Restructuring Cities for Efficient Service Delivery

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Restructuring Cities for Efficient Service
Delivery

• Vivek Srivastava
• WSP-SA
• ASCI-WBI Program on
• Strengthening Urban Management - Unlocking the
  Potential of Indian Cities
• Hyderabad January 24 2003

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Productive Cities as Centers of Growth
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The Context

• A New Global Setting
  Urban Millennium
• A New Management Challenge Creating World
  Class-Cities

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Share of Cities in GNP
Level of Development Share of Urban Areas in GNP
Low-income 55
Middle-income 73
High-income 85
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Important Implication

• Municipal service delivery cannot be seen in
  isolated context
• How municipal services come together to serve the
  city-economy
• Managing cities to be credit worthy
• National economic growth and poverty reduction
  efforts will be increasingly determined by the
  productivity of cities and towns

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Models of Urban Governance
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Which Model of City Governance?

• Metropolitan Government
• Metropolitan Government with Economic
  Decentralization
• Metropolitan Government with Political
  Decentralization

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Key Differences

• In the politically decentralized model, political
  and fiscal power is shared between the
  metropolitan and municipal tier.The metropolitan
  tier and municipalities jointly keep each other
  in check.
• In the economic decentralized model, political
  and fiscal powers resides at the metropolitan
  level. The regions are de-concentrated arms of
  the metro unlike the independent municipalities
  of the first model

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Similarities

• Fiscal and political power is devolved to city
  governments.
• Both models adopt corporate structures for the
  financing and delivery of municipal services with
  user-charges.
• In both models the city has share ownership with
  expected dividends from the corporations.
• Danger of political deadlock.

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Evaluating Decentralization

• Political Stability
• Quality of Public Services
• Equity
• Horizontal (inter-state/city)
• Within state/city
• Impact of Macro-economic Stability

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Issues in Service Delivery
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The Problem

• Chronic poor performance is the rule rather than
  the exception in many publicly run municipal
  services
• Technical losses
• Poor cost recovery
• Subsidies do not reach the poor

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Current Situation - Water

• Technical and commercial losses
• filling the leaking bucket
• 3 hour connectivity
• Poor quality of service
• High coping costs
• Low Tariffs
• Fiscally and financially unsustainable

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Why?The Judge, The Jury and the Executioner are
the Same!
.
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Goals

• 24 hour delivery
• coverage for by all geographic and household
• quality
• pressure

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Elements of Separation

• Government ownership of some form
• Public good nature of water
• Sustainability as a resource time and quality
• Attacking poverty
• Business approach to delivery
• Private good nature of water
• Demand driven customer responsive
• Independent regulation

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City RestructuringJohannesburg Example
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Johannesburgs Original Structure

• 4 municipalities and one metro
• Fragmented no economies of scale
• Duplication of service delivery
• Typical line function responsibility
• No integrated planning

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IGOLI 2000

• Program A Utilities
• Water and Sanitation, Power Distribution, Waste
  Management
• Program B Agencies
• Roads and Stormwater, Parks and Cemeteries
• Program C Privatize
• Metro Gas, Airport, Stadiums, Power Generation
• Program D Corporatize
• Zoo, Bus Co., Market, Property and Project
• Program E Traditional Governance
• Admin, HR, Planning, Budget, Finance, Community
  Services, Welfare, etc.

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Restructuring of Johannesburg
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PSP Options for Service Delivery
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Why PSP?

• Efficiency
• Flexibility in procurement
• Appropriate incentives
• Technology
• Investment
• Accountability

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The Basic Options Compared
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Large City Utility
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The potential PPP

• A public asset holding corporation (AHC) with
• state and municipal shareholders
• A private operating company (PO) with
• with shareholder agreement with domestic and
  international partners
• holding a concession contract with AHC
• Appropriate mix of public and private finance
• Appropriate division of risks between AHC and PO
• A competent autonomous regulator

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State Govt.
Municipalities
shareholders
Asset Holding Company
contract
Service delivery obligations Access by
poor Pricing and subsidies OM Human resource
management Investment expansion
Regulator
Operating Company
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Medium and Small Towns
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Need of Alternative Management Model

• Too big to be managed by communities
• Large and dense enough to benefit from economies
  of scale offered by piped water systems
• Too small and dispersed to be managed by a
  conventional utility

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Possible option

• Regional or multi-town utilities
• Advantages
• Economies of scale in management
• Minimize transactions costs of contracting
• Viable volumes of business

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Criteria for Clubbing

• Large enough population base ? Clusters of 1-2
  million
• Manageable overall distance
• Within a watershed boundary
• Voluntary or prescribed

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International Examples UK

• Economies of scale up to population of 1 million
• 10 large utilities with population of 2-10
  million
• 15 smaller utilities with population base of
  250,000 to 1.2 million
• Jurisdiction based on watershed boundaries

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International Examples France

• WSS responsibility of Local Governments
• Voluntary Syndicates
• 15500 undertakings for 37000 municipalities 2/3
  per grouping
• SEDIF manages water services for 144
  municipalities and about 4 million customers

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Regional Utility
Shareholders ULBs, State government
ASSET HOLDING COMPANY
Contract
Private sector operator
Town 1
Town 2
Town 3
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Rules of Engagement

• Top down Statutorily create the regions and
  enforce all ULBs to be members e.g. England,
  Scotland
• Need to ensure compatibility with 74th amendment
• Bottom up Voluntary association e.g. France
• Slow
• How to create incentives for association?

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Governance

• Vesting OM control of water related assets by
  lease (or otherwise) to AHC/AMC
• Share ownership proportional to asset value
• Voting rights possibly allocated on a more
  equitable basis
• State government as shareholder, coordinator and
  arbiter
• Rules of entry and exit

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PSP and the Poor
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Current situation Status of the poor

• How are the poor being served today?
• Free water through stand posts and tankers (10
  -20 lpcd)
• 15 of population not covered by public system
• Is Water Really Free?
• Poor quality water with adverse health
  implications
• Time, physical energy, drudgery and space costs

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PSP and the Poor

• A sound and competitively procured PPP will
  benefit the poor through efficiency gains
• In addition, benefits to the poor can be further
  enhanced by specific contractual design
• The Manila example
• 600,000 poor connected within two years
• The poor now consume three times more water at
  half the price
• The poor now have more time for productive work
  and more living space

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Maximizing the benefits for the poor

• Designing Pro-poor Contracts
• Service expansion obligations designed to include
  the poor
• Some form of subsidy (or finance) for one-time
  connection fee
• Gradual phasing of prices transition finance
• Concessionaire responsible for providing water by
  alternative means where private connections are
  not feasible or during a transition period

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Thank you