35067 Providing and Expanding Water Provision and Solid Waste Collection Services in Peri-urban and Rural Areas THE ROLE OF SMALL-SCALE PROVIDERS The Case of El Salvador within a Regional Context Alexandra Ortiz and Carolina Piedrafita, authors WORLDBANK Providing and Expanding Water Provision and Solid Waste Collection Services in Peri-urban and Rural Areas THE ROLE OF SMALL-SCALE PROVIDERS The Case of El Salvador within a Regional Context Alexandra Ortiz and Carolina Piedrafita, authors WORLDBANK Table of Contents v Preface vi Acknowledgments vii Acronyms and Abbreviations 1 Executive Summary 5 A. Regional Context: The Problem of Insufficient Coverage and the Role of SSIPs 15 B. The Case of El Salvador Water SSIPs in El Salvador Challenges Faced by Water Sector SSIPs Solid Waste SSIPs Challenges Faced by Solid-Waste SSIPs 29 C. Looking for a Solution: Assessment of Best-possible Options 33 D. Recommendations for Incorporating SSIPs into the Water Sector and into the Solid-waste-collection System in El Salvador 36 References Tables 16 Table 1: Rates of Small Water Providers 18 Table 2: Cost-Rate Comparisons between ANDA and Water Associations 25 Table 3: Cost Comparison between Direct Provision and Outsourcing 30 Table 4: Assessment of Best-possible and Second-best Options for Water Provision and Solid Waste Collection Boxes 6 Box 1: Francisco Alberto Chavez and SEMU: The Path from Cartwheels to Dump Trucks in San Salvador 7 Box 2: Water Association Canton la Griega, Municipality of Texistepeque, Department of Santa Ana 8 Box 3: Who are the Small-scale Water Providers? 10 Box 4: Who are the Small-scale Solid-waste Pickers? 20 Box 5: Peru: Lima's SSIPs Servicing Water in Slums 22 Box 6: Paraguay: Output-based Aid in Paraguay's Water Supply Sector 26 Box 7: Bolivia: La Paz's Incorporation of SSIPs into its Waste-collection System iii The findings, interpretations, and conclusions expressed in this policy note are entirely those of the authors and should not be attributed in any manner to the World Bank, its departments, its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication or accept responsibility for any consequence of their use. The material in this publication is owned by the World Bank's Department of Finance, Private Sector and Infrastructure, Latin America Region, and the Public­Private Infrastructure Advisory Facility (PPIAF). Dissemination of this work is encouraged. For questions about this report, including permission to reprint portions or information about ordering copies, please contact the PPIAF and/or the Department of Finance, Private Sector and Infrastructure, Latin America region at the World Bank by email at the addresses below. PPIAF 1818 H Street, N.W. Washington, D.C. 20433 Phone: +1 (202) 458 5588 Fax: +1 (202) 522-7466 Email: info@ppiaf.org Website: http://www.ppiaf.org or External Affairs Unit (LCREA) World Bank 1818 H Street, NW Washington, D.C. 20433 Tels: +1 (202) 473 2710 / 473-7229 Email: whelpdesk@worldbank.org Preface Multinational infrastructure operators have always been reluctant to invest in peri-urban and rural community projects, given affordability levels and the lack of economies of scale. Moreover, public utilities have also traditionally been unable to expand coverage to these areas. Governments and donors are only now beginning to acknowledge that small-scale operators have an increasingly important role to play in the provision of basic infrastructure services to the poor by managing private systems and advancing private sector development. Policymakers, politicians, and practitioners are now paying more attention to creating appropriate enabling environments for small-scale private infrastructure providers, since they understand that at times these entities represent the most appropriate solution to the problem of inadequate coverage, as is the case of water associations in rural areas and of solid-waste entrepreneurs in difficult-to-access peri-urban neighborhoods. Sometimes these providers are just an intermediate solution, as in the case of mobile water providers. In most cases, they are the only option for reaching the poor. With this in mind, the World Bank's Public­Private Infrastructure Advisory Facility is supporting several country applications that seek to develop institutional frameworks and gather international best practices to support individual applications in the use of small, independent operators. This policy note is part of those efforts. The in-depth study on small providers for water and solid-waste collection in El Salvador and the workshop that led to this policy note underscore the similar challenges faced by Salvadoran Small-Scale Infrastructure Providers (SSIPs) and most SSIPs in other countries in the region. Thus, lessons learned apply extensively; by better understanding what SSIPs have to offer, municipal governments could delegate parts of service provision while concentrating on others. To enable the development and integration of these SSIPs, governments should start to treat some of these organizations as on valid providers by giving them legal status and property rights, and by supervising the quality of their services and bringing them under an appropriate regulatory umbrella. Collecti aste W d Michael Schur Soli Deputy Program Manager d an Public-Private Infrastructure Advisory Facility on ovisi Pr ater W v Acknowledgments This policy note is the product of the collaborative efforts of many people. The information compiled about and analysis of El Salvador's Small-scale Infrastructure Providers (SSIPs) would not have been possible without Marino Henao and Aldo Miranda, who wrote and supervised the Research Triangle Institute' (RTI's) report. Ernesto Nosthas, José Alfredo Marroquín, Amanda Méndez Román, and José Luis Duque of the Social Fund for Local Development (FISDL) provided invaluable support in the supervision and dissemination of RTI's report, and contributed to creating awareness about the role of SSIPs in infrastructure provision for the poor. We sincerely appreciate their efforts. We would also like to acknowledge the careful revision and comments received from World Bank experts Ventura Bengoechea, Daniel Hoornweg, Mukami Kariuki, Jean-Christophe Ngo, Manuel Schiffler, Manuel Sevilla, María Angélica Sotomayor, and Miguel Vargas Ramirez. This paper would not have been possible without their inputs and support. Special thanks also go to Jean Christophe Ngo and Jyoti Shukla of the Public­Private Infrastructure Advisory Facility (PPIAF) for their input, advice and guidance. PPIAF's financial support was crucial to carrying out the study and the workshop that led to this policy note. The document was revised and edited by Diane Stamm. Graphic design by Fletcher Design, Inc./Washington, DC on Collecti aste W d Soli d an on ovisi Pr ater W vi Acronyms and Abbreviations ACEPSA Asociación Centro Ejecutor de Proyectos Económicos y de Salud, Costa Rica, Association and Executive Agency for Economic and Health Projects, Costa Rica ADESCO Asociación de Desarrollo Comunal, Communal Development Association ANDA Administración Nacional de Acueductos y Alcantarillados, National Administration for Water and Sanitation Services CSO Civil Society Organization DIGESTYC Dirección General de Estadística y Censos General Directorate for Statistics and Census for El Salvador EMAs Empresas Municipales de Aseo, Bolivia, Municipal Cleaning Enterprises, Bolivia ESSAP Empresa de Servicios Sanitarios de Paraguay, Sanitary Services Enterprise of Paraguay EWD Energy and Water Department, World Bank FIADES Fundación Interamericana Anáhuac para el Desarrollo Social, Anáhuac Inter-American Foundation for Social Development FISDL Fondo de Inversión Social y Desarrollo Local Social Investment and Local Development Fund FPSI Finance, Private Sector and Infrastructure Department, World Bank GTZ German Agency for International Cooperation ILO International Labor Organization IPES Empresa para la Promoción del Desarrollo Sostenible, Perú, Enterprise for Promoting Sustainable Development, Peru ITC International Training Center of the International Labor Organization MDGs Millennium Development Goals NGO Non-governmental organization PLANSABAR Plan de Saneamiento Básico Rural Basic Plan for Rural Sanitation on PPIAF Public­Private Infrastructure Advisory Facility, World Bank RTI Research Triangle Institute Collecti SEMU Servicios Múltiples, Multiple Services aste W SENASA Entidad Rectora del Agua en Areas Rurales, Paraguay, d Main Agency for Water Provision in Rural Areas in Paraguay Soli d SSIPs Small-Scale Infrastructure Providers an UCA Universidad Católica de El Salvador, Catholic University of El Salvador on UNICEF United Nations Children's Fund ovisi Pr WASTE Advisers in Urban Environment and Development, the Netherlands ater WHO World Health Organization W vii Executive Summary In most developing countries, and particularly in Latin America, Small-scale Infrastructure Providers (SSIPs) are proving to be responsive to the needs of the poor. They might be delivering water services through small private networks in urban areas or water associations in rural areas, or collecting solid waste in wheelbarrows, but they make their services available to the poor by using cheaper technology, reducing service standards, and permitting flexible payment schemes. These alternative providers are filling a gap in service provision to underserved rural and peri-urban areas. The safe water coverage rate in the region is 86 that enjoys regular service while low-income on percent (World Bank 2004a:11).1 Solid-waste- neighborhoods and rural areas have erratic service collection coverage averages about 70 percent in when they get it at all, Latin America's situation Collecti large Latin American cities with populations of more urgently calls for a scheme that can expand service than 1 million, while in smaller cities this coverage provision in the short run. Large public and private aste W is estimated to range between 50 percent and 70 investments alone will not be able to increase d percent (Arroyo, Rivas, and Lardinois 1997). With coverage of infrastructure services to the extent Soli d rates that are still far from universal, and considering needed. All actors, public and private, large and an that it is normally the high-middle-income population small, need to participate to expand coverage in on ovisi Pr 1This indicator refers to "access to an improved water source". ater W 1 the near future. SSIPs are an important part of the El Salvador has one of the lowest water-coverage private sector, but they are often understudied in rates in the region; only 57 percent of the population policy research or disregarded in policy planning, has household connections (DIGESTYC 2004). This is while attention is given to large providers. They are well below the regional average of 75 percent often seen as a temporary solution either because (WHO/UNICEF 2004). Similarly, solid waste collection their sectors are considered a natural monopoly or coverage in San Salvador's metropolitan area ascends because global technical standards sometimes do not to 70% while in the rest of the country coverage recognize SSIPs modes of service. Even if SSIPs might averages 50%. Specifically, coverage for poor urban not be the panacea for coverage expansion in all areas ranges between 50 to 60%, while poor rural cases, they represent a good solution for rural areas areas are almost completely unattended with coverage and a viable solution for underserved peri-urban areas as low as 2­5%. Within this context, a private sector if quality and price are regulated, as we argue in this of SSIPs, formal or informal and with different levels policy note. of organization, has sprung up to fill in the gap in water provision and solid-waste collection. These providers have managed to supply services to a large segment of the Salvadoran population that would not otherwise have access to them. In a sample of 30 municipalities out of a total of 262, the study found 159 SSIPs: 30 mobile providers (an average of 1 per municipality), 65 water associations, and 64 microenterprises of waste pickers. The study aimed to provide a snapshot of the reality of these SSIPs in the country, and to assess the way they work and how the institutional and legal frameworks shape the way they operate. It also made recommendations to the government on how to best support these SSIPs where their services appear to be suitable and the Mobile provider: water tanker serving low income neighborhood Photo from World Bank Photo Library only option for serving the poor. This policy note presents the results of this study and With this in mind, and taking into account that uses the Salvadoran example to showcase the role of on no knowledge on SSIPs of water and solid-waste SSIPs as a viable alternative in certain contexts to collection existed in El Salvador, the World Bank expand affordable service coverage in the region in Collecti obtained funding from the Public­Private the near future, without sacrificing quality. Infrastructure Advisory Facility (PPIAF) to carry Information on lack of coverage and the role of SSIPs aste W out a study on the subject (Henao 2004). The study in Bolivia, Lima, and Paraguay is provided for regional d was supervised by the Research and Development unit comparisons and to highlight specific solutions to the Soli d of the Salvadoran Social Fund for Local Development same problems faced by El Salvador. The Salvadoran an (FISDL) and the urban group within the Finance, case is based on primary data, while international on Private Sector and Infrastructure Department for experiences have been taken from the available ovisi Latin America of the World Bank. literature and World Bank experience with small Pr water and solid-waste entrepreneurs. ater W 2 This note is directed to policymakers, regulators, and government officials. It illustrates the advantages and disadvantages of allowing SSIPs to complement infrastructure service provision by public services and large providers to reach the poor, and provides advice on how it could be done better. By improving their understanding of what SSIPs offer, municipal governments would be able to delegate parts of service provision while maintaining a supervisory role and concentrating on others. To successfully incorporate SSIPs into service provision, public authorities will need to treat the most cost­effective of them as valid service providers, Water trucker serving a poor community give them legal status, facilitate their investments, Photo from World Bank Photo Library control the quality and supervise the pricing of their services, and bring them under a regulatory umbrella. Regarding water provision in El Salvador's urban areas, Section A of this note addresses the problem of the government could have the medium-term goal of insufficient coverage in water services and solid waste extending the main provider's water network. In the collection in the Latin America region and how SSIPs meantime it could create the conditions that permit appear to fill this gap. Section B discusses the SSIPs to provide water with adequate quality experience of Salvadoran SSIPs in water provision standards at an affordable rate. In rural areas, the and solid-waste collection, and describes the government could widely support water associations as challenges they pose and opportunities they offer in the best-possible solution. Regarding waste collection, a country with one of the lowest coverage rates in the we argue that SSIPs have a competitive advantage in region. The case is complemented by international serving spread out and/or difficult access areas. While experiences that show that El Salvador's situation is maintaining the responsibility for waste management, common to all countries in the region. Section C municipal governments could benefit from considers when and how to incorporate SSIPs in outsourcing waste collection to a mix of small and each sector. Finally, Section D offers specific medium enterprises and concentrate on other areas recommendations for El Salvador. such as waste disposal strategies. The adoption of on these measures would better serve the interests of the poor and provide for a new avenue in reaching Collecti the Millennium Development Goals in the water, aste sanitation, and waste-collection sectors. W d Soli d an on ovisi Pr ater W 3 A. Regional Context The Problem of Insufficient Coverage and the Role of SSIPs Millions of small entrepreneurs have set up businesses to serve the poor families that live in rural and peri-urban areas in Latin America. The story of two of these entrepreneurs, who themselves come from poor areas, is described in Boxes 1 and 2. Regional indicators show that in terms of infrastructure service provision, such as water or solid- waste-collection services, these poor areas are the worst served; 26 million people (7 percent) of the urban population do not have access to water, and 50 million (13 percent) do not have access to sanitation. This contrast is even more striking in the rural and Regional data estimate that solid-waste-collection peri-urban areas of the region, where these figures coverage averages about 70 percent in large Latin climb to 49 million (or 39 percent of the population) American cities that have populations of more than and 66 million people, respectively, (52 percent of the 1 million, while in smaller cities this coverage is on population).2 In addition to the issue of service estimated to range between 50 and 70 percent coverage, there are also problems with the quality of (Arroyo, Rivas, and Lardinois 1997). Besides Collecti the service provided, since not all those covered deficient waste collection services, waste disposal receive quality water in a reliable and continuous way. strategies in the region are also underdeveloped. aste W Similarly, low-income neighborhoods that grow at city d Thus, while the public system provides water to 320 limits, and small rural towns, traditionally have been Soli million people in the region, there are 60 million d underserved in terms of waste-collection services. people served by private providers and 76 million an on 2Calculations by María Angélica Sotomayor, based on data from Quick Reference Guide to the World Development Indicators, 2004, Little Data Book, ovisi Pr World Bank, Washington, D.C., 2004a. ater W 5 Box 1 people that get water through other arrangements, Francisco Alberto Chavez such as a SSIP, or by taking it directly from a and SEMU water source. In terms of solid-waste collection, a conservative estimate3 yields a figure of 51 million The Path from Cartwheels to Dump Trucks in people served and 77 million people underserved San Salvador (World Bank 2004) and who dispose of their A fter 30 years of living and working as a scavenger in garbage in unsupervised open dumps. Furthermore, Mariona's open dump, Francisco Alberto Chavez has most countries in the region lack a subsidy policy emerged as a solid-waste entrepreneur that provides to serve the poorest segment of the population. collection services to more than 100,000 people (16,400 One of the reasons why there is low water provision houses and two wholesale markets) in San Salvador and and waste-collection coverage in Latin America is Soyapango. He started small 10 years ago as a waste picker that the institutional arrangements in place are not with a manually operated cart serving a few households that conducive to a considerable extension of coverage in lacked collection services in the nearby communities. He now the short run. The institutional evolution of these transports 30 tons a day from the Central Market to the two sectors can be summarized as follows: sanitary landfill Cipes­Mides in Nejapa, and has won the bids Publicly owned, centralized systems of water were to transport 32 tons a day from the wholesale market La established in the 1950s to deliver services in a Tiendona. He also carries 10 tons a day from peripheral number of countries in Latin America, and some markets. His company, Servicios Multiples (SEMU), employs achieved it with relative success. Centralized service 53 people. To achieve this, he has come up with original provision from a national water utility was the technical solutions for the collection of solid waste in peri- predominant model until the 1970s, and it is still urban neighborhoods and has adapted solid-waste trucks to widely used. This arrangement increased coverage, transport organic waste from San Salvador markets. He has but not to all. The scheme lacked the incentives to also used innovative contractual modalities (outsourcing of 17 offer services to small towns and peri-urban and trucks) to minimize risk and maximize the use of capital. rural areas that had higher operational costs than those from concentrated urban areas. Under this system the municipal government remained detached from the provision of water service. Decentralized systems were implemented in the water sector in the 1980s, following the wave that on induced changes in the provision schemes of almost all public services. The underlying assumption was Collecti that the drinking-water supply would be better and aste more efficiently managed when delegated to the W municipal level or to the lowest-possible appropriate d level. Solid-waste collection had always been a Soli d municipal responsibility and remained so. But an on 3We reached this figure by using as a base the coverage average of 40 ovisi percent in the low-income areas of big cities in the region Pr such as Asunción, Caracas, Lima, Managua, San Salvador, and Tegucigalpa (World Bank 1997). ater W 6 Box 2 municipal provision was carried out with mixed results in both sectors; under such a scheme service Water Association Canton providers became closer to the end user, but with la Griega, Municipality of Texistepeque, the exception of a few cases, this did not lead to Department of Santa Ana more efficient provision of services (Network 2004). Municipalities often set tariffs that were too low to T his water association was created with the help of a local cover costs, since tariff increases were sensitive for nongovernmental organization and operates with the political reasons. Extensions of coverage were continuous efforts of its members. The water source is often made arbitrarily and insufficiently because an artificial pond built in 1945 with the help of a public municipalities lacked the necessary funds to expand foundation. In recent years, the community invested $1,143 to service to the extent needed. As a result, in many clean the pond, and the water has been analyzed and is cases the service provided was of low quality. In considered suitable for human consumption. The system solid waste, direct provision through municipal provides water to 1,120 people through 224 household authorities later proved to be more expensive than connections. if outsourced to a third party, either public or private (Haan, Coad, and Lardinois 1998:iii). The source feeds a storage tank that is 10 kilometers away at a rate of 20 liters per second. The association does not have water In the 1990s the Latin American model changed meters and charges a monthly fixed rate of $3.43 per household to setting up public­private partnerships at the connection. Invoices are generated manually and payments can municipal level for both water provision and solid be made at the association's office. Revenues average $750 per waste management. But while private arrangements month. A volunteer community board administers the system, brought some improvements in efficiency and and a firefighter and two maintenance personnel staff the increased water-coverage levels over purely public association. Employees' pay and the cost of electricity provision schemes, they still did not achieve great constitute the association's total expenditure of about $538. coverage extensions, particularly in poor or remote areas. Contrary to general perceptions in the water and sanitation sectors, empirical evidence indicates that private companies or public­private partnerships do not generally bring in large sums of money in capital investments. In most cases private managers run the utility more efficiently and are able to reinvest the revenues derived from on the business. It soon became evident that with public utilities or large private providers alone, a Collecti big extension of coverage would not happen. Public­private partnerships at the local or aste W community level were also needed either in the d form of outsourcing, management contracts, or Soli concessions, among others. d an In the waste-collection sector, privatization was on more successful, and it has been widely proven ovisi Pr continued on page 12 ater W 7 Box 3 Who are the Small-scale Water Providers? S SIPs that provide water range from informal well owners who either sell water at the source (directly to consumers or to another SSIP, or to a middleman that will distribute it per household), distribute water by truck, or even operate small piped-water systems that must often lower service standardsa in order to provide services at lower cost to those with financial concerns, and/or to adapt to different levels of demand, such as two or three hours a day. There are many variations on water SSIPs, and varied market niches and business models. For example, a distinction can be made between mobile providers (mostly tanker trucks) and fixed networks (piped delivery).b Network operators have substantially lower costs and prices per cubic meter sold than mobile operators, who often offer higher costs and lower volume of service, but who can also operate in an environment of greater regulatory risk,c or even meet seasonal demand fluctuations. Many network operators started as mobile operators and then invested in fixed facilities when they had the resources and faced a lower risk of expropriation. Further categorization within these two groupings of providers is possible. A mobile provider may operate its own water source, buy from a third-party private source, or just retail water purchased in bulk from the trunk utility. Truckers may serve households directly, deliver water to a community storage tank, or even supply a local fixed network serving a group of standpipes or house connections. Private well or source operators can serve tankers, but also offer backup service to the official utility during periods of drought. Diversity is endless because small entrepreneurs must permanently adapt to their clients' needs. Characteristics common to them all are that they operate with limited government oversight, no government support, and must compete for customers. Network providers can also be differentiated within their own grouping since they can be owned and/or operated by either a private entity or by the community they serve. The owner does not need to be the operator in most cases. Systems owned and managed by the community they serve are known as water-user associations. Systems owned by the community they serve but that are operated by private management are known as water associations. Both water user associations and water associations are not-for-profit and have recognized legal status. Of the array of network providers, water and water user associations represent an improvement over informal providers on aLowering service standards relates to the fact that some piped system operators provide intermittent services or services at a lower pressure. bThis categorization was taken from Solo (2003). Collecti cThe reason why most operators do not lay water pipes underground and start a "fixed" type of service (less people can be reached at the same cost using tanker trucks) is directly related to the risk attached to doing so. Most countries, including El Salvador, state that the public national aste utility is the only entity that should provide water to the population. Thus, it can claim proprietorship over any kind of water-provision system in W the country. That is the risk of expropriation: if you create a piped system in a highly risky environment such as El Salvador, the national utility d can legally take it over (because the original provider never had a legal right to do so). Soli d an on ovisi Pr ater W 8 because they are (a) legally recognized and (b) liable to the community they serve. Water associations are a preferred provider over water user associations since not all rural communities have the know-how to operate water services. Given the different characteristics of urban and rural areas, SSIPs that predominate in each area tend to be different. Informal SSIPs, either mobile or with a network, are usually more prevalent in urban areas where a large concentration of population makes service provision more profitable. Water associations or water-user associations more commonly serve rural areas and appear less frequently in urban areas. Service levels of water SSIPs vary with provision options: an individual with a cart can reach between a 100 to 200 people a day; a trucker that carries water house to house can serve 350 to 700 households a day. More complex network systems can serve from a hundred to several thousand households. These providers serve mainly low-income customers, but sometimes they can include middle- and high-income settlements that are located away from the main provider's network. Cost for service from water SSIPs varies, but they may charge more than what the main public­private provider would if offering the service through a piped network. Trucked water is more expensive than piped water, and a regional study that sampled six large Latin American cities showed that the cost increases of SSIPs was around 4 to 10 times the public's network unit price (Solo 2003). These data contradict some of the literature on these providers that cite an increase of 20 to 150 times. Furthermore, some small network operators in small cities compete favorably on price with the main utility, even when they get no subsidies. The main reason for lower tariffs, when they occur, is that main providers often receive subsidies and are not obliged to recover their capital investments through tariffs. SSIPs that deliver water by tank transfer the high transportation costs to the price of water. on Collecti aste W d Soli d an on ovisi Pr ater W 9 Box 4 Who are the Small Solid-waste Pickers? S olid-waste collection SSIPs can take many forms.a A recent study in Latin America identified four categories within this type of entrepreneur: (a) small entrepreneurs offering services directly to the population with municipal approval, (b) informal waste pickers who have organized themselves with the backing of philanthropic organizations or on their own initiative to protect their livelihoods, (c) entrepreneurs who have organized their service units with support from the community served and who operate without municipal approval, and (d) organizations that have been created at the initiative of the municipal government and operate with its support. Typically, these SSIPs consist of 5 to 10 people, including the owner, that collect trash by hand going from house to house using a wheelbarrow. Given the intensive work implied in waste collection, the service provides only a supplemental income for the owner­operators. There are two primary payment and collection methods for the service. In the first, the client pays the SSIPs directly. In the second, the public pays service fees to the municipality or the utility company; the municipality or utility must then pay the SSIPs the amount established in the service contract. In all cases, SSIP workers complement their income with revenues from recycling some of the waste collected. The variety of entrepreneurial forms that exist can operate in every part of the solid-waste cycle. Most of them provide primary collection services (from the residence or commerce), along with sweeping and cleaning of public streets, parks, cleaning of canals and storm drains, and separation at the source. Slightly bigger entrepreneurs engage in secondary collection (transportation to the final disposal site). In most cases, the SSIPs have both a principal and many secondary activities. Most of these entrepreneurial forms were conceived of and promoted as a means to provide urban waste management to the poorer communities, but in some cases their collection services had been restricted to those with the ability to pay. Capital investments in these businesses are low and consist of a few tools such as a wheelbarrow, a barrel, and a shovel, or even a cart and horse. Vehicle ownership is rare, but some entrepreneurs rent or lease them. These enterprises tend to coordinate with the municipalities to collect the trash and take it to transfer points, or they integrate their operations with routes of municipal vehicles that transport the waste to their disposal site. on Solid-waste SSIPs have a peculiar relationship with municipalities, depending on the country. Some operate under contract with them and have to comply with strict regulations on price, routes, and disposal. Others operate independently, choosing their clients and prices. In Collecti other cases they operate under municipal authority without explicit contracts. Even when a particular municipality has no contract with aste its SSIPs, the SSIPs are dependent on the municipalities for permission to dispose of collected waste in municipal landfills that are generally W d Soli a d These categories are based on those developed by Arroyo, Rivas, and Lardinois, 1997, Chapter 2. an on ovisi Pr ater W 10 Small scale garbage collector accommodating the contents of his cart Photo from World Bank Photo Library administered and controlled by the municipality. The coordination that must exist between the SSIPs, which are not normally involved in final disposal, and the municipal vehicles which are or should be, is the source of a common dependency relationship. In the case of solid-waste collection there is no information on higher tariffs being charged to clients when compared to municipal fees. This is not really a consideration since municipalities often outsource their services to these small providers, charging a single fee. However, from the municipality's perspective, contracting out solid-waste-collection services represents a savings of up to 30 percent according to international experiences. Cost reductions have come mainly from a more efficient use of resources by private operators that are motivated on to minimize costs in order to maximize profits and be more competitive. In contrast with municipal entities, the private sector has had managerial flexibility and freedom of action to reorganize the workforce that the public sector lacked, and has been able to reward or Collecti penalize poor performance (Haan, Coad, and Lardinois 1998:iii). aste W d Soli d an on ovisi Pr ater W 11 Pepenadores (waste collectors) waiting to dig through the garbage in search of recyclable material to sell Photo from World Bank Photo Library that municipalities achieve considerable savings Another explanation for the lack of extended coverage and could adequately extend coverage by in the Latin America region is related to the fact that outsourcing services to private operators while conditions for service provision in peri-urban and rural maintaining the responsibility for service provision areas are very specific and difficult. Rural areas have and an oversight role. International experience has low population density, making it expensive to cover shown savings of almost 30 percent over municipal it all, and in most peri-urban areas, access is difficult provision of these services (Haan, Coad, and because the streets are too narrow for garbage trucks Lardinois 1998:iii). Cost reductions have come to operate. Few countries have been able to figure mainly from a more efficient use of resources by out how to efficiently serve peri-urban and rural areas. private operators who are motivated to keep their Urban areas generally subsidize rural and peri-urban costs down in order to maximize profits and be populations in economic terms, although this scheme more competitive. In contrast with municipal is not always successful, with rural and peri-urban entities, the private sector has the managerial areas remaining largely underserved. Coverage of the flexibility and freedom of action to reorganize poorest population requires subsidy schemes that can on the workforce that the public sector lacks, and has be either applied to service costs (cross-subsidies) or been able to reward or penalize poor performance. to a connection fee in the case of water services (a Collecti However, large public or private solid-waste- one-time investment). Cross-subsidies predominate, aste collection providers tend to leave behind peri-urban even if they do not favor the poorest population not W d areas with difficult road access, such as connected to water sources, or those who are Soli shantytowns, or simply rural areas that are far away underserved by waste-collection services. d an from serviced areas. The reasons for this are that Given this situation, a small and often informal on operational costs per ton of garbage collected private sector of SSIPs has sprung up to fill in the increase as the population density decreases, and ovisi gap for water provision and solid-waste collection in Pr the equipment used by large providers is not underserved urban and rural areas. These providers adequate for the topography of peri-urban areas. ater W 12 have managed to serve a large segment of the widely in the Latin America region, but in most population in the Latin America region. No accurate countries their role is not part of a well-thought-out estimates on these providers' coverage exist, although and articulated strategy. On the contrary, they they are known to supply water to a large percentage operate on a case-by-case basis without adequate of the 76 million people reported underserved. With legal frameworks or standardized contracts. respect to solid-waste collection, one study estimates In this context, the World Bank and FISDL selected that microentrepreneurs provide coverage to at least the Research Triangle Institute (RTI) to conduct a 2.4 million people in the region (Arroyo, Rivas, and study of water and solid-waste-collection SSIPs in Lardinois 1997). (See Box 3 for an in-depth El Salvador. The country was selected because it description on Small-scale water providers, and Box has one of the lowest coverage rates of both water 4 for a description of Small solid-waste pickers.) provision and solid-waste-collection services in the Unlike large providers that mostly offer a one-size-fits- Latin America region, while at the same time there all service, SSIPs recognize the range of circumstances are a significant number of SSIPs. The study, the and markets in which the poor might resort to first of its kind in the country, provided an excellent alternative sources, and give them price and quality snapshot of the reality of these SSIPs, assessed how bundles to match their needs. Since they arise to they work, and studied the institutional and legal satisfy a community need, they are flexible enough frameworks in which they operate. To illustrate the to adapt to service underserved rural and peri-urban solutions found to problems similar to those faced areas alike. Some providers make their service by El Salvador, the next section also discusses good affordable to the poor by using low- cost technology practices in Peru, Paraguay and Bolivia. or by offering lower quality than the main provider. Others offer better customer service such as flexible Boy looking for garbage to use or sell payment methods, low or no connection charges in Photo courtesy of Chris Jennings the case of water, restricted water provision, or fewer waste-collection dates. Even if SSIPs are not a panacea for coverage expansion in all cases, they represent a good solution for rural areas and a viable solution for underserved peri-urban areas if controlled for quality and tariffs. For customers who do not live in a serviced network, cannot afford a water connection, or live in remote and/or inaccessible on places, these providers may be their only option. Collecti SSIPs represent an important part of the private sector for infrastructure service provision that is aste W often overlooked by policymakers and understudied d by policy analysts, who tend to focus on large, Soli private concessions. They are often seen as a d an temporary solution either because their sectors are on considered a natural monopoly or because global technical standards sometimes do not recognize SSIPs ovisi Pr modes of service. As a result, SSIPs exist and operate ater W 13 B. The Case of El Salvador Water coverage in El Salvador is worse than in most countries in the Latin America region. Only 57 percent of the population has household connections, and 29 percent obtain water from a well, lake or river. Urban coverage reaches 73 percent and rural coverage only 31 percent (DIGESTYC 2004). Water SSIPs in El Salvador A 1961 Salvadoran decree5 declared that water resources are a national asset and that ANDA has The country also ranks low compared to the regional preferential rights for use or exploitation of any average of 75 percent coverage (WHO/UNICEF 2004).4 water source. The decree established that ANDA A study (RTI 2000) shows that an investment of was intended to favor a state monopoly model; it $1,143 million over a 10-year period would be required mandated municipal governments to relinquish to provide total coverage of water and sanitation in responsibility for their water systems to ANDA. the country, not including operation and maintenance The transfer, however, met strong resistance from costs. Investments, however, are nowhere near that the municipalities, and to date there are still 68 level: the investment budget for the Administración on municipalities that run their own water services. Nacional de Acueductos y Alcantarillados (National ANDA provides water to only 182 of the 262 Administration for Water Services, ANDA) for 2002 was Collecti Salvadoran municipalities and shares basic provision $14.6 million. This amount was reduced to $4.9 with a variety of other service arrangements. These aste million in 2003. In addition, the Salvadoran FISDL W include: (a) 68 municipalities that never turned in their d invested $30.6 million in 713 water and sanitation systems, (b) 7 community associations that have an Soli projects between 1999 and 2004. d agreement with ANDA to administer their own system an on 4Coverage indicates the number of household connections. ovisi 5 Pr Decreto 341/61. ater W 15 within a decentralization pilot project, (c) self-served However, the presence of these kinds of SSIPs is not private systems, (d) and an array of SSIPs. as prevalent as in other countries in the region, such as Paraguay. The study sample shows that on average A number of private SSIPs, formal or informal, for there is one provider of this kind per municipality. profit and non-profit and with different levels of There is no precise information available on their organization, have emerged in the last two decades level of coverage, but data from the 1998 Salvadoran to fill the gap for water provision in underserved multiple household survey show that 6 percent of areas--40 percent of the population. In a sample of total households in the country were getting their 30 municipalities, the study found 95 water SSIPs, of water from tanked trucks (RTI 1998a). which 30 were predominantly mobile providers working in peri-urban areas and the remaining 65 were water An analysis of these providers' rates shows that they associations or water user associations.6 charge from $0.50 to $5.75 per cubic meter (see Table 1), a higher price than the $0.29 charged by ANDA. The 30 SSIPs found serving peri-urban areas within This higher cost can mainly be attributed to high the study sample range from well owners that sell the transport costs for tanked water, and to the fact that water in bulk, to middlemen that deliver it house to these providers lack any public subsidies, in contrast house, to some providers that operate a small network to ANDA.8 It is also important to note that even if linked to a well, and offer different levels of service.7 costs are higher in some cases, and if water provided Table 1: Rates of Small Water Providers Cost per Cubic Meter per Cubic Meter Consumer per Cubic Small Water Provider ($) ($) Meter ($) Rate for Middleman Rate to Final With tanked trucks 0.44-0.50 N/A 2.50-5.75 or container in trucks Well owner selling N/A 0.44-0.50 0.75-1.25 on at the source Collecti Well owner with N/A N/A 0.50-1 household connections aste W d N/A=Not Available Soli Source: Authors' compilation based on Henao, 2004 d 6 an See Box 3 for an extended definition of mobile providers, water associations and water user associations. on 7Examples of different levels of service include provision of water for only a few hours a day or through a shared water connection outside the household that supplies many families. This is in contrast to a higher standard of service that provides water 24 hours a day through a safe water ovisi connection. Pr 8The RTI study shows that ANDA sells water at $0.29, even when production costs are as high as $0.40. ater W 16 through piped systems is always cheaper than water provided by tanks, the biggest cost differences found in the sample were just 11 times higher. Assuming that the quality of the water provided is comparable, this contrast is not as large as the 20 to 150 times higher costs that are sometimes attributed to water SSIPs in Latin America. Among these small providers water quality varies considerably depending on their source. Some obtain it directly from ANDA, while others have their own source (for example, groundwater from wells or rivers) and sell it with or without treatment. A study conducted by the Catholic University of El Salvador and the Anáhuac Inter-American Foundation for Social Development (Fundación Interamericana Anáhuac para el Desarrollo Social, FIADES) (RTI 1998b) showed that water from wells in different areas of the country could contain high levels of iron and manganese. This water would require special treatment, beyond chlorination, to make it suitable for human consumption.9 The 65 sampled water and water user associations in El Salvador are community-based, not-for-profit organizations that provide services in rural areas and distribute water through household connections. Girl carrying water home from a nearby source They are created either as (a) Private Communal Photo from World Bank Photo Library Associations (Asociaciones de Desarrollo Comunal, ADESCOs), comprising at least 25 members that adopt connections. The average number of household a common legal framework, are ruled by a general connections in the associations sampled is 379. assembly, and are registered in the Municipal Council, Of the total sample, 24 associations provide on or as (b) nongovernmental organizations (NGOs) or continuous service and the rest provide it for Civil Society Organizations (CSOs) registered with the an average of eight hours a day. Half of the Collecti Ministry of the Interior. A single municipality can associations sampled take their water from a spring, have several associations. aste and 41 percent drill a well. More than 60 percent W These associations have high coverage and acceptance d (45) treat the water with chlorine, and some of rates in rural areas. In the sampled municipalities them analyze their water quality regularly, even Soli d they serve 172,319 people trough 24,617 household though this is not mandatory. an on ovisi 9Contamination by iron or manganese is not desirable, but it is less harmful than e-coli or other bacteria that can be eradicated Pr with chlorination. ater W 17 Most Salvadoran water associations were created bigger systems that require pumping. The average to assume the management of rural water systems monthly tariff charged by associations is equivalent to that had been built by the Basic Plan for Rural $3.64 a month. An estimate of consumption levels Sanitation (PLANSABAR), a program carried out in per household yields an average range of 15 to 23 the 1980s by the Ministry of Health. In 1995 these cubic meters a month. This estimate is consistent water associations were required to transfer their with data from the few associations that have meters. water systems to ANDA, but 19 of these retained The majority of these associations (38 of 65) that management and operation rights. Other water operate systems that require pumping have obtained associations manage systems that were built with a partial subsidy on electricity expenses. Table 2 seed capital and the technical assistance of presents an approximation of cost and rates per international NGOs. cubic meter for both water associations and ANDA. Salvadoran water associations are run by community Of interest is that even if water associations offer boards and have an average of four employees that water at a higher rate than the main provider, ANDA's provide administrative support, deal with payments, rate does not cover its costs. The table shows that operate and maintain the pumps, and attend to any ANDA operates with higher subsidies than the partial plumbing problem that might arise. In almost all ones received by some water associations. cases, the board is comprised of community members Water associations in rural areas have proved to be the that receive no salary. best available option, given the high costs involved in Of the 65 water associations reviewed 63 charge a extending main networks. With adequate management fee for services. Fifty-two charge a fixed monthly rate. and investment levels, these associations have Only 11 that have meters charge rates that are linked brought water coverage to rural areas at an affordable to consumption patterns. Maximum rates in the rate. Most of them started with some kind of financial different regions are around $8 and $13 per month, and technical assistance, but they have managed to while in the northern region rates are much lower, continue operating on their own. In contrast, with a maximum of $1.71. The reason for the low providing water by tanks has proved to be a viable rates in the north is that there are more small systems solution in El Salvador's peri-urban areas, even if operated by gravity, while the remaining regions have inferior compared to having a connection to a main Table 2: Cost-Rate Comparisons between ANDA and Water Associations on Provider Working Ratioa Cost per Cubic Rate per Cubic Collecti Meter ($)b Meter ($) aste W Water Associations <1.0 no data 0.29-1 d Soli d ANDA >1.2 0.40 0.29 an on a. A working ration bigger than 1 mean that the company does not cover its operational costs with tariffs charged. A working ratio below 1 means that the company has some level of recovery of its investments. Best practices recommend a working ratio of 0.7 or any value below 1. ovisi b. These cost calculations do not include asset depreciation or financial costs of invested capital. Pr ater Source: Authors' compilation based on Henao, 2004 W 18 water provider. Together these providers service almost 40 percent of the country's population, yet they are not supervised by public authorities and still face many challenges to their development and sustainability. Challenges Faced by Water Sector SSIPs Even if they represent a less convenient option for water provision in some peri- urban areas, mobile SSIPs are the only one available. Still most of them are serving a small percentage of the urban population at a higher cost with low quality standards, mainly due to: (a) the lack of a regulatory framework that would eventually allow them to exploit water sources, invest in piped water systems, and hold property rights on the systems without the risk of expropriation10; and (b) fear of privatization of the water sector tailored to fit the specifications of large providers. Another often- cited drawback in their service provision is the fact that mobile providers are less accountable to the communities they serve than network providers, which adds an additional risk to their services since dissatisfied customers rarely have a place to complain. The Lima Case (see Box 5) shows how mobile providers Boy bringing water home from a nearby water source in Peru improved their service in the face of the same Photo from World Bank Photo Library limitations. Water associations in El Salvador are still at an early infrastructure to capture, store, and distribute the stage of development. They have been recognized for water, and they continue to demand the legalization the services rendered in rural areas, have legal status, of the rights of way over the land where they lay and are accountable to the communities they serve. their pipes. In most cases they hold property rights on However, they are not being supported by a only over their office space and their water pump. government policy to promote their development, Paraguay's case, described in Box 6, represents a best Collecti enhance their capacities, or assist them financially practice on how public authorities have supported aste in extending their services. All water associations the incorporation of water associations into the W d surveyed still claim ownership of the water systems national water provision system, even as these stay Soli they operate, along with exploitation rights. They within the private sector. d an lack titles over the association's land and the on ovisi 10See footnote C in Box 3, page 8. Pr ater W 19 Box 5 Peru Lima's SSIPs Servicing Water in Slums T he regional trend shows that SSIPs that operate network systems are replacing those that offer water in tanks. Water provided through network systems is more affordable for consumers than water provided from tanks and is of better quality. However, Peru has very strict laws against the installation of water networks by private operators. In such context, an intermediate arrangement has been set up in Lima's squatter settlements: water truckers maintain and supply large holding tanks that rely on gravity to distribute water to several standpipes, and employ residents to control a network of hoses running into each house, and to collect payment. This system was first introduced by international donors to give incentives to the communities to manage their water system, but later gave way to mini concessions with truckers that offered the best price. Truckers have gladly used the holding tanks, increasing their own revenues and improving water quality through chlorination. They have not invested in new water tanks, however, because of regulations that transfer all infrastructure assets to the public company. This option is more expensive than direct provision by a main provider or through a private network system. It represents an improvement, however, over provision by scattered truckers, and adds accountability to the community it serves. Since providers are competing among themselves they have to provide good quality water at a fair price. Acting as a collective body, the community has a bargaining position and can act to switch providers if service standards do not meet their needs and capacity to pay. While mobile providers in Lima could increase their productivity considerably by investing in holding tanks and neighborhood piped networks, they prefer to invest in additional trucks. A new truck cannot increase revenue as much as a holding tank or a network, but it will not expose the owner to a loss if the holding tank is expropriated by the State. The trend suggests nonetheless that with a mildly favorable regulatory environment, SSIPs would invest in delivery systems that involve greater sunken costs and risks, but provide larger volumes of water at a better price to their clients. Source: Solo (2003). on Collecti aste W d Soli d an on ovisi Pr ater W 20 Common to all water SSIPs in El Salvador, as elsewhere, is the problem that there are no mechanisms to finance investments in the water sector by which public funds would subsidize or facilitate access to credit by these enterprises in recognition of their advantages in serving peri urban and/or rural areas and the poor. Since SSIPs cannot access commercial lending, it is difficult for existing ones to extend their coverage. In addition, most Salvadoran water associations face the rapid depreciation and the end of the useful life of their equipment, tanks, pumps, and networks, since existing systems are on average nine years old and most of them need urgent replacement or repair. There is also a need for more energy-efficient pumps. Garbage Truck: equipment used by the large service provider Photo from World Bank Photo Library Finally, most associations claim that water is wasted due to the lack of meters and the presence of leaks that are not fixed. Solid Waste SSIPs Moreover, there is no adequate technical advice Solid-waste collection regional data show that coverage about or supervision of the water quality of most averages about 70 percent in large Latin American cities of these providers. Water associations normally use with populations of more than 1 million, and an chlorination as a treatment method, but mobile estimated 50 to 70 percent in smaller cities (Arroyo, providers in peri-urban areas do not treat it in most Rivas, and Lardinois 1997). Although detailed cases. Since some water sources in the country have information on total country coverage is lacking, a high levels of iron and manganese, all these providers recent study of the San Salvador metropolitan area should be controlled before being considered a viable showed that 70% of the waste generated was solution. In addition, control could be extended to collected, while in the rest of the country coverage water tariffs in order to protect consumers from being averages 50%. Specifically, coverage for poor urban charged excessively for services rendered. areas ranges between 50 to 60% while poor rural areas Finally, many water associations owned and run by are almost completely unattended with coverage as on community boards fail to provide adequate service low as 2-5%. Thus, coverage is well below the regional because they lack the needed managerial and business average. The country is lagging behind in terms of Collecti skills. Community members are not necessarily disposal arrangements, as well: only 24 of the 262 management trained. To solve this problem some municipalities disposed of their trash in adequate aste W community boards have outsourced service provision sanitary landfills. The rest dispose of it in open d while retaining ownership. In other cases, such as dumps that are not subject to any environmental Soli Paraguay, an umbrella group of water associations d control (RTI 2003). an has been created to provide capacity- building and on managerial support to members that request it. continued on page 24 ovisi Pr ater W 21 Box 6 Paraguay Output-based Aid in Paraguay's Water Supply Sectora I n the late 1990s Paraguay presented the World Bank with the challenge of finding a more cost­efficient way to generate new water connections. The country's utilities ranked low in coverage levels--50 percent in urban areas and 37 percent in rural areas and small towns. The aim was to expand water coverage in the short term. After an assessment of the two state entities responsible for water provision in both urban areas (Empresa de Servicios Sanitarios del Paraguay, Sanitary Service Enterprise of Paraguay, ESSAP) and rural areas (Servicio Nacional del Agua en Areas Rurales, Paraguay, Main Agency for Water Provision in Rural Areas in Paraguay, SENASA), the country and the Bank decided to concentrate on the latter. SENASA had a good service record and had successfully managed to create more than 1,000 Water User Associations (Juntas o Comisiones de Agua). Its project scheme for large rural communities was based on a strong commitment and contribution from community members. These were required to participate in building their own water system through: (a) cash contributions before and during the construction process (up to 15 percent of total costs), (b) in­kind contributions such as labor and construction materials (up to 15 percent of total costs), and (c) a loan for the 30 percent of overall construction costs to be repaid to SENASA during 10 years following the association start­up. Once the water systems were installed the associations would operate the system with SENASA's technical assistance. By 2001 SENASA had managed to build 900 water systems that provided 173,000 household connections. Under this scheme public funds contributed to 40 percent of the system's costs in large communities and to approximately 82 percent in smaller communities (where subsidies were higher). In practice, subsidy levels were higher due to considerable delays in debt payments or because communities would not be able to disburse start­up costs. Moreover, with this cost-shared structure, coverage expansion as planned did not seem possible: to achieve SENASA's goal of 85 percent coverage by 2013, the institution needed an average of $13 million a year. However, yearly investment budgets did not exceed $4.3 million. With that level of investment, Paraguay would need 20 years to reach its goal. After recognizing that neither the traditional model of water-user associations nor the water utilities were enough to expand coverage in the short term, Paraguayan officials opted to design a pilot project to tap the potential of existing and prosperous private water providers. on They set up a scheme to attract small companies to rural areas to build and operate water systems. The community maintained a say in contract conditions and would still have to pay for some part of the connection charges. Collecti aste W aOutput-based aid refers to the provision of a public subsidy to a private operator once the service for which it was hired has been successfully d provided. The subsidy should cover part of the private provider's investment costs. Soli d an on ovisi Pr ater W 22 Under the first pilot scheme the private operator would be chosen through a competitive bid and the winner would enter into concession contracts with SENASA and the water association. The first contract would specify how the subsidy was to be disbursed (based on the output-based model, see below), while the second one would include the system's technical specifications along with a definition of areas to serve. Service hours and rates would be agreed with the community and included in the bid conditions. Under the concession contract with the water association, the private operator would be obliged to connect all households in the service area that demanded it and were willing to pay their share of connection costs. To guarantee that SENASA would be paying less than in the former scheme, a maximum subsidy per connection was established at $150. Thus, if private operators agreed to all contract conditions and the proposed subsidy level, the one that came up with the lowest connection cost (to be paid by users) would win the bid. The first pilot was a success: various consortiums of builders and operators participated in it and offered acceptable connection costs for the community (between $50 and $67). In view of such success SENASA started a second pilotb with a slight change from the first one: instead of making connection costs the deciding factor on the bid, they switched it to the lowest public subsidy required per connection. In that way SENASA assumed the risk of the bid, and the maximum amount per connection that each client would pay was established beforehand and was included in the bid's clauses. This last pilot allowed communities to know exactly what their cost would be before choosing their provider. The three water systems of the first pilot are still in operation, and the second pilot proposals are being analyzed. Community response to private sector participation has been positive given the short period of time lapsed between conception and implementation, and because the community did not have to give initial cash contributions. If these pilot schemes prove to be successful, SENASA will have found a way to expand coverage at less than half its previous costs without sacrificing quality. Without SSIPs, the average subsidy was around $300 and $400 per connection. If SENASA manages to provide the same service for $150, it will have duplicated its investment capacity with no additional investment budget. Source: Drees-Gross, Schwartz, and Bakalian (2004). on Collecti aste bImplementation of the first phase of the second pilot began in September 2004, and the second phase started in February 2005. W d Soli d an on ovisi Pr ater W 23 Current national law gives complete responsibility to the municipalities for solid-waste management and disposal. Each municipality then issues its own solid- waste regulations. No uniform regulations or laws exist at the municipal level for handling this responsibility. The lack of technical resources and economic limitations in most cases have kept municipal governments from being able to effectively meet the growing demand for waste-management Picking bottles for recycling in dump services. Of the existing 262 municipalities, 184 Photo courtesy of Chris Jennings provide solid-waste-collection services (RTI 2002). Some of them charge for service and outsource provision by hiring a mix of small, medium, and even service with smaller fixed-bed trucks have an average large private providers that bring in vehicles, drivers, investment cost of between $8,000 and $10,000, and and waste collectors­operators, though there is no even $2,000 for smaller trucks. Operation and information on the exact number that do so. Thus, maintenance for this last group can be as much as the service is provided in the country at different much as $900 a month including salaries, gas, and levels of coverage and quality. vehicle maintenance. Since no uniform laws or regulations exist on solid- SSIPs involved in garbage collection have different waste collection and disposal at the municipal level, relationships with municipalities. Municipalities can various models of collection exist. In a sample of 30 take the role of a client, a competitor, or a regulator municipalities, the study found 64 waste-collection that can grant them access to intermediary or final micro enterprises, which ranged from very small to disposal sites such as transfer stations, sanitary medium sized, often with family-owned and managed landfills, open dumps, and/or trash containers. operations. Single owner­operators represent one Occasionally private providers can employ municipal group. Operators that invest in a vehicle for garbage workers to carry out any of the collection tasks, collection form a second group, characterized by depending on contract specifications. When the pick­up trucks and an average of four employees. municipality is a client, it can define collection Finally, the largest of these entrepreneurs run areas and implement an outsourcing model that businesses of up to 50 workers and use sophisticated would establish a stable, secure relationship with on contractual arrangements. All of these entrepreneurs small providers (through, for example, multiple-month and their workers complement their income with or one-year contracts). The case of the city of La Paz Collecti resources they obtain from recovering and selling describes such a scheme (see Box 7). recyclable materials.11 aste Users of end services of these providers are residences W d Solid-waste SSIPs in El Salvador, as elsewhere, often located in areas that are difficult for trucks to reach, Soli use second-hand equipment. The smallest SSIPs have or are businesses that need increased coverage due d an average capital investment of $50, consisting of a to their large waste production, such as restaurants, an cart, a tank, and a shovel. Medium SSIPs that provide supermarkets, hotels, and shopping centers. An on ovisi Pr 11 See Box 4 for an extended definition of Small Solid Waste Pickers. ater W 24 Table 3: Cost Comparisions between Direct Provision and Outsourcing Solid Waste Collection and Transportation ­ Service Average Cost Fare (house/month) Provider per Ton $ $ Municipality 58.3 0.45-4.57 Small Service Provider ­ Serving Private Residents N/d 1.15-1.70 Small Service Provider ­ Serving the Municipality 18.64 n/a Source: Authors' compilation based on Henao, 2004 independent study conducted in the San Salvador The impact of these SSIPs is twofold: they provide metropolitan area showed that private clients of services to difficult access areas where large providers, these SSIPs are in general pleased with the service either private or public, would not go, and they and sometimes consider it more reliable than the provide services at a considerably cheaper cost than service offered by the municipality when such service that of municipal direct provision. A representative is available. In some cases, clients pay the cost of sample of Salvadoran municipalities taken from the private collection in addition to the municipal fee. central, north, and south regions showed that direct Residents and commerce owners have confidence in provision has an average cost per ton of $58.30. If SSIP workers, especially since they work alongside the service is provided through outsourced SSIPs, the the business' owner in most cases (Arroyo, Rivas, average cost of trash collection and transportation for and Lardinois 1997). the municipality is around $18.64 per ton, with a The smallest solid-waste-collection SSIPs in El maximum registered value of $37.84 (Table 3). In Salvador often service residential areas and charge the other words, a municipality can save an average of families directly per bag collected ($0.11) or through US$39.66 per ton by contracting out SSIPs while a fixed monthly rate ($1.15 to $1.70). Medium-size maintaining the responsibility for service provision SSIPs with pick­up trucks often service commercial and quality supervision.12 users, charging $6 per trip for up to three trips a day. Solid waste SSIPs have also come to represent an When municipal governments pay the SSIPs, they important economic sector in El Salvador, providing on either do it per number of houses served, per trip, or employment and income to low-skilled personnel. per weight. Private clients pay per week or every two Challenges Faced by Solid-Waste SSIPs Collecti weeks, while municipal governments can take from 30 to 90 days to pay. Payment delays have a negative In spite of all the service advantages they provide, aste W impact on SSIPs since they operate with a tight cash SSIPs have not been formally incorporated into the d flow. Irregularity in municipal payment for services solid-waste-collection scheme of most Salvadoran Soli rendered is a key problem across the country. municipalities. Thus, many of the existing SSIPs d an on 12To arrive at this number, the RTI study determined the total amount of waste generated by each municipality and analyzed the financial information ovisi including all expenses incurred in the collection and transportation of solid waste. Direct costs considered include gas, vehicle maintenance, salaries, Pr fringe benefits, uniforms, and tools. Indirect costs were a percentage of the fixed costs of municipal offices that work in urban services ater W 25 operate without government permission or oversight. Furthermore, there is not a complete body of This happens because many public officials still favor legislation pertaining to solid-waste management direct municipal provision and regard SSIPs as a that protects SSIPs, making them vulnerable to threat to municipal jobs. Furthermore, there is a changes in municipal policy. Some SSIPs operate lack of public awareness about SSIPs' competitive under ad hoc municipal contracts that can be changed advantages and the role they could play in assisting overnight, while others just do it without municipal municipal governments in delivering efficient permission at all. Their legality and stability as a collection services. Box 7 Bolivia La Paz Incorporation of SSIPs into its Waste-collection System I n the last decade the constitutional context in Bolivia has changed significantly. Legislation was amended to facilitate the participation of community-based organizations in the provision of public services. The Public Participation Law (Ley de Participación Popular) anticipated improvements in the system of oversight, control, and evaluation through giving neighborhood and regional organizations and community committees the power to monitor social services, including those provided by SSIPs. In this context, many Bolivian cities are using SSIPs within the framework of an urban public service decentralization process. These providers offer greater transparency in urban service management and increase private participation in the environmental and urban service field. Municipal Cleaning Enterprises (Empresas Municipales de Aseo, EMAs) are municipal enterprises that are in charge of waste-collection services. These decentralized entities exist in cities such as La Paz and El Alto, while other cities still manage their solid waste from within the structure of the municipality. By 1996 there were solid-waste SSIPs operating in the cities of Cochabamba, La Paz, and El Alto. In Cochabamba and La Paz, SSIPs were legally recognized and had contracts with their respective EMAs. The operation in El Alto was informal and was paid directly by clients. Nine SSIPs were responsible for waste collection in the upland mountainside areas that cover nearly 30 percent of the urban area of La Paz, on with a total of 120 workers serving 247,657 inhabitants. The municipal government actively promoted the creation of these enterprises as an answer to waste-management needs in the lower-income areas of the city. Collecti aste W d Soli d an on ovisi Pr ater W 26 business is compromised, and so is the quality and clients to pay in time or at all. As mentioned, they continuity of service. This informality has serious operate on very tight cash flows and tend to implications for their access to financing. All of them experience big delays with payments from municipal have to rely on personal loans when necessary. governments. The City of La Paz represents good Finally, these entrepreneurs often fail because they practice for the successful incorporation of SSIPs into lack any administrative or management training or the Waste-collection System (Box 7). because they face extreme difficulties in getting the The topography of these areas is very irregular and made it impossible to collect waste with mechanical equipment. Service provision by manual labor required greater physical effort. SSIPs had both mechanical and manual equipment acquired through credit from the municipality and the German Agency for International Cooperation (GTZ). Some of these SSIPs were initially subcontracted by Starco Inconstruc, Ltd., a private company. However, Starco terminated its contracts with the SSIPs in 1995 and returned to provide waste- management services in the upper slopes of La Paz. This led to a reorganization of the waste-management-operations system in the city, which implied the reassignment of work zones and the establishment of nine SSIPs to serve them. In August 1995 all these SSIPs were contracted directly by the EMAs for a period of five years. They charged for service per metric ton collected and transported to the transfer station or landfill, as Starco did. These SSIPs clean the difficult access areas of the city. This includes sweeping the streets, door-to-door collection of household waste, and transportation of the waste to the transfer station or landfill. Workers travel in pairs using carts especially designed for the slopes, and the waste is deposited at established transfer points. On average, the nine SSIPs collect 1,675 metric tones of solid waste per month. SSIPs charge a tariff of $21.97 per metric ton to collect the solid waste and transport it to the transfer station. SSIPs' tariff is slightly lower than the one charged by Starco. on Source: World Bank (1997). Collecti aste W d Soli d an on ovisi Pr ater W 27 C. Looking for a Solution Assessment of Best-possible Options El Salvador's case and the depicted international experiences show that SSIPs play a vital role in service provision to the poor. They also make clear that their contribution could be enhanced by adequately integrating them into an institutional and legal framework and by their services being controlled for quality. But which ones could be integrated? Under what circumstances? SSIPs may not be the panacea for coverage expansion on essentially technical issues being taken from a in all cases: some governments and policymakers political standpoint, and/or in misuse of government prefer infrastructure services to be provided by resources and funds (Network 2004:1). In the solid- centralized networks rather than alternative providers. waste-collection sector many argue that hiring a mix Even if this position is debatable, those who favor it of large and small providers is too cumbersome for water provision argue that building high-quality and inefficient, while outsourcing service provision networks may be cheaper in the long run than if the through a single private operator often proves to network has to be upgraded several times. Economies be a more cost­efficient option than municipal on of scale and scope attached to network supply mean direct provision. that the prices of network supplies are also likely to These arguments might hold true, but if coverage Collecti be lower in the long run. Furthermore, they continue expansion is a goal, then SSIPs will need to coexist to dictate that an excess of SSIPs can certainly lead aste with large providers. SSIPs have proved to be a good W to an atomization of service, which in turn can give alternative so far to serve remote and difficult access d rise to problems such as a profusion of providers, areas with acceptable levels of quality, but there are Soli d which can in turn hamper regulatory activities. trade­offs in each service provision scheme. Table 4 an Others argue that decentralizing service provision to summarizes best-possible and intermediate (second-best on the municipal level subjects it to a relationship with and third best) options for each sector. The main ovisi local governments that has often resulted in decisions challenges to achieving the best-possible options are Pr ater W 29 Table 4: Assessment of best possible and second-best Options for Water Provision and Solid Waste Collection Water Provision Solid Waste Urban / Best-possible option: Best-possible option: Peri-Urban Areas Population served by main network Municipal management that (public or private). outsources to the private sector with different combinations of Second-best option: medium and small service providers provision by small providers through (La Paz Case, Box 7). a network connection. This is an option only if groundwater is Second-best option: available and is of good quality. Municipal direct provision Third Best Option: Third Best Option: Water provided in tanks with a Establishment of drop-off stations single operator in charge of the that are emptied regularly (either distribution (Lima Case, Box 5). private or public). Rural Areas Best-possible option: Best-possible option: Water Association. Outsourced Drop-off points that are collected management and operation. and disposed of properly. (Paraguay Case, Box 5). Second-best option: Second-best option: Individual solutions to waste Water User Association. management (open air-dumps, Community management and incineration). operation. Source: Authors' compilation based on Henao, 2004 on related to investment--how to pay for capital costs For water provision in urban areas it is cheaper and and maintenance--and to management, since not more efficient in the long run to build high-quality Collecti all municipalities or rural communities know how to networks linked to the main provider. Since economies aste operate infrastructure and urban services. Criteria for of scale tend to apply, the cost of the water supplied W d selection of the best option are first based on the is also likely to be lower in the long run, and quality Soli provider's capacity to serve the poor, and then on its standards can be more easily supervised. Where d capacity to offer the lowest cost. Water quality is a network connections are not a possibility, smaller an on basic requirement for all proposed options in the first networks served by independent entrepreneurs are the column of Table 4. next-best option on condition that their service has ovisi Pr adequate levels of quality, coverage, and continuity, ater W 30 piped systems or non-profit community associations that run the business. These associations represent an improvement over informal network providers, as has been shown through the experience of El Salvador and Paraguay's case, described in Box 6. For solid-waste collection in urban areas, a concession mix for both large and small collection services is the recommended option. Direct provision is highly discouraged due to its higher costs. But concessions to large providers can be seen as only a partial solution, since their equipment specifications are inadequate to collect solid waste in peri-urban areas. Also, since these areas tend to be poor, large concessionaires lack the incentives to provide service there when the service is directly paid by the client. SSIPs could fill this gap because: (a) they can adapt their equipment and working methods to fit clients' needs, and can reach previously underserved areas with difficult topographies, security issues, or which were simply inadequate for the equipment Set up pipes for the installation network specifications of larger providers; (b) they can Photo from World Bank Photo Library provide the service at a low cost given the use of cheaper technologies; (c) SSIPs can favor and that it is affordable to its target population. community participation and civil society control Finally, in the absence of a network supply, tanked over service provision, and can also play a role in water is a valid option despite being more expensive. public environmental education by introducing This last option presents an additional quality concern separation at source and fostering recycling practices since tanked water has the potential to be more of a among their clients. The case of the City of La Paz health hazard than water provided from piped depicts how waste-collection services can be networks, due to its exposure. The case of urban adequately and efficiently provided by hiring one slums in Lima, Peru depicts how, in view of the large provider for planned neighborhoods and nine on existing regulatory risks implied in installing a SSIPs to work in informal neighborhoods with piped network, a second-best solution with tanks difficult topography and no road access (see Box 7). Collecti was implemented (Box 5). Rural areas have traditionally been left out of collection aste W For water provision in rural areas, water associations routes because they are located in remote areas and d have proven to be best option. Large economies of predominantly produce organic trash, but they could Soli scale do not apply in these areas since utilities do have some arrangement for pick­up and delivery. d an not find it profitable to extend their networks to Until now the trend has been for each rural household on remote and scattered areas. When municipal direct to have its own disposal solution, such as burying or provision fails, the alternatives are either private burning trash, causing severe air pollution and other ovisi Pr ater W 31 health hazards. Recent developments and the increased incoming remittances from relatives living and working outside of El Salvador have considerably changed consumption patterns in rural areas in the region, and the production of organic waste has decreased while the production of other kinds of waste has increased. Thus, the recommended solution is to establish a pick­up-and-delivery process by which the municipality can collect the trash from these areas and dispose of it properly. SSIPs could provide this service if given the right incentives, and could do it at a lower cost than a large provider. Under this option, landownership of the drop­off and pick­up site tends to be an issue. Municipal governments serving or outsourcing services in rural areas should take this fact into consideration. on Collecti aste W d Soli d an on ovisi Pr ater W 32 D. Recommendations Incorporating SSIPs into the Water Sector and Solid-waste-collection System in El Salvador The local private sector has demonstrated its ability and interest in the development and management of water supply and waste collection services. It has also made significant investments in water provision systems and solid waste collection equipment. Thus, to incorporate SSIPs in both water provision to serve this population that could include small and solid-waste collection, the government and providers when they represent the best available policymakers could promote the development of option. In rural areas they could strive to support an institutional, legal, and regulatory framework and expand water associations. To do so governments that would guarantee SSIPs stability and continuity. and policymakers would need to consider: This could be achieved through the establishment of Fostering the professionalization of water models of private participation, along with contract associations and water-user associations and types and regulations. These models should allow outsourcing municipal services to SSIPs. In view for the coexistence of all types of providers, profit of the success of water associations, training and and not-for-profit alike, and should not be tailored turning water association administrators into on to the capacities of large companies or private professionals would allow for greater levels of monopolies. Furthermore, by establishing a clear efficiency in management and maintenance and Collecti policy and regulatory framework for SSIPs the operation of the systems under their charge. It government could free up scarce public financing aste could also provide a base of independent W for less attractive segments of the market and d professionals that would be able to carry out reduce costs while improving prices for consumers. Soli management leasing or concessionary contracts d Specifically for water provision, Salvadoran authorities and institutionalize contractual models of private an could strive to extend main network connections in participation in the delivery of water services on the short term to cover the urban poor in peri-urban through SSIPs. Many urban developers in El ovisi Pr areas. In the meantime, they could have a strategy Salvador frequently invest in the construction ater W 33 of systems and then wait for ANDA to take over Specifically for SSIPs in waste collection: administration, operation and maintenance, FISDL and Municipal governments could capitalize because these activities do not correspond to the on SSIPs' competitive advantages by outsourcing normal scope of their businesses. ANDA or the services while maintaining the responsibility for corresponding municipalities could turn these waste collection and an oversight function. Cost systems over to professional administrators savings achieved by SSIP participation would allow through contractual management, leasing, municipalities to reduce subsidies while expanding and concession models. service coverage in the short run. In the long run, municipal investments could be directed to finding Promoting the expansion of a best-service-provision final disposition alternatives such as recycling, model to underserved rural areas. Both FISDL and composting, or creating sanitary landfills. More ANDA could consider opening lending windows for specifically, FISDL and Municipalities could: water and water-user associations. SSIPs can help fill the gap in private financing of infrastructure by Discourage municipal investments directed at serving marginal urban communities, peri-urban installing or increasing capacity for direct delivery and rural areas. These are often the most costly of solid-waste-collection services. In most cases clients to serve for large investors and the last purchasing new equipment for collection and to receive connections. Along this line ANDA transportation services generates the following could explore subsidy schemes to facilitate inconveniences: (a) it leaves the municipalities their expansion. Paraguay's case, depicted in tied to an inefficient management model marked Box 6, could serve as an example. by the maintenance and operation problems and costs; (b) it makes more difficult the management Including alternatives for financing, saving, of personnel, financial costs, and operational risks; and a tariff-setting strategy. FISDL, ANDA, and (c) it generates confusion between the and the Municipalities could execute cooperative functions of control and service delivery and very agreements with the water and water-user high costs of operation and maintenance and costs associations to support the expansion of macro for the lifecycle of the equipment. An exception and micro metering and the introduction of to this could be the case of municipalities that appropriate fee systems to control demand and invest in new equipment in order to lease it to avoid water wastage. The savings that can be the private sector. If such an option is the most expected from these measures combined with cost­efficient, it could be adopted. some additional measures for leakage control on would allow expanding coverage without Limit SSIP participation to what they do best. additional investment. SSIPs in solid-waste management should not Collecti be expected to provide all the solid-waste- Doing quality training, testing, and control. aste management services of a city. SSIPs are well W Public authorities should support efforts d suited to undertake all those tasks that have small to improve the quality of water, protect Soli or negligible economies of scale and that do not watersheds, and minimize environmental d require expensive equipment such as primary an impacts. They could provide technical collection, street sweeping, waste recovery, and on assistance as needed along with establishing separation at the source. The current trend in control systems. A policy to support SSIPs ovisi Pr El Salvador is toward a mixed system of small cannot exclude quality supervision and control. ater W 34 and larger enterprises working together with municipalities. One such arrangement is the use of SSIPs for primary collection in those parts of the city with difficult access, and a larger contractor for other areas and/or to transport the waste to the disposal site. This is just one of a wide range of possible combinations (Haan, Coad, and Lardinois1998:19). Incorporate the rural sector into an integrated solid- waste-management system. Due to the impact of remittances on the consumption habits of rural households in El Salvador, there is an apparent change in the composition of solid waste that increasingly poses environmental risks for the water sources. Consumption habits of rural households have changed, and the traditional models of waste-management incinerating and burying organic waste could be adapted to include integrated management of other solid wastes, including the separation of hazardous and recyclable materials. Support SSIPs in the separation, recuperation, and pre-recycling of plastics and other materials. FISDL and Municipalities could support the diversification of economic activities of SSIPs in order to consolidate advances in the productive chain of solid-waste management. Facilitating access to credit could be part of that support. on Collecti aste W d Soli d an on ovisi Pr ater W 35 References J. Arroyo, F. Rivas, and I. Lardinois. IPES, ACEPSA, WASTE. ______. 2000. Gómez, Bernardo. "Informe sobre Políticas 1997. "Solid Waste Management in Latin America; The Role Financieras Sectoriales: El Salvador Sub-Sector Agua Potable of Micro and Small Enterprises and Cooperatives." Urban y Saneamiento, 2000." EHP, San Salvador. (Cited in Henao Waste Series 5, Lima, Punto y Coma Publishing Co. 2004.) DIGESTYC (Dirección General de Estadística y Censos). ______. 2002. Censo en Recolección y Tratamiento de 2004. "Encuesta de Hogares de Propósitos Múltiples." Residuos Sólidos, lLevado a Cabo por la Corporación de Municipalidades de la Republica del Salvador. San Salvador. Drees-Gross, Franz, Jordan Schwartz, and Alex Bakalian. (Cited in Henao 2004.) 2004. "Lessons Learned from a Pilot Project in Paraguay." FPSI. Washington, D.C.: World Bank, June. ______. 2003. Ayuda Memoria del Taller Sobre Recolección y Tratamiento de Residuos Sólidos. Corporación de Haan, H. C., A. Coad, and I. Lardinois. GTZ, ILO, SKAT, Municipalidades de la Republica del Salvador. (Cited in WASTE. 1998. "Involving Micro and Small Enterprises, Henao 2004.) Guidelines for Municipal Managers." Turin: International Training Center of the ILO. ______. 2003. "The Millennium Development Goals and Investment Needs for Latin America and the Caribbean." Henao, Marino. 2004. "Consultancy to Analyze the International Conference for Financing Water and Sanitation Comparative Advantages and Potential of Small Providers of Services, Options and Constraints." Inter-American Infrastructure Services in El Salvador." (Original in Spanish: Development Bank, November. (Cited in Henao 2004.) "Consultoría para Analizar las Ventajas Comparativas y el Potencial de los Pequeños Proveedores de Infraestructura en Solo, Tova. FPSI, EWD. 2003. "Independent Water El Salvador.") San Salvador: Research Triangle Institute, Entrepreneurs in Latin America; The Other Private Sector in October. (Also see RTI citations below.) Water Services." Lima, Biblos, May. Kariuki, Mukami, and Jordan Schwartz. 2005. "Small WHO/UNICEF (World Health Organization/United Nations Scale Private Providers of Water Supply and Electricity, Children's Fund). 2004. "Meeting the MDG Drinking Water a Review of Incidence, Structure, Pricing and Operating and Sanitation Target: A Mid-term Assessment of Progress." Characteristics." Draft. Washington D.C.: World Bank- Joint Monitoring Programme for Water Supply and Energy and Water Department/World Bank­Netherlands Sanitation. Water Partnership/Public Private Infrastructure Advisory Facility, July. World Bank. 1997. "Solid Waste Management in Latin America." Washington, D.C. Network for Cooperation in Integrated Water Resource Management for Sustainable Development in Latin America ______. 2004a. Quick Reference Guide to the World and the Caribbean. 2004. Circular No. 20, September. Development Indicators, 2004 Little Data Book. Washington, D.C. RTI (Research Triangle Institute). 1998a. "Encuesta de Hogares de Propósitos Múltiples." Dirección General de ______. 2004b. "The Urban Poor in Latin America." on Estadística y Censos (DIGESTYC), San Salvador. (Cited in Report No. 30465. Washington, D.C., November. Henao 2004.) Collecti ______. 1998b. UCA-FIADES. "Investigación Aplicada sobre el Impacto Ambiental de la Contaminación del Agua y aste Sensibilización Social Sobre la Problemática." San Salvador. W d (Cited in Henao 2004.) Soli d an on ovisi Pr ater W 36 WORLDBANK World Bank 1818 H Street, NW Washington, D.C. 20433 Tels: +1 (202) 473 2710 / 473-7229 Email: whelpdesk@worldbank.org 1818 H Street, N.W. Washington, D.C. 20433 Phone: +1 (202) 458 5588 Fax: +1 (202) 522-7466 Email: info@ppiaf.org Website: http://www.ppiaf.org