BPD Discussion Day

In an effort to share information on various initiatives in which BPD members are involved, a Discussion Day was held in conjunction with the BPD Board Meeting in Paris at the end of May 04.  Attended by a diverse group of policymakers and practitioners, participation in the discussion was constructive and informal.  BPD wishes to thank the presenters and participants for their time and enthusiasm as well as the World Bank offices in Paris for hosting the meeting. 

Global Water Scoping Process

The issue of private sector participation in the water sector has been highly emotional with little objective analysis of what has and has not worked on the ground.  To move beyond the polarised nature of these debates, a Global Water Scoping Process was conducted, consulting with over 300 organisations and individuals across the spectrum from communities served by non-state providers to donors involved in the design of water and sanitation projects.  The overwhelming response was that some form of review is necessary to understand why the same cases (in Argentina, Mozambique, Bolivia, etc.) can be listed both as successes and failures.

To determine the next steps, a multi-stakeholder workshop will be held at the end of June in Berlin.  In essence, two decisions need to be taken by the participants of this workshop: 1) whether the scope of the review will be on the effective delivery of services by different groups (public, private, not-for-profit) or more specifically around the role of the private sector (in all its guises from small scale independent providers through to international operators); and 2) what form a review would take.  (A series of options has been suggested by the moderators of the Global Water Scoping Process ranging from using/strengthening existing processes to an international commission.)

The discussion amongst the participants of the BPD Discussion Day was particularly rich, reviewing the purpose of the multi-stakeholder review, the various options for conducting the review, and expected outcomes.  It was noted that most multi-stakeholder reviews a) fail to sufficiently deal with the purpose in order to b) manage expectations around a process that will then c) arrive at a concrete set of outcomes.  These are admittedly cumbersome processes that often need to work particularly hard to engage key players (in this case local governments).

The question was also raised about whether such a review would change the minds of those with entrenched vested interests; whether it would be able to isolate certain problems in the water sector in a broader challenging context; and whether it would be able to balance the ideological debates with a consumer-driven focus on those arrangements that deliver services most effectively in different circumstances. 

Policy Principles & Implementation Guidelines for Private Sector Participation in Sustainable Water Supply & Sanitation Services

In response to ongoing debates around the appropriate role for the private sector in supplying water and sanitation in poor countries, the Swiss Agency for Development and Cooperation (SDC), the State Secretariat for Economic Affairs (seco) and Swiss Re (a major reinsurance company) have convened a multi-stakeholder process to see if and how guidelines and a putative set of policy principles could be developed.  The aim of the exercise is to provide tools to ensure that water and sanitation projects that involve the private sector are carried out in the public interest.  An overview of the groups work and its draft output was presented at the BPD Discussion Day.  
 
The initiative has taken shape around three components:

1. Policy principles intended for policymakers and aimed at reducing some of the tensions and challenges that PSP projects face;
2. Specific guidelines on Private Sector Participation (PSP) projects intended for practitioners and based on the policy principles;
3. A compilation and overview of existing toolkits, case studies and best practice categorised according to the key challenges noted in the guidelines and policy principles.  

In their current form, these products would come into play once a decision has been taken to introduce PSP.  The intention is to provide a basis for discussions that stakeholders can tailor to their individual situation, helping to better elaborate roles and responsibilities that may then mitigate against certain key risks.  In the coming months, the policy principles and draft guidelines will be discussed and tested in several local multi-stakeholder workshops to see whether they address the key issues that seem important to local stakeholders, whether they are too prescriptive, where more details would be helpful, etc.  The aim is to validate the approach and see if it responds to in-country needs.
 
The presentation by the Swiss team stimulated much discussion revolving around the nature of the exercise, potential uses for the tools provided, and co-ordination with other initiatives such as the proposed Global Water Scoping Review of PSP.
 
While participants of the BPD discussion day generally viewed the work as a solid framework, some expressed concern that the output might be overly inflexible and occasionally dogmatic.  Many of the choices that need to be made require complicated and negotiated trade-offs, and a black-or-white decision-making process may not always be suitable.  Several people stressed that more emphasis is needed on how to conduct consultation before any decision is taken to introduce PSP (with documentation and information available generally only in English and inaccessible or inappropriate for many stakeholders).  The process that leads to the decision to bring in the private sector is perhaps the best starting point to introduce the policy principles.
 
Concerns on its applicability included the capacity of local institutions and stakeholders to follow such a process (although the frequent imbalance of capacity between sectors acted as an initial impetus in developing the project).  Political competition and turnover and other underlying dynamics in a given country context could also undermine the logical approach taken by the products.  
 
The team suggested that financial agencies may be interested in financing and facilitating the dialogue envisioned in the policy principles and implementation guidelines particularly as they could reduce project risk.  Finally, the Swiss team agree with the participants and earlier contributions from various stakeholders that most of the principles could apply equally to public service provision - the issues are not all unique to PSP.
 
A major topic of discussion was how the Swiss initiative and the Global Water Scoping Process (above) could relate to each other.  (It seems that there is some duplication within the sector and various initiatives look at similar issues).  One suggestion was that the Scoping Review could use some of the structure in the Swiss documents as a basis for some of its analysis.  

Alternative Professional Support Models: Franchising

This discussion was based on a recent World Bank paper entitled Can the Principles of Franchising be used to Improve Water Supply and Sanitation Services? A Preliminary Analysis.*  The paper explores alternative forms of professional support models for providing water and sanitation services in secondary towns and cities. The concept of franchising has worked well in other service sector industries, like the hotel industry (consider the experience of Holiday Inn) and postal services in several countries. If this model is transferred to the water sector it may leverage or enhance service capacity levels and provide a lower-risk alternative to other forms of private sector participation. 

The business-model of franchising revolves around a locally-owned business (the franchisee) acting as the local arm of a national or international private enterprise (the franchisor).  The model can accommodate any combination of parties: private to private but also public to private, public to public and private to public.  In contrast to other models of engagement in the water sector, franchising revolves around different incentives and benefits for each party (for example, to increase scale a franchisor can grant rights to several franchisees at once).  An agreed package of services between the franchisor and the franchisee would generally include: for the franchisor upfront payments or start-up money, the level of royalty fees, clear agreements on how the brand name is used; and for the franchisee clear commitments of technical assistance and capacity building; and special services (e.g. centralised procurement, the use of a trademark or logo).  Intangible benefits include the franchisors expertise, reputation and quality assurance for the franchisee; and on-the-ground experience, economies of scale, and reduced risk for the franchisor.

Participants at the BPD Discussion Day noted several challenges of using the franchise model in the water and sanitation sector.  The main aim of the franchise model would be to transfer skills to local operators, yet:

• the incentives for the franchisor (public or private) remain unconvincing;
• the on-going willingness to pay of the franchisee is questionable;
• the level of risk-sharing between the parties needs to be clearly determined;
• the use of the brand name (generally the primary selling point in franchising in other sectors) might not be of significant enough importance given the local nature of water politics and perceptions;
• how would the brand name be used to attract investment firms;
• what are the commoditizable assets of the arrangement; and
• does the model have anything new to contribute to pro-poor service delivery? 

Participants noted that a review of international NGO successes and failures (at capacity building and technical assistance, use of brand name for local NGO fundraising, replication and reaching economies of scale, etc.) might be instructive.  Regardless of how franchising might work contractually, innovation and low-tech solutions appropriate to the local context must prevail over mechanisms that simply impose Northern standards and ways of operating.  Whilst the franchising approach warrants further exploration, given the very local nature of water and sanitation circumstances, a MacDonalds formula based on predictability would be difficult to impose on the water and sanitation sector in developing countries.

*Van Ginneken, M, R. Tyler, and D. Tagg.  Water Supply and Sanitation Sector Board Discussion Paper Series Paper No. 2, January 2004, available at the World Bank 

Global Governance

Simon Zadek of Accountability provided a stimulating lunchtime talk that revolved around the issues of accountability and partnerships from a generalist rather than water perspective.  Below are a few key provocative ideas he introduced:

• Issues of compliance, accounting and the law are only one side of the accountability issue.  In fact, accountability should not only be reviewed after the fact but should be considered a key driver of performance with an understanding of whom are we accountable to, for what, by when, etc.
• The worlds biggest companies are perhaps reaching a ceiling whereby CSR strategies will only take them so far in terms of being good corporate citizens.  They need the assistance and support of other national and global actors.
• Even after such significant experience in partnerships in the North, do we still know what works and what doesnt?
• Given their cumbersome, expensive and limitless nature, multi-stakeholder processes should be considered as an evolutionary step towards finding governance mechanisms that can more coherently hold governments, companies and other actors accountable.  Multi-stakeholder processes are not the ends in themselves.
• It is virtually impossible in this day and age to separate out sector level solutions.  For water, we need to understand what else has cross-cutting impacts.  In other words, a focus on water wont necessarily solve water problems.
• Partnerships are ultimately about bringing skills in-house and thus should be considered a short-medium term strategy.

See AccountAbility for further analysis on these and related topics.