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Drinking safe, clean water

With only about two percent of the global market, can the World Bank Group really make a difference in closing the infrastructure gap through public-private partnerships?

[Français] If you were a resident of Dakar, Senegal ten years ago, water – or more accurately the lack of it – was a challenge to be confronted on a daily basis. Water shortages were rampant. The utilities that were meant to supply it lacked the resources to meet demand and the money needed to fix the pipes to bring what water there was to households. Then the World Bank got involved.  It assisted the government of Senegal by inviting the private sector to invest in and operate the water distribution network. To ensure that the private investors delivered on their promise to improve the supply of clean water, the Bank then arranged a performance contract.

Today, 99 per cent of Dakar’s population has access to clean water and Senegal is on target to achieve its Millennium Development Goal on water by 2015. Both water utility companies, SONES and SDE, are financially viable and the sector does not receive any direct subsidies from the government.  While issues remain, for example improving access to sanitation services, Bank Group efforts to involve the private sector in Dakar’s water supply have largely been successful.

Such arrangements, where private investors provide funding for the delivery of services that were traditionally provided by governments, are commonly called public-private partnerships, or PPPs. The Bank supports 134 countries with PPPs but has just 2-3 percent of the world market. With such a small market share, the obvious question is: How can the Bank Group make a difference in PPPs?

The most recent IEG Evaluation of World Bank Group’s support to Public Private Partnerships tried to answer that question and found many success stories – but also the need to provide more strategic advice to client countries and to better engage with the public.

Bridging the infrastructure gap through PPPs?

In the case of Senegal, the Bank’s transparent and participatory approach, including regular consultations with civil society groups and in-depth knowledge of the investor and local conditions were key. The public-private partnership was preceded by comprehensive sector reform, supported by the Bank Group, including the unbundling of the sector into water infrastructure, water distribution, and sanitation and building a consensus around reforms. The politically sensitive issue of price increases was addressed through a cross-subsidy program from high income users to low income users, ensuring access for the poorest.

Lessons from Senegal’s water project are also applicable to other PPPs that the Bank Group supported in the energy and transportation sectors.  Nearly half of the efforts to reform infrastructure sectors during the period between 2002 and 2012 failed, which is unsettling given that sector reform is a prerequisite for successful PPPs.  

Our evaluation also found that politicians too often shy away from taking the necessary steps to introduce transparent tariffs or fail to grasp opportunities to introduce smart cross subsidies schemes that would allow the poor to access water, energy or roads. In fact, the single most important factor in determining whether a public-private partnership succeeded or failed was government commitment.

And this is also an area for Bank Group attention. Beyond providing good technical advice, we concluded that the Bank should devote more attention to involving the right decision makers in the process and to explaining the potential positive effects of PPPs to the public.

Towards a more strategic approach

Too often PPPs are assumed to be the solution to the problem. The Bank Group needs to do a better job in leading governments through the decision making process of if and how to involve the private sector, and in assessing a country’s specific situation. In short, Bank support needs to be more strategic.  

The Bank Group’s private investment arm, IFC Investment Services, also needs to work with the right country at the right time. The evaluation found that the IFC’s investments are too often found in mature markets. While their PPP investments are generally successful in these mature markets, IFC can increase its development footprint by shifting part of its PPP investment to countries with less tested PPP frameworks.

As we have seen in Senegal, the Bank can and does make a difference in PPPs. By taking a more strategic approach that ensures its support reaches the right countries and fully takes into consideration the local circumstances in those countries IEG believes it can add even more weight to its impact.

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