3rd safir core course on "infrastructure regulation and reform", october 8-19, 2001....

3rd SAFIR Core Course on "Infrastructure Regulation and Reform", October 8-19, 2001.

Regulation and Reform – Small Scale Service Providers

Clive Harris

Senior PSD Specialist

The World Bank


Goals of the Presentation• Outline the role that small scale providers

of infrastructure services play in developing countries

• Highlight case studies

• Discuss implications for sector reform, including privatization of network service provider, and for regulation


Examples of small scale providersThis covers a range of service providers of

different sizes:Water: water carriers and vendors, water tankers, small scale

networks

Power: mini-grids, household systems, small generators selling to grid

Telecoms: small scale public phone provision

Transport: private mini buses etc.

Different types of organizations are involved: NGOs, for-profit businesses,


Why consider role of small scale providers when reforming?

• The poor and those in rural areas often receive their services through small scale/informal providers

• Official attitudes are often either hostile or neglectful

• Many approaches to sector reform do not accommodate, or even work against, small scale providers e.g. exclusivity


Why do consumers use SSPs?

Do they have access to service provided by the formal utility?

Is the connection charge affordable?

Is the price/quality package attractive?

Main Utility Provider Alternative Providers

Poor Customers

Low-cost

technology

Service

flexibility

Payment

options

Only

alternative

Yes No

Yes No

Yes No

Source: Baker & Tremolet (2000)


Price/Quantity Tradeoffs: why SSPs may be more attractive for some consumers

Monthly Cost

250

150

200

100

50

01 32 4 65 7 13 14 15 16 17 18 198 9 10 11 12 20

Quantity

Price/Quantity Options

Poor customerAverage customer

Cost of service from informal supplier

Cost of service from formal network


Advantages of SSPs – institutional and commercial

• Inefficient and loss-making network providers lack funds to extend services, partic. to marginal areas

• Business approach of network providers may not extend well to e.g. squatter areas

• SSPs can offer more attractive price/quantity bundles

• SSPs can offer more flexible payment methods, including “in-kind” contributions (e.g. labour in connection construction)

• Squatters may lack legal tenure, which prohibits the network providers from offering a connection


What role do SSPs play?• Serve customers in areas where network provider

is absent or where consumers prefer not to use network services

• Wheeling – use of network to provide services to consumers

• Production – e.g. electricity or water – fed into the network

• “On-sell” services of network provider and facilitation – service is delegated or retailed by SSPs


Stylized infrastructure sector structure

Generation/

Production

Transmission/

Bulk Transport

Distribution/

Reticulation

Consumers Not Served/

Opting Out

Consumers


How do SSPs fit in?

Generation/

Production

Transmission/

Bulk Transport

Distribution/

Reticulation

ConsumersConsumers Not Served/Opting Out

Small Scale

Power Plants

Grameen Telecom

Intermediation

Ghana: Tankers

Dhaka: DSKConsumers

Opting Out

Cambodia

Power

Paraguay Aquataros

Karachi

Water & Sanitation


Small scale water networks: Paraguay’s aguateros

Sector structure:• Urban: public agency covers 2.0m of 2.9m

• Rural: public agency covers 0.9m of 2.5m

• Peri-urban: approx. 400 aguateros cover 0.9m

Aguateros: average 300 consumers, average systen age 10 years. Use boreholes, plus disinfection, plus above ground storage, some use of meters. 90% have 24 hr service. Some quality monitoring.

Costs: c.$250/connection ($500 public agencies), tariff c. $0.20-0.50/cm


Paraguay’s aguateros contd.Unprecedented expansion of privately financed piped water

systems (though existence of networks not unique) due to:• Poor performance of public sector• Availability of groundwater (not present in parts of

country where this is not available) which can be accessed without great expense

• Adoption of low cost systems that allows recovery of connection costs in 3 years

Uncertainty over future regulatory framework – in particular possibility of exclusivity in future concessions with the


Cambodia’s rural electric enterprises• State owned EDC has system in capital Pnom Penh and

through independent systems in provincial capitals totalling c. 190,00 consumers. Considerable self-supply in this area due to high tariffs and poor reliability of supply

• Approx 220 privately owned rural electricity enterprises serve c. 115,000 consumers. Estimated capacity of around 60MW (versus 160 MW in EDC)

• Some are licensed by provincial governments

• Large growth because of inability of incumbent to expand, and liberal entry regime


Cambodia’s rural electric enterprises• Business characteristics: average asset value $17,633, most

are sole proprietorships• Average tariff is $0.51/kWh, service provided for 4 hours,

most customers metered• Average customer base is around 200: range is large • 80% of those surveyed report making a profit

New regulatory framework is presently being developed which could lead to closer regulation of tariffs and QOS. Govt. also interested in expanding EDC – clash between optimum technical and commercial solutions


Karachi – Water• Large slum population (c 3.3 million) not

served by Karachi Water and Sanitation Board

• Variety of vending practices: water tankers (some fill from KWSB points), push carts etc. Approx. 5000 tankers in city; smaller vendors on-sell from tankers

• Interaction between KWSB and tankers largely informal


Karachi –SanitationDue to lack of sanitation, many communities have

developed their own sanitation

Baldia: community on outskirts of Karachi, developed sewer system linked to nullahs. KWSB then developed trunk sewers in Baldia but did not link to the community sewers => most sewage still goes through nullahs

Highlights need for effective interaction and incorporation of different standards of works: KWSB reluctant to link to community sewers as engineering standards not good


Rural telecoms – Grameen Telecom• Grameen Telecom (not-for-profit) re-sells air time from

Grameen Phone• Grameen Bank finances leasing of cell phones from

Grameen Telecom by women who then operate them as village pay phones

• 1997-2000: reached c. 1100 villages and 2.8 mn people• Key issue – interconnection rates: at present, BTTB keeps

all revenue generated by calls from its network, GrameenPhone treated as consumer in terms of interconnection rates

• Demonstrates need for level playing field enforced by independent regulator


Small scale power plantsExist in many countries in region – selling

power into grid to incumbent operator or sometimes wheeling power

Issues:• Other policy objectives – e.g. renewables

(bagasse, micro-hydro) often important• Role of regulator in determining access

conditions and purchase prices – wider links to sector reform (competition)


Water trucking in Teshie, GhanaGhana Water Co Ltd (GWCL) currently reaches 55% of

consumers in Teshie. Remaining reached by:• Tankers purchasing from GWCL metered bulk supply points for

tankers• Vendors purchasing from tankers and GWCL domestic supply points

Tankers have to be licensed and are members of one of 3 tanker associations

Formal relationship between GWCL and tankers has improved its finances, expanded service. Associations have improved monitoring of QOS, but some concerns over ability to enforce collusion. Legality makes regulation easier, however.


Dhaka: expanding water services through intermediation: DSK

• 1996 survey: 20% Dhaka population living in slum and squatter settlements

• 97% do not own plot of land they reside on. Public utilities do not provide service without evidence of legal title

• Dushtha Shasthya Kendra: NGO originally involved in health programs and building community organizations => emphasis on provision of water and sanitation services to poor communities


Dhaka: expanding water services through intermediation: DSK

• DSK acts as intermediary with DWASA => organization of community for management of water points, financing (repaid by community on agreed terms), guarantor of payments for water bills. Around 30 water points in operation by 1999

• Lessons:• Need to manage impact of existing power structures within slums• Commitment of DWASA not institutional – based on individual

contacts• Need to consider delinking right to utility services from land title• Community mobilization critical – but can be high cost


Drawbacks of relying on SSPs• Can be taken over by “mafia” and criminal elements

• Price-gouging

• No monitoring of quality – but in some cases

• Unlikely to adhere to safety and environmental standards

• If “on-sale” of network provider services, who is responsible for QOS and customer service?

So there are policy and regulatory concerns


Implications for sector reform

Key questions over policies on public funding/subsidies and entry provisions:

• Entry can lead to cherry-picking – may erode ability of network provider to cross-subsidize some consumers

• General subsidy fund e.g. Universal Service Fund could be developed; but needs administrative capacity to administer

• Central question: which is more pro-poor: competition via entry, or cross-subsidy? Need to understand where present subsidies go, who is served => need for more analysis and information than available at present


Sector reform: Service expansion through SSPs

Paraguay:pilot scheme to expand service to 4 peri-urban towns by channelling funds to aguateros:

• Operators bid on 10 year concession (DBO) in each

• Subsidy of US$150 per connection

• Operators bid on lowest connection cost

• Tariffs for supply fixed at local norms

• Regulation of some technical standards

• Some insurance for costs of repeated drilling for raw water sources

• 15% of subsidy paid up front

• To be funded with World Bank loan

Similar pilot scheme is underway in Cambodia, again for expansion of water services


Implications for regulationHigh transactions costs in regulating small providers

– benefits may not be worth costsApproaches could include:• Flexibility in quality of service rules to accommodate SSPs

who provide poor with QOS they want• Focus on interconnection with network provider• Light-handed approach => don’t raise costs of doing

business• Consider pros and cons of self-regulation (but can enforce

cartels), setting standards and encouraging monitoring by independent bodies e.g. NGOs

3rd safir core course on "infrastructure regulation and reform", october 8-19, 2001....

Documents