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What works in public utility reform: Lessons from evaluations in the energy and water sectors

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What works in public utility reform:  Lessons from evaluations in the energy and water sectors
Utility reform has never been more important. The COVID-19 pandemic has badly impacted utilities across the world. Many utilities are now under intensified financial stress due to budget reductions and a loss of revenue, resulting from a sudden drop in collection rates, suspension of billing, and tariff adjustment in some countries. This, in turn, has made it more challenging to ensure continued Show MoreUtility reform has never been more important. The COVID-19 pandemic has badly impacted utilities across the world. Many utilities are now under intensified financial stress due to budget reductions and a loss of revenue, resulting from a sudden drop in collection rates, suspension of billing, and tariff adjustment in some countries. This, in turn, has made it more challenging to ensure continued service delivery. IEG recently published the synthesis Public Utility Reform: What lessons can we learn from IEG evaluations in the energy and water sectors?, a compilation of evidence of what worked and what did not work, and why, in World Bank support of public utility reforms in the energy and water sectors in its client countries. Its findings are even more relevant in the context of uncertainty about medium-to long-term outlook for recovery from the challenges imposed by COVID-19. Well before COVID-19, financial viability and institutional accountability were the two main challenges faced by public utilities in improving service outcomes in the energy and water sectors. Now, the effectiveness of utilities in these two fundamental areas remain critical for ensuring the quality and sustainability of these vital basic services during a post-pandemic recovery. Financial Viability IEG analysis reveals a range of World Bank interventions geared to support financial viability in both the energy and water sectors.   Recovering the cost of service is at the core of sector reform. Across both water and energy sectors, inadequate cost recovery is a key driver of financial underperformance. Poor bill collection and operational inefficiencies (including excessive network losses) also have a significant role. IEG finds that, while tariff reform is fundamental, improving operational efficiency of service providers is crucial for financial sustainability. The cumulative evidence indicates that when inefficiencies result in high-cost service provision, improving utilities’ operational efficiency should precede or go hand-in-hand with tariff increases. Additionally, the gains from reductions in technical and commercial losses, improvements in payment collection, financial management, and demand side management proved easier to sustain once implemented. Evidence points to the importance of strengthening utilities’ commercial orientation, which is vital for the provision of adequate and reliable services, regardless of whether the service delivery agents are under public or private ownership. Utilities that emphasize cost control, customer orientation, and responsiveness to incentives are more likely to make meaningful progress. For example, World Bank operations in Vietnam and Turkey helped improve financial sustainability of electric power utilities through technical support and policy reforms, incrementally implementing tariff and market regulations in the electricity sector. Utilities may need more financial support as they weather the economic crisis triggered by the pandemic. However, as the recently published IEG evaluation State your Business! An evaluation of World Bank Group support to the Reform of State-Owned Enterprises cautions, temporary subsidies introduced at the time of COVID-19 can pose “policy traps” supported by powerful vested interests, which can be hard to reverse once the crisis is over.   Institutional Accountability Creating the right accountability and incentives is essential for effective service delivery. In both energy and water sectors, institutional accountability is critically tied to performance.  Sustaining reforms requires competent institutions and strong administrative capacity.  Improved performance can be a first step towards attracting private sector investment.  Strengthening sector planning, utility management, capacity and skills, can improve sector outcomes. A solid sectoral fiscal, financial, and regulatory framework also defines and sets the context for leveraging markets and the private sector to support service delivery. There are multiple institutional pathways that could lay the foundation for improved and sustained service delivery. There is no single model but there are certain principles that work. In energy, improved accountability and regulatory performance drive sector outcomes. Good practices on corporate governance and regulation enable the sector environment to leverage markets and the private sector. In Rwanda, for example, the World Bank (through budget support operations), the International Finance Corporation  (through advisory services), and Public-Private Infrastructure Advisory Facility (PPIAF) helped the government develop sector regulatory structures and separate water and electricity utilities to improve governance, accountability and transparency. Institutional and policy reforms transformed the Rwanda Energy Group into a commercially operated state-owned enterprise and helped attract private finance. In water, improved capacity, incentives, and transparent rules on accessing funds can ensure good sector outcomes. Good financial and operational data systems are also important. In Peru, the utility Sedapal radically changed its corporate management approach and work culture, including adopting a new performance-based compensation and incentive system driven by reaching results targets. IEG’s field-based assessment confirmed a steady improvement in access coverage, basic service parameters, and operational and financial performance. Political and social challenges In both sectors, utilities' operations and management are closely linked to the political economy in which they operate. Political economy considerations can inform specific design elements, including choices of programmatic instruments vs. standalone operations, or front-loading vs. back-loading of important reform actions in a programmatic series. Experience shows that support to operations need to match the time frame in which effective government action can reasonably take place. The World Bank’s experience shows that complementary interventions and sustained support contribute positively to favorable and enduring results. Regarding tariff reform, the institutional, political, and social challenges are considerable. Public opposition to tariff reforms reflects a lack of confidence in public service improvements and that vulnerable groups will be protected. At the same time, it is important to address potential negative distribution consequences of reforms through such measures as differentiated tariffs and targeted assistance programs. Their success depends on the government’s ability to reach vulnerable households through fiscally sustainable programs. Read the report | Public Utility Reform: What lessons can we learn from IEG evaluations in the energy and water sectors? Pictured at top, clockwise from left: The main drinking water pipeline for 750 households in Alapars and Karenis communities (Kotayk region) being fully rehabilitated. Armenia. Photo credit: Armine Grigoryan / World Bank The control room at the thermal power station at Takoradi, Ghana, June 21, 2006. Photo credit: Jonathan Ernst/World Bank Electricity Transfer Station in Kenya. Photo credit: Andrew Stone Windmill, Nicaragua photo credit: Ihsan Kaler Hurcan Wegala Community Water Supply and Sanitation Project. Sri Lanka. Photo credit: Simone D. McCourtie / World Bank Girl gathers drinking water from a community water pipe. Photo credit: Dominic Sansoni / World Bank

An Evaluation of the World Bank Group’s Support to Municipal Solid Waste Management, 2010–20 (Approach Paper)

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Municipal solid waste (MSW) has emerged as one of the most pressing challenges for urban areas across the world. This evaluation is the Independent Evaluation Group’s (IEG) first major study of the Bank Group’s support for MSWM. It is timely given the rapidly increasing scale of MSW in most MICs and LICs and considering the spectacle of massive open garbage dumps in cities as diverse as Manila, Show MoreMunicipal solid waste (MSW) has emerged as one of the most pressing challenges for urban areas across the world. This evaluation is the Independent Evaluation Group’s (IEG) first major study of the Bank Group’s support for MSWM. It is timely given the rapidly increasing scale of MSW in most MICs and LICs and considering the spectacle of massive open garbage dumps in cities as diverse as Manila, Lagos, and New Delhi. The evaluation will highlight the linkages of MSWM with other sectors and themes such as water supply and sanitation, environment, climate change, health, jobs, and social protection. This can point to how the Bank Group can better support the development of synergistic policy frameworks and regulations for MSWM in client countries. This has implications for developing systematic collaboration between various sectors within the Bank Group and among client government ministries and for leveraging opportunities for climate finance.

Evaluation of the World Bank’s Support to Improving Child Undernutrition and Its Determinants (Approach Paper)

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Global reports on indicators of child undernutrition show mixed progress in reducing the stunting (impaired growth and development) of children under five, with Africa and South Asia most severely affected. There are many determinants of child undernutrition, which makes the challenge of improving outcomes multidimensional, requiring interventions in areas of health; agriculture; water, Show MoreGlobal reports on indicators of child undernutrition show mixed progress in reducing the stunting (impaired growth and development) of children under five, with Africa and South Asia most severely affected. There are many determinants of child undernutrition, which makes the challenge of improving outcomes multidimensional, requiring interventions in areas of health; agriculture; water, sanitation, and hygiene; social protection; education; and governance, depending on the country context. The objectives of this evaluation are to assess the contribution of the World Bank to improving outcomes related to child undernutrition and its determinants in countries affected by undernutrition, and to provide lessons and recommendations to inform the design of the World Bank’s future multidimensional nutrition support.

India: Andhra Pradesh and Telangana State Community-Based Tank Management Project (PPAR)

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This Project Performance Assessment Report assesses the development effectiveness of India’s Andhra Pradesh and Telangana State Community-Based Tank Management Project, which was approved in 2007 and closed in 2016. The development objectives of the project were to (i) improve agricultural productivity with the assistance of selected tank-based producers; and (ii) improve the management of tank Show MoreThis Project Performance Assessment Report assesses the development effectiveness of India’s Andhra Pradesh and Telangana State Community-Based Tank Management Project, which was approved in 2007 and closed in 2016. The development objectives of the project were to (i) improve agricultural productivity with the assistance of selected tank-based producers; and (ii) improve the management of tank systems with the assistance of selected water user associations. Ratings for this review are as follows: Outcome was satisfactory, Risk to development outcome was substantial, Bank performance was moderately satisfactory, and Borrower performance was moderately satisfactory. Lessons from this review include: (i) The potential economic benefits from improved irrigation infrastructure cannot be adequately realized by beneficiaries without the coordinated and ongoing support of multiple government agencies and research extension services in agriculture. (ii) Continued support to WUAs in terms of resources and social intermediation, such as through nongovernmental organizations, is key to enhancing their capacity for improved water management in drought-prone areas. (iii) Benefits from increased water availability can be further increased if cropping decisions by smallholder farmers in drought-prone areas are informed by water budgeting and collective governance principles for sustainable use.

Kazakhstan - Completion and Learning Review : IEG Review

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The Republic of Kazakhstan is a land-locked upper middle-income country with a nominal GNI per capita of $7960 in 2017. The country depends on oil, with production and exports of hydrocarbon accounting for 21 percent of GDP and 62 percent of exports in 2017. Average annual GDP growth declined from 6.5 percent during 2006-2011 to 3.6 percent during the CPS period (2012-17), primarily due to Show MoreThe Republic of Kazakhstan is a land-locked upper middle-income country with a nominal GNI per capita of $7960 in 2017. The country depends on oil, with production and exports of hydrocarbon accounting for 21 percent of GDP and 62 percent of exports in 2017. Average annual GDP growth declined from 6.5 percent during 2006-2011 to 3.6 percent during the CPS period (2012-17), primarily due to deteriorating oil prices after 2013. The fall in oil prices reduced the growth of non-oil activities and the associated gains in wages and employment. Per capita GDP grew at 2.1 percent during the CPS period and contributed to reduce the poverty headcount ratio at national poverty line from 5.5 to 2.5 percent of the population between 2011 and 2017. Income distribution improved, with the Gini index falling from 0.28 in 2011 to 0.275 in 2017. The Human Development Index improved from 0.765 in 2010 to 0.800 in 2017. Kazakhstan key development challenges and goals set in the Strategy 2030 and Strategy 2050 include strengthening macroeconomic management (including strengthening of non-oil sources of revenues), reducing the state presence in the economy, strengthening regional economics through infrastructure and agricultural value chains, ensuring equal access to high quality education, enhancing social protection, managing natural resources, policy regarding water resources and improving governance and public sector capacity.

China CLR Review FY13-17

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China, with a population of 1.4 billion, is an upper middle-income country with a GNI per capita of $8,690 in 2017. During 2013-2017, the economy grew annually at 7.1 percent on average, slower than the previous CPS period of 11.0 percent. A long period of economic growth put pressure on the environment and raised serious sustainability challenges. China is now contributing around 30 percent to Show MoreChina, with a population of 1.4 billion, is an upper middle-income country with a GNI per capita of $8,690 in 2017. During 2013-2017, the economy grew annually at 7.1 percent on average, slower than the previous CPS period of 11.0 percent. A long period of economic growth put pressure on the environment and raised serious sustainability challenges. China is now contributing around 30 percent to the world’s GHG emissions, partly because it is the largest consumer of carbon for electricity. Significant gains in poverty reduction continued during the CPS period. Absolute poverty, measured at $1.90 per day (2011 PPP), dropped from 1.9 percent in 2013 to 0.5 percent in 2018. Poverty and vulnerability in China are concentrated in rural areas and lagging regions in Central and Western China. The welfare of the bottom 40 percent of the income distribution has increased steadily. The Gini coefficient dropped to .46 in 2015 after having risen to a high of .5 in 2008. China’s Human Capital Index (HCI) stands at 0.67 and ranks 45th amongst 158 countries. The CPS had two focus areas: (i) supporting greener growth; and (ii) promoting more inclusive development as well as a cross-cutting theme of advancing mutually beneficial relations with the world.

World Bank Support for Irrigation Service Delivery: Responding to New Challenges and Opportunities

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World Bank Support for Irrigation Service Delivery: Responding to New Challenges and Opportunities
This evaluation seeks to inform the World Bank’s efforts to support client countries to deliver sustainable irrigation and drainage services and achieve development impacts.This evaluation seeks to inform the World Bank’s efforts to support client countries to deliver sustainable irrigation and drainage services and achieve development impacts.

The Key to Making Cities More Resilient? Accountability.

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The Key to Making Cities More Resilient? Accountability.
Governments and lending institutions must learn to identify—and track the progress of—interventions that build resilience in urban areas.Governments and lending institutions must learn to identify—and track the progress of—interventions that build resilience in urban areas.

Vietnam: Water Resources Assistance Project (PPAR)

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When the Vietnam Water Resources Assistance Project (VWRAP) was designed, Vietnam was the world’s second largest rice exporter, but land and labor productivity was relatively low in comparison with neighboring countries. About half of cultivated land was irrigated. Ninety-six percent of the nation’s 7,600 dams were used for irrigation, but the hydraulic infrastructure was deteriorating, and dam Show MoreWhen the Vietnam Water Resources Assistance Project (VWRAP) was designed, Vietnam was the world’s second largest rice exporter, but land and labor productivity was relatively low in comparison with neighboring countries. About half of cultivated land was irrigated. Ninety-six percent of the nation’s 7,600 dams were used for irrigation, but the hydraulic infrastructure was deteriorating, and dam safety monitoring was considered inadequate. A major constraint to improving agricultural productivity was underperformance of the large rice-based flood irrigation systems, because of their outdated infrastructure and institutional design. The government of Vietnam had initiated a broad-based program to modernize agriculture and requested World Bank assistance to finance a project that would introduce innovative approaches to irrigation modernization and address dam safety issues. The project development objectives were to modernize and increase the productivity of Vietnamese agriculture, improve the management of water resources, and reduce dam safety risks.  Ratings for this project are as follows: Outcome was moderately satisfactory, Risk to development outcome was moderate, Bank performance was moderately satisfactory, and Borrower performance was moderately satisfactory. Lessons from the project include: (i) The Project’s close alignment with the government of Socialist Republic of Vietnam’s agriculture reform programs allowed it to pilot innovations that have had enduring policy impacts. (ii) Irrigation modernization is a complex learning process that requires time and a phased approach. (iii) Key results indicators and monitoring and evaluation (M&E) frameworks should be linked to development objectives and a clearly stated theory of change. (iv) For affordability reasons, water user fees may be insufficient to ensure the financial viability of water user groups; in that case, additional sources of funds including subsidies may need to be considered.

India: Tamil Nadu Irrigated Agriculture Modernization and Water-Bodies Restoration and Management Project (PPAR)

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This Project Performance Assessment Report assesses the development effectiveness of India’s Tamil Nadu Irrigated Agriculture Modernization and Water-Bodies Restoration and Management (TN-IAMWARM) project, which was approved in 2007 and closed in 2015. The development objective of the project was to assist selected subbasin stakeholders in increasing the productivity of irrigated agriculture in Show MoreThis Project Performance Assessment Report assesses the development effectiveness of India’s Tamil Nadu Irrigated Agriculture Modernization and Water-Bodies Restoration and Management (TN-IAMWARM) project, which was approved in 2007 and closed in 2015. The development objective of the project was to assist selected subbasin stakeholders in increasing the productivity of irrigated agriculture in the state of Tamil Nadu within an integrated water resources management framework. Ratings for this project are as follows: Outcomes was satisfactory, Risk to development was substantial, Bank performance was satisfactory, and Borrower performance was satisfactory. Lessons from the project include: (i) Irrigation project design that combines improvements in infrastructure with activities for improving agricultural and water use practices, agricultural inputs, and marketing support and linkages, can be a viable and effective approach for improving agricultural productivity and rural livelihoods. (ii) For the several line departments that are necessarily involved in multi-dimensional irrigation projects, the provision of appropriate training can play a pivotal role in fostering collaborative behavior among the departments, and to orient them towards the farmer beneficiary as the focal point of their services. (iii) The tone set by the project leadership is crucial for fostering and sustaining collaborative behavior across diverse implementing agencies. (iv) Including a water resource management component in an irrigation project can be a strategically important decision with long-term payoffs but may have to be supplemented by other projects to realize the potential for wider water management and climate smart agricultural policies. (v) Introduction of water budgeting concepts at the village or sub-basin level is a crucial first step to build on by gradually promoting the measurement of water use and agricultural water productivity.