It is a privilege to join you and to share my views on water, one of nature’s precious resources. Water permeates society, and its availability impacts all facets of human endeavor, be it economic, ecological, or social. Indeed, freshwater is being dubbed as the "oil of the late 20th century" – an essential, but increasingly scarce resource for post-industrial society.
At the dawn of the new millennium, there is growing recognition of the enormity of the challenges humanity faces with regard to water, and its impact on the well-being of present and future generations. Worldwide, demand for water is increasing, driven inexorably by population pressure, rapid industrialization, and agricultural intensification. In this century alone global water withdrawals have risen tenfold, with an increasingly larger share going to industrial and domestic uses.
Increasing water scarcity on a per capita basis is a global phenomenon, but most severe in the Middle East and North Africa (MENA) region, home to five percent of the world’s population and only one percent of the world’s annual renewable freshwater. Per capita availability in MENA at 1,250 cubic meters per year is one of the lowest in the world, and is predicted to fall by another 50 percent by the year 2025. Ironically, the better endowed regions, such as Latin America (with per capita availability of 23,103 cubic meters) or North America (18,742 cubic meters) are not facing pressures of population such as those confronting Asia with 3,283 cubic meters per capita per year.
It is important to emphasize here that regional data can mask huge disparities in water availability within countries. For example, per capita water availability in China, the world’s most populous country, was 2,333 cubic meters in 1995, a figure well above the commonly-used 1700 cubic meter benchmark for chronic water stress. But that number masks the severe water shortages gripping the North China Plain where demand for water has already outstripped supply, or in the capital city of Beijing where authorities are considering drawing water, at enormous expense, from a source that is more than 1,000 kilometers away. India, the world’s second most populous country, is experiencing chronic water shortages nationwide, a trend that is exacerbated by water pollution problems arising from discharges of untreated or poorly-treated sewage and industrial waste effluents particularly heavy metals and toxic chemicals.
Closely tied to scarcity and pollution is the issue of fragmentation in the water sector. In many developing countries, fragmentation in decisionmaking characterizes the management of this scarce resource. Frequently, decisions on water use are made by at least six sectoral authorities (eg. agriculture, energy, environment, industry, mining, and municipal), and in extreme cases, 20 sectoral authorities are involved.
Fragmentation also exists at the international level because 40 percent of the world’s population lives on rivers that are shared by more than two countries. In fact, when one looks at the Nile river with 10 riparian countries, the Mekong with six, and the Danube with 12, it is clear that all these countries, whether upstream or downstream from one another, have to work together because the natural unit of management is the river basin.
Finally, fragmentation also exists at the international level, where multiple agencies are active in the water sector – International Water Resources Association, Food and Agriculture Organisation, United Nations Environment Programme, United Nations Development Programme, World Bank, and World Health Organization – to name a few, and all of whom deal with different aspects of the water problem. The net result of this fragmentation, at the local, national, regional, and international levels has been disastrous in terms of managing water resources sustainably, and it has become very difficult to evolve a cohesive agenda that brings people together on the water issue.
Water: The Unfinished Agenda
Consider the magnitude of the task in terms of unmet needs in the water and sanitation sector. Today, a billion people live without clean water, and 2 billion live without sanitation. The human and environmental costs of this unmet demand are devastating, particularly in terms of human health. Where water is scarce, people, particularly the poor, are forced to rely on unsafe water with deleterious consequences to their health and productivity.
Microbial diseases -- costing billions of dollars in lost lives and unhealthy workers -- are endemic in the poorest parts of most cities of the developing world. When water sources are contaminated and sanitation facilities are minimal or nonexistent, cholera, dysentery, and typhoid abound, and are among the principal scourges of the poor. Recent estimates suggest that waterborne diseases account for eight percent of all diseases in developing countries, affecting some two billion people annually.
Too often, municipal water and sanitation services that can effectively reduce microbial diseases have been operated on the assumption that the poor could not afford water and sewer lines. In fact, these potential customers are already allocating a high proportion of their household expenses -- 20 percent in Port-au-Prince, Haiti -- for water supplied from vendors. Many studies have found that such urban families will not only pay the city to bring safe and reliable drinking water to them, but will pay for waste water removal and treatment as well.
Despite the urgency of addressing these consequences to human health, the unfinished agenda in water and sanitation is running into problems because of rapidly escalating costs. Today, costs of Bank-financed repeater water supply and sanitation projects typically run 2 to 3 times higher than the last project in terms of dollars per cubic meter of water provided. This is due in part to having to go further for intake and to the inefficiency and mismanagement in many public utilities. It is in this context that there is an urgent need for reforming utilities to enhance efficiency, particularly in developing countries, where inefficiencies are greatest. A few examples illustrate how serious the situation is:
•In Caracas and Mexico City, an estimated 30 percent of connections are not registered.
•Unaccounted-for-water is 8 percent of total water supply in Singapore but 58 percent in Manila and about 40 percent in most Latin American cities. For Latin America as a whole, such water losses cost between $ 1 to 1.5 billion in foregone revenues every year.
•The number of employees per 1,000 water connections is between two and three in Western Europe and about four in a well-run developing country utility (Santiago, Chile), but between 10 and twenty in most Latin American cities.
The overall picture is clear -- most public water utilities in developing countries are high-cost, low quality producers of services. Therefore, from a demand perspective, people must be trusted to choose from a menu of service levels those services they want and are willing to pay for. From a supply perspective, rigorous attention must be paid to providing households with a particular level of service at the lowest possible cost. It is in this context that successful examples of empowering, people-centered projects -- Pakistan’s Orangi Pilot Project and Bangladesh’s Grameen Bank-financed rural water supply projects -- are worthy of replication, because they best address issues of coverage, efficiency, and equity (see Box 1 and Box 2).
Role of Private Sector
In most developing countries, the management of water resources has been dominated by state-owned monopolies. This intervention was based on the misplaced notion that only the state could handle the large investments and operations necessary for irrigation and water supply systems, and that the crucial role of the water sector justified government control. The fiscal crises of the 1980s which confronted many developing country governments demonstrated the inherent weakness of this argument, and it became clear that public funds alone could not meet burgeoning demand for water-related infrastructure investments and services. Harnessing the private sector was essential.
Trade and private capital flows to emerging economies have increased tremendously over the past decade, encouraged by sound economic policies and by advances in technology and communication. With private sector flows to developing countries skyrocketing from less than US$ 50 billion in 1990 to about US$ 250 billion in 1996, learning how to mobilize business as a partner with governments and civil society in development is the challenge. Special emphasis, however, needs to be given on the activities the private sector will not pursue or invest in. A closer look at foreign investments in developing countries shows uneven distribution: about 95% of total private investment went to just 20 countries, with roughly 145 countries splitting the remaining 5 percent, and Africa receiving less than 1.5 percent during the 1990s. Nowhere are such disparities more prevalent than in the water and sanitation sector which has traditionally had the lowest rates of cost recovery -- 20 to 30 percent compared to 160 percent in telecommunication. In such situations, the poor are the hardest hit because they have to spend increasing portions of their income on basic needs such as food, water, housing, and sanitation.
Closely tied to the discussion of private sector involvement in water and sanitation services is the issue of incentives. Better performance by providers of water services and more efficient use of water by beneficiaries can lead to improved allocation of water among different users and greater conservation. At a time of increasing scarcity, fees and fiscal incentives can also significantly influence water conservation and encourage firms and individual users to adopt water saving technologies, including systems for reuse. "User pays, polluter pays" is one principle that helps avert resource degradation.
Price-based incentives can also be powerful behavior modifiers. For example, after the city of Bogor in Indonesia increased fees for water by 30 percent, the consumption of water declined by a similar rate, and expensive investments in new supplies were postponed. And in the former East Germany, consumption of water dropped from 400 to 120 liters per capita per day, or 70 percent, between 1989 and 1994, primarily as a result of cost-based pricing.
Proper pricing for water is not sufficient to ensure efficient allocation and improved services. The failure to collect and recover costs is also a constraint almost everywhere, especially in the developing world. What is needed is an accompanying set of incentives that encourage accountability for cost recovery and improved services. Experience demonstrates that decentralized service delivery can break the vicious cycle whereby service declines with collections and consumers become less willing to pay. Countries have achieved better quality service at lower cost by decentralizing water service delivery responsibilities to local governments and transferring some functions to the private sector, financially autonomous entities and community organizations such as water user associations. Decentralization, especially in retail distribution of water, makes it easier to ensure financial autonomy and the involvement of the private sector and water users in water management: smaller, locally managed institutions, whether public or private, have more effective authority to charge and collect fees and more freedom to manage without political interference. The move towards greater reliance on financially autonomous entities, private firms, and water user associations will also open up new sources of financing, especially where central government transfers are no longer possible. Because they are likely to achieve higher levels of cost recovery than government agencies have, autonomous firms and user associations will also be in a good position to borrow investment capital from local and international markets.
Prescribing and encouraging the participation of stakeholders - individuals and institutions that would be affected by decisions about water resources management - is beneficial in a number of ways. Stakeholder participation in the formulation and design of water projects has served to incorporate local knowledge and circumstances leading to better design. In many countries, users are involved in the on-going management of water systems, considerably reducing the financial and management burdens on government. Participation has encouraged greater cost sharing and better maintenance, promoted equity, built local capacity, and enhanced transparency, accountability and institutional performance.
Finally, participation has also generated a sense of ownership for projects which helps build the social and political cohesion that is necessary for long-term development planning. The participation of women has been found to be especially important, particularly in rural areas. A recent study of 121 rural water supply projects funded by many different agencies in countries throughout the developing world consistently proved that beneficiary participation was more significant than any other factor in achieving functioning water systems and in building local capacity.
Financing Scenario for Water and Sanitation Sector in the New Millennium
Over the next decade, some $600-800 billion in investments are needed to meet the demand for services in water supply and sanitation and irrigation and power. The World Bank will continue its extensive support for such investments. The Bank has already lent $40 billion for water-related projects over the last thirty years. Over the next ten years, it will lend an additional $35-40 billion. This will represent about half of all external agency funding for water. However, this is a small sum compared to the total financial requirements for the sector. The developing nations must finance the remainder, but cannot do so from central government budgets alone. The only way to pay for the necessary investments is for governments to put much more emphasis on consumer participation, economic incentives, role of women as ecosystem managers, and private sector financing. This will require a decisive break from past policies to embrace a whole new way of looking at the world. The task of governments will not be easy, but failure is not an option. The lessons of legacy of poor water management have been well-learned by policymakers. This fortunate fact was proven at Rio, Dublin, and other international gatherings where a consensus has emerged about the need to recognize the importance of water as a scarce commodity as well as a basic need, and the need to address its management an integral part of the ecosystem. New partnerships (such as the World Water Council and the Global Water Partnership) are a reflection of the desire to translate this consensus into action on the ground. We can succeed provided we develop and sustain a sense of common purpose and new modes of cooperation between all actors -- public, private, local, national, regional, and international -- always keeping in mind the needs of the poor, who often benefit last and benefit the least from most investments and public programs. Water is a basic human need and our common humanity demands concerted action. The time to begin is now.
Box 1: Successful example of meeting large-scale demand for sanitation services: Karachi’s Orangi Pilot Project
When in the early 1980s Akhtar Hameed Khan, a world-renowned community organizer, began working in the slums of Karachi, he found that people in this area had a relatively satisfactory supply of water but that the streets were "filled with excreta and waste water, making movement difficult and creating enormous health hazards." What did the people who lived there want, and how did they intend to get it? Dr. Khan asked. What they wanted was clear: "people aspired to a traditional sewerage system . . . it would be difficult to get them to finance anything else." And how they would get it, too, was clear—they would have Dr. Khan persuade the Karachi Development Authority (KDA) to provide it for free, as it did (or so they perceived) for the richer areas of the city.
Dr. Khan spent months going with representatives from the community to petition the KDA to provide the service. Once it was apparent that this would never happen, Dr. Khan was ready to work with the community in finding alternatives. (He would later describe this first step as the most important thing he did in Orangi—liberating, as he put it, the people from the demobilizing myths of government promises.)
With a small amount of core external funding, the Orangi Pilot Project (OPP) was started. It was clear which services people wanted; the task was to reduce the costs so the services would be affordable and to develop organizations that could provide and operate the systems. On the technical side the achievements of the OPP architects and engineers were remarkable and innovative. In part thanks to the elimination of corruption and the provision of labor by community members, the costs (in-house sanitary latrine and house sewer on the plot and underground sewers in the lanes and streets) are less than $100 per household.
The local organizational achievements are equally impressive. OPP staff members have played a catalytic role: they explain the benefits of sanitation and the technical possibilities to residents, conduct research, and provide technical assistance. Staff members never handle the community's money. (Even in the project’s early years the total costs of OPP’s operations amounted to less than 15 percent of the amount invested by the community.)
Households’ responsibilities include financing their share of the costs, participating in construction, and electing a "lane manager" who typically represents about fifteen households. The lane committees, in turn, elect members of neighborhood committees (usually representing around 600 houses) who manage the secondary sewers. The early successes achieved by the project created a "snowball" effect, in part because of increases in the value of property where lanes had installed a sewerage system. As the power of the OPP-related organizations increased, they were able to bring pressure on the municipality to provide funds for the construction of secondary and primary sewers.
The Orangi Pilot Project has led to the provision of sewerage to more than 600,000 poor people in Karachi. At least one progressive municipal development authority in Pakistan is seeking to follow the OPP method and, in the words of Arif Hasan of the Orangi Pilot Project, "to have government behave like [a nongovernmental organization]." Even in Karachi the mayor has now formally accepted the principle of "internal" development by the residents and "external" development (including the trunk sewers and treatment) by the municipality.
The experience of Orangi demonstrates graphically how people’s demands move naturally from the provision of water to removal of waste from their houses, then from their blocks, and, finally, from their neighborhood and town.
Box 2. How the Grameen Bank Finances Rural Water Supply in Bangladesh
The Grameen Bank is well known as a provider of credit to more than two million poor and landless people in Bangladesh. A large proportion of the clients of the bank are women. The bank’s great innovation has been to find an alternative to traditional forms of collateral. The key principle is that if any borrower defaults, the group to which that borrower belongs is no longer considered creditworthy and is no longer eligible for loans.
In recent years the lending of the Grameen Bank for rural water supplies has risen dramatically. Since early 1992 the bank has provided loans for about 70,000 tubewells. In 1993 it lent about $16 million. The interest rate charged on loans for tubewells is 20 percent, repayable over two years in weekly installments. The handpumps are procured locally by the borrowers, either from the Public Health Engineering Department or from local private manufacturers.
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