group investments remain relatively
be served within the next three to percent. Of the capital invested by secure; and a system of social
four years. non-state funds, the share of private incentives that ranks leaders of hamlets
on attainment of social points. These
are awarded for such achievements as
User Groups
water supply coverage, latrine use,
38%
covered pathways, hamlet cleanliness,
and crime rate reduction. Thus, hamlet
State Enterprises leaders are motivated to be proactive
33% in encouraging the development of
Private Investors these types of systems.
18%
Difference Between Accessing Water and
Cooperatives
Having Safe Water
11%
With an impressive record in the
Investment in Piped Schemes in Tien Giang Province, Vietnam development of piped water schemes, 5
Tien Giang province is one of the most
exemplary in Vietnam, but there is
a downside. As in Cambodia,
consumers in Vietnam supplement
piped with rainwater that may be
improperly stored. In the absence of
social marketing strategies to foster
improved domestic sanitation
(especially water handling and hand
washing), the impact of improved water
supply systems on health is likely to be
greatly compromised.
Technology Supply Chain Networks in Handpump being Used for Domestic Water Supply and Garden Irrigation
Central Vietnam
In large areas of Central Vietnam, (IDE)5 launched a program to expand separately targeting men, women,
along the populated coastlines, on this government-managed system girls, and boys. It did not promote
groundwater is easily accessible in by developing private sector capacity handpumps or wells. It promoted
shallow aquifers, of good quality, and to provide hand and electric pump dreams.
replenished every year through run off installations and after-sales services/ The result was a rapid growth in
from the inland mountain ranges. In maintenance throughout three end-user financing of domestic
the early nineties, with UNICEF provinces of Central Vietnam. The handpumps and tubewells. As the
support, the government developed program entailed building enterprise project progressed, the marketing
provincial level capacity to drill capacity to manufacture pumps, support was gradually withdrawn, and
shallow tubewells and install pumps,
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
wholesale pumps and pipes, and drill marketing tools were developed to
mostly donated for community use. wells and install pumps. In all, about enable the private sector to undertake
At that time, rural inhabitants 150 branded well drilling and pump their own promotional activities at a
(comprising over 85 percent of the installation enterprises were built, cost and level of effort appropriate for
countrys population) collected water along with a corresponding their scale of business and profitability.
from uncovered wells, either in manufacturer and supply network to The user was the principal gainer.
community locations or installed at feed their inventory. Decentralization of the handpump
their homes. An installed handpump supply/well-drilling enterprises resulted
purchased through the government in a decline in the pumps cost from
Promoting Dreams, Not Handpumps
network cost about US$ 100 (to either about US$ 100 to around US$ 30. By
donor or purchaser), and due to The most critical intervention of IDE,
the end of the project a total of 64,000
their centralized (Provincial Capital) however, was not capacity building but
pumps had been purchased through
market development. Nearly 80
location, it took five simultaneous 26 districts of three provinces,
percent of the total program budget
orders to get the pumps released to providing water to an estimated
went to finance a targeted marketing
the countryside. 320,000 people. The user invested
campaign to fuel demand for the
The UNICEF program set the capital in these unsubsidized
services and technologies of these
technological standards for both the supply networks, as well as promote installations totaled US$ 2.3 million.
hardware and its installation. Capacity sanitary water handling, storage, and Apart from sales tactics, the private
was built at a provincial level that hand washing. Key to the success of sector quickly learnt their best promotion
could be used to further train other this marketing strategy was that it was customer satisfaction, as their
water source developers. In 1995 tapped into the emotions and greatest sales came through referrals.
International Development Enterprises aspirations of the consumer base, Thus the installers and pump sellers
5
International Development Enterprises is a non-profit organization which establishes for-profit enterprises that supply socially beneficial technologies and services
to their consumers at an unsubsidized rate. For more information see: www.idevn.org.
6
placed a great deal of emphasis on Even though operating in a more services. With a closed loop of
follow up, with efficient after-sales monopolistic business environment, financial transaction between supply
servicing and spot check maintenance. piped water scheme operators often enterprises and end-users, there is no
provide more localized decision need for long-term external financial
making, are less bureaucratic, and support.
Comparative Advantages of driven by the bottom line. This
Private Sectors Engagement translates into better service provision
Is There Any Downside to the Private
with RWS such as faster connectivity or quicker
Sectors Presence in RWS?
responsiveness to pipe leaks and other
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
percent) and users (9 percent). In Tien predominantly cheaper water and
Vietnam, cost reductions achieved by
Giang province in Southern Vietnam more convenient access. Consumers
switching to decentralized competitive
the earliest piped schemes were generally are not aware of the health
distribution networks were dramatic
financed by private investment as well benefits of improved water quality. In
(falling to less than a third of the an unregulated market and where
as upfront amounts mobilized from
former price). consumers do not demand water
consumers. The majority of schemes
are now financed entirely by the users Profitability equals sustainability: quality from suppliers, the private
while some private enterprises utilize RWS interventions clearly are sector is not focused on providing it.
a combination of private funds, bank more sustainable where private Critical factors such as how end-users
loans, and user advance payments entrepreneurs are making a profit and handle, store, and treat water therefore
that are discounted from water bills. where end-users are paying for cannot and will not be addressed
The handpump network and well
drilling services in Central Vietnam too, Box 2
demonstrate convincing private sector Private Sector is Profit Driven, Not Socially Driven
and user investment in the water sector.
Demand-driven quality services: It is interesting to compare both regulated and unregulated market prices for
Innately customer focused, private water. In Phnom Penh, Cambodias capital, the State Company that managed
enterprises are responsive and able to water supply was privatized, but it is subject to government control on pricing.
adapt their services to changing The result is a socially designed pricing structure to which the operating
consumer demands. In contrast, company must adhere the less water one uses, the less one has to pay, and
centrally planned, subsidized programs the more water one uses, the more one has to pay. In a privately invested
often take decisions on behalf of their piped scheme in Takeo province where there is no such regulatory control, to
consumers and provide what they encourage greater water use the investor has designed a price structure in
deem best for them. The service quality reverse, i.e., the less one uses the more one has to pay, and the more one
of private enterprises is also better. uses the less one has to pay.
7
through purely private initiatives constrain more than support it. In to enter business. Where direct
(See Box 3). Vietnam for instance, in developing subsidies are considered necessary, the
supply chains for handpumps, when challenge is to find a balance between
donors gave away free or subsidized two extremes encouraging business,
Pointers to Facilitating the pumps they distorted the markets. The but not overdoing it to the extent that
Private Sector provision of a donated pump it jeopardizes the likely success of
Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam
supply water technology, on the other
Vietnam proves sales are much higher
hand, depending on the geology
in areas where consumers additionally
in their area of operation, is
use their water source for irrigation.
comparatively low. In the supply chain
Other examples also demonstrate that
example from Vietnam, where well
by integrating drinking water and
drillers are able to use handboring
irrigation needs 7 it is possible to
methods, investment in drilling
achieve 100 percent cost recovery of
equipment and start-up inventory is
water source development even in
in the range of US$ 100-200. These
the poorer areas where source
businesses therefore do not encounter
development is relatively expensive.
the same start-up capital constraints,
injection of tighter regulation in Tien
but unlike the piped scheme operators,
Giang province, possibly favored
Conclusion: Critical Ingredients cooperative and user-group
they do face much more challenging
market development costs.
of Success investments over the private sector,
S
demonstrating the impact regulation
everal conclusions about the critical
can have in determining the structure Technical Skills
ingredients to successful private
of non-state operators. A key requirement of private sector
sector participation in RWS can be
inferred from the preceding discussion: Issues of water pricing seem the entrepreneurs is technical knowledge.
most critical and complex to address. In the case of piped schemes this
Water resource development costs, would include the design and
A Conducive and Supportive Climate dispersion of populations, and user operation of their systems (especially
Government support for the private ability to pay vary from place to place the water treatment components), and
sector is critical, and forms a and can have a dramatic effect on in the case of pump installation
7
Transforming Rural Water Access into Profitable Business Opportunities; Polak, Adhikari, Nanes, Salter, Surywanshi; International Development Enterprises,
January 2002.
9
Water and Sanitation Program-
East Asia and Pacific Region
Jakarta Stock Exchange Building,
Tower 2, 13th Floor
Jl. Jenderal Sudirman, Kav. 52-53,
SCBD
Jakarta 12190
Indonesia
recall that however efficient, the This Learning Note is drawn from a report entited
to be prohibitive. In the three examples Private Sector Financing of Rural Water Supply in
private sector is not socially, but profit Vietnam and Cambodia written by Dan Salter, with
studied, there is evidence of the public
oriented. Samll businesses cannot funding from the World Bank Rural Water and
sector assuming these costs. In Sanitation Thematic Group.
afford, nor are they skilled in providing
Cambodia, the MIREP projects are
social marketing or health promotion
providing these services for aspiring Published by: Vandana Mehra
to their consumers. Such software
small-scale water supply enterprises; Special thanks to:
should be funded by the public sector Jean Pierre Mahe, MIREP Project, Cambodia
IDE underwrote the costs of these
to derive the desired health Peter Feldman, Partners for Development,
services in the Central Vietnam project; Cambodia
improvements related to improved Peoples Committee of Tien Giang Province,
in Vietnams Tien Giang province, the
water access and sanitation. The Vietnam
government provides these services at
public sectors effective promotion of Pictures by: Dan Salter
no official cost to piped scheme
improved health and hygiene
developers and operators.
behavior will result in an increased May 2003
demand for clean water and improved
Management Structure sanitation facilities. Thus governments The Water and Sanitation Program is an
can fuel demand, and in parallel, international partnership to help the
In the prevailing pro-private sector
poor gain sustained access to
climate, a variety of operational models support the private sector providers improved water supply and sanitation
or organizational structures have with technical backstopping to meet services. The programs main
emerged. These include (i) Entirely the demand as it emerges. funding partners are the Governments
of Australia, Belgium, Canada, Denmark,
privately invested and operated (ii) The faster the appreciation in Germany, Italy, Japan, Luxembourg,
User group investment and operation governments as well as among the the Netherlands, Norway, Sweden,
(iii) Cooperative investment and donor community of the criticality of Switzerland, and the United Kingdom;
operation (iv) User investment with the United Nations Development Program,
the above function, the greater the
and The World Bank.
third party operation. It is too early to chances of the developing regions of
determine the relative effectiveness of the world to gain access to adequate Created by
Roots Advertising Services Pvt. Ltd.
10 these structures as they are relatively water for multiple uses and benefits. Printed by