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What price water?

Is there such a thing as a fair price for tap water?

The question is trickier than it seems, especially when the buyer has little money to spare.

Some people think this most basic commodity should be like clean air and sunshine—something that everyone is entitled to get for free. They argue that it is simply not fair to send water bills to poor families that are already struggling to pay for food, clothing and other essentials.

Of course, water has had some sort of price ever since the first agricultural communities began controlling access to strategically located springs. The emergence of townships and cities in the ancient world required large collective expenditures in wells, aqueducts and cisterns. In our own era, the combination of industrial agriculture and urban sprawl has turned water into a very valuable commodity in many parts of the world.

But even though most people now understand the costs of collecting and delivering water, they continue to disagree about how much, if anything, low-income consumers should pay for it. The disagreements are particularly sharp in countries where large segments of the population still lack running water in the home—a category that includes all of Latin America and the Caribbean.

In these countries, water has traditionally been regarded as a basic service, on a par with health care or education, that is provided by the state and financed with general tax revenues. Fees, when applied at all, tend to be far lower than the actual cost of delivering water, and they are often not collected consistently. Moreover, the water networks typically reach only the middle- and upper- class segments of the population, primarily in urban areas. Chronic shortfalls in national tax revenues prevent expansion into underserved areas and keep spending on maintenance, customer service and quality control to a minimum.

As a result, vast segments of the population have had to find other means of acquiring safe water. Some risk drinking from contaminated streams or primitive wells, and often pay a price with their health. Others make illegal connections to the public water network. But at some time or other, the majority pay to buy water from legal or illegal private providers who make handsome profits by trucking or carting water into the poorest neighborhoods. Several studies have shown that the prices charged by such resellers can be more than 30 times higher than what is paid by people with home connections to the public water service.

Profits from selling water to the poor are so substantial that the sector is beginning to attract large corporations. In May, for example, the Brazilian subsidiary of Nestlé, the food products giant, entered the local market for bottled water with a product called Nestlé Pure Life. Though it looks much like the bottled mineral water long offered in restaurants and up-scale supermarkets, Pure Life is different. It is drawn from local water sources, has an aggressively low price, and is marketed specifically “to meet the needs of people who have daily difficulty in access to quality water,” according to the company’s website.

In short, with a few exceptions, access to tap water in Latin America is marked by a glaring irony. People who are connected to the water service—and who in most cases could easily afford to pay for it—are charged little or nothing. Those who aren’t connected, and who have very low incomes, end up paying sometimes exorbitant amounts.

Today, many governments are trying to correct these distortions by overhauling public water services. Although the approaches to reform vary considerably from country to country, they share a commitment to increasing the financial self- sufficiency of water services by narrowing the gap between the production costs and revenue from fees (see article “Spilled Water”).

But even as these reforms are debated in legislatures and conferences, local communities in countries as different as Haiti and Argentina are taking matters into their own hands. Tired of waiting for the arrival of free or heavily subsidized water service in their own neighborhoods, and having spent untold amounts to buy water from private sellers, these communities are finding creative ways to access fee-based water services—for a reasonable price. In the process, they are forcing policy makers to reconsider many old assumptions about what makes a water service work, and what makes it fair.

A solution in Haiti. Perhaps no less promising a setting to challenge those assumptions could be found than the capital of Haiti, the Western Hemisphere’s most impoverished country. Although local groundwater around Port-au-Prince is more than sufficient to supply all two million of the city’s residents, only 10 percent of all families have water connections in the home. The public water service, known as CAMEP, is heavily indebted and has stopped maintaining many of the city’s standpoints (public water taps).

According to Bernard Gay, director of Groupe de Recherche et d’Echanges Technologiques (GRET), a French research foundation that has worked on water issues in Haiti for several years, a vast clandestine system of water distribution has sprung up to meet the needs of the 90 percent of the city’s population that is not connected to CAMEP’s network. The operators of this system rely on private wells and distribution trucks that sell water to private tank owners. The tank owners then sell small quantities of water to individuals or families at prices that range from $3 to $5 per cubic meter, compared to the 50 cents per cubic meter that CAMEP bills its customers.

“In the past, CAMEP officials did not even venture into the shantytowns that surround Port-au-Prince,” Gay said at a recent seminar on the subject at IDB headquarters in Washington, D.C. As a result, residents of these slums not only paid the highest prices for water—they also had to carry it for long distances in areas with no paved roads.

Since 1996, GRET specialists have worked with CAMEP and community groups in 14 of Port-au-Prince’s poorest districts to devise alternative means of providing reliable and affordable water service.

Using funds donated by the European Union and the French government, the communities have embraced what sounds like a radical concept. Instead of waiting for CAMEP to extend water service into their neighborhoods, they simply request the installation of a single metered access pipe that stops at the entrance to their district. From that point forward, water committees elected by each community take full responsibility for distributing the water to points throughout the neighborhood and for collecting payments.

The committees, composed of leaders from neighborhood churches, associations and political groups, have obtained legal standing that allows them to function essentially as public companies. They draw up contracts with builders to install simple water distribution pipelines, holding tanks and standpoints where water is sold to consumers who fill up buckets and other vessels. They also hire individuals to run the standpoints, maintain the distribution network and collect fees. The committees are required to use external auditors and produce an annual financial report that is distributed to neighborhood residents and CAMEP officials.

The financial arrangement is straightforward. The committees pay CAMEP once a month for the bulk water delivered through the district access point. CAMEP charges 30 cents per cubic meter for the bulk water, and the committees sell it to residents for around $1 per cubic meter. “This is a significant amount for people in these shantytowns,” says Alexandre Brailowsky, who served as GRET’s field director while the projects were being set up. “But it is a lot less than the $3 to $5 that private water providers charge.”

The $1 charge is not arbitrary. In addition to CAMEP’s fees, it is intended to cover the cost of administering and maintaining the distribution network, paying workers’ wages and saving for reinvestment in expanded services. It is also meant to generate a profit margin that averages 17 percent. “The profit is a crucial part of the system,” says Brailowsky. “It allows the committees to finance other works requested by the community, such as sanitation or sports facilities.”
To date, water committees in the 14 districts have set up 70 standpoints, numerous tanks and close to 20 km of pipes, according to GRET officials. Some 150,000 residents, more than half the total population of these districts, are being served by the systems. Each month the water committees collect a total of around $20,000 in revenues, and sales are on a steady upward curve.

The water committees are enormously popular with residents, who in most cases now walk only a short distance to buy water at a fraction of the cost they used to pay. Moreover, the committees are enthusiastically supported by CAMEP, for whom they represent a solution to what had been considered an unsolvable problem. Unlike many of CAMEP’s traditional customers, the committees have maintained a perfect record of paying their bills and represent a growing revenue stream for the service.
Indeed, CAMEP is now actively pursuing a service expansion strategy for 60 additional low-income neighborhoods around Port-au-Prince based on the experience of the water committees. This work is part of a larger program to improve water and sanitation services in the city that is being financed with a $55 million IDB loan approved last year. Approximately $10 million of that amount is slated to finance service extension projects similar to those described above.

“The water committees have shown that they are an effective and financially self-sustaining way of providing reliable water service in these neighborhoods,” says Fabrice Henry, an IDB municipal development specialist who helped put together the loan. “They have also proved that even the lowest-income groups will pay for a service that saves them time and money, and that water service providers can expect to earn modest but reliable revenues from this type of system. We intend to replicate that experience in projects financed by the IDB.”

Social engineering. Why have the water committees managed to succeed in such an unlikely setting?

One obvious factor is access to the capital required to cover the up-front cost of organizing the water system and building the necessary physical infrastructure. In the Port-au-Prince projects, which were financed by the European Union and the French government, each system required around $62,000 to set up, or about $19 per potential water user. The IDB loan will help cover capital costs in the 60 districts now being studied by CAMEP.

These start-up costs include both hardware and software, to borrow a metaphor from the computer world. The hardware—technical plans, pipelines, water meters, ditch-digging equipment—is relatively easy to come by once funds are available, and it amounts to about 60 percent of the total project cost.

A much more challenging prerequisite for success, according to Brailowsky and officials at the IDB, is the “software,” or all the human, cultural, legal and political factors that must come together in order to run a financially self-sustaining service in poor neighborhoods. “Like other marginalized and impoverished areas, these districts in Port-au-Prince are very politicized and they have numerous interest groups with conflicting agendas,” says Brailowsky. Efforts to introduce a service like water in such settings can easily be sabotaged if all these groups do not fully support it. If some residents believe the service does not reflect their interests, they may demand water for free, harass the water system’s employees, or even vandalize water equipment. In many poor countries, this problem is compounded by the reluctance of police officials to enter the poorest and most dangerous slums (see article “You bring the pipes, we’ll dig the ditches”).

Generating a consensus among all the players in these kinds of neighborhoods requires sophisticated “social engineering.” Brailowsky and other development specialists use this term to describe the task of working with local groups to create administrative structures and rules whereby all stakeholders can make decisions and manage a service themselves.

In Port-au-Prince, officials from GRET and local NGOs who were known and trusted in the project districts performed this mediation task. The IDB’s Henry says the success of future expansion projects will depend in large measure on the capacity and availability of NGOs who can perform these vital tasks in new communities.

Brailowsky warns that it is impossible for even the most persuasive outside entities to succeed if local residents are not themselves determined to get a water service. “When it came to getting water, we found that all these groups were willing to put aside their differences and stand behind the committees,” he said. “The projects would not have succeeded if this consensus did not exist.”

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