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ISSN 1347-5681 No. 10 March 2005 The Role of Private Sector Participation (PSP) for Sustainable Water Supply and Sanitation Sectors －The Case of Latin America－ Estimation of Willingness-to-Pay (WTP) for Water and Sanitation Services through Contingent Valuation Method (CVM) －A Case Study in Iquitos City, The Republic of Peru－ Urbanization and Development of Infrastructure in the East Asian Region JBICI Review No.10 March 2005 Published semiannually by JBIC Institute, Japan Bank for International Cooperation 4-1, Ohtemachi 1-chome, Chiyoda-ku, Tokyo 100-8144, Japan JBICI Review contains a selection of surveys and studies conducted at the JBICI Institute for the internal use of JBIC and for the general public. The views expressed in the articles of the Review are those of the authors and do not necessarily represent the official position of the Japan Bank for International Cooperation. No part of the Review may be reproduced in any form without the express permission of the publisher. For further information, please contact the Planning and Coordination Division of our Institute. JBIC Institute JAPAN BANK FOR INTERNATIONAL COOPERATION JBICI Review No.10 March 2005 The Role of Private Sector Participation (PSP) for Sustainable Water Supply and Sanitation Sectors ............................................................................................................................................1 －The Case of Latin America－ Shigeki Furukawa Estimation of Willingness-to-Pay (WTP) for Water and Sanitation Services through Contingent Valuation Method (CVM).................................................................................................................59 －A Case Study in Iquitos City, The Republic of Peru－ Yasuo Fujita Ayumi Fujii Shigeki Furukawa Takehiko Ogawa Urbanization and Development of Infrastructure in the East Asian Region...................................................88 Atsushi Iimi JBICI Review No.10 1 The Role of Private Sector Participation (PSP) for Sustainable Water Supply and Sanitation Sectors ― The Case of Latin America ―* Shigeki Furukawa** their current payment. It seems difficult to raise the Abstract tariff level in view of payment ability of the users in the City in spite of the high WTP. Before imposing In the world, more than 1.1 billion out of 6 financial burden on the users, the supplier in the City billion people are without access to safe drinking should improve its tariff collection rate, unaccounted water. Most of them live in developing countries. for water rate, recurrent cost rate, etc. 80% of their diseases are caused by poor sanitation Regarding water and sanitation sectors, radical system. For the purpose of improving this situation, privatization approach may not be appropriate. the UN Millennium Development Goals (2000) set Public service suppliers must first make best efforts the target,“halve by 2015 the proportion of people in solving their own problems. In parallel, national without sustainable access to safe drinking water and governments should set up institutions and basic sanitation.”In order to attain the goal, water regulations and long-term support policy such as and sanitation sectors must be sustainable; and it subsidy. If these important changes are made, would be effective for governments of developing governments should select appropriate PSP options countries to set a long-term vision and concrete and steadily realize gains of PSP. Such policy targets for the sectors. approach is considered to contribute to sustainability Private sector participation (PSP) can be useful of water and sanitation sectors in Latain American to ensure the sustainability of the sectors. In countries. considering PSP, it is worth emphasizing two types of policy sequences. The first is sequence of improving financial aspects of service providers. For example, Chapter 1. Introduction service providers must first implement self-efforts, such as improvement of user charge collection and This paper is aimed at suggesting effective measures unaccounted for water, before raising tariff. The for the introduction of Private Sector Participation second is related to sequence of introducing PSP in (PSP), by examining how the introduction of Private accordance with countries' circumstances. More Sector Participation (PSP) can contribute to building concretely, governments should select appropriate up sustainable water and sanitation sectors in PSP options ranging from moderate ones such as developing countries, and extracting essential service contract to radical ones including asset sale, features from the successes and failures of actual PSP depending on their countries' political, economic, cases that have taken place in Latin America. social and institutional situations about PSP. Chapter 1 ascertains the deterioration of the The results of Contingent Valuation Method water environment on a global scale and the features (CVM) Survey conducted in Iqitos City (Peru) show of water and sanitation services, and outlines various that affordability-to-pay (ATP) of the residents for problems underlying the sector and the roles of PSP water and sanitation services was almost equivalent to solve the problems, all of which will be analyzed to their current average payment; and that their in detail in the subsequent chapters. willingness-to-pay (WTP) was about twice as high as * This paper was made, with major revisions and editing, from the report“The Role of Private Sector Participation (PSP) for Sustainable Water Supply and Sanitation Sectors - The Case of Latin America -”s conducted through Special Assistance for Development Policy and Project (SADEP) in Japanese fiscal year 2003 (The study was commissioned to KRI International Corp. and Nippon Koei, co. Ltd. Study period: Oct 2003 to March 2004). The study team received valuable advice and comments by Mr. Hitoshi Ikuma, Deputy Director, Center for the Strategy of Emergence, The Japan Research Institute, Limited; and Professor Yoshiaki Kaoru, Nanzan University. ** Deputy Director, Development Policy Research Div., JBIC Institute JBICI Review No.10 March 2005 pp1~58 ©2005 by Japan Bank for International Cooperation. All right reserved. 2 The Role of Private Sector Participation (PSP) for Sustainable Water Supply and Sanitation Sectors 1. The deterioration of the water necessary for achieving the long-term objective of environment on a global scale 100% coverage that is, equitable accessibility Water is indispensable for the continued existence of (sustainable investment). This principle of human beings. Problems either in drinking water or in sustainability must be followed by developing sewerage systems will threaten our existence. countries, as well as developed countries, and the Although the former must be supplied safely and establishment of a sustainable framework is continuously, 1.1 billion out of approximately 6 absolutely essential for achieving long-term, stable billion people on the earth had reportedly no access development, which is a primary objective of yen- to safe drinking water as of 20031. Where sanitation loan projects and other development projects. is concerned, water contamination has been spreading largely in developing countries due to lack of 3. The roles of PSP in sustainable adequate sewerage systems. According to a U.N. development report (1998), since appropriate sanitation facilities The development of the water and sanitation sector in are not available for half of the world population, 80 developing countries has to be carried out in percent of diseases in developing countries are accordance with the global environment and the attributable to water contamination and 20 percent of features of the water supply and sanitation services species of freshwater fish are on the edge of stated above. In fact, however, improvement of the extinction. The current state concerning sewerage coverage ratio and the collection ratio have been at a systems not only accelerates the global-scale slow pace, while utilities - that is, public agencies or deterioration of the water environment, but also has public corporations - suffer from serious financial deleterious effects on human life, particularly in problems, due to shortage of tariff revenues, and developing countries. Thus, water supply and cannot afford appropriate operation and maintenance sanitation systems must be adequately developed in and the necessary capital investment. The chronic such countries as soon as possible with active support state of deficit and insufficient facilities in the water of the international community. and sanitation sector leads to the stagnation of progress with people’s access to water and sanitation 2. Features of water supply and sanitation services, and even results in deterioration of the water services circulation. In short, the water supply and sanitation Electricity, gas, water and other fundamental services sector in many developing countries is not yet in a for the proper operation of economies and societies sustainable state. are, in many cases, provided as public services by In order to make a breakthrough with this governments, public corporation, or other public situation and develop a sustainable water and sectors. Above all, the water supply and sanitation sanitation sector, the introduction of Private Sector services are counted as (i) a basic human need2 for Participation (hereinafter referred to as PSP) can be the continued existence of human beings, are (ii) a regarded as a powerful device, in addition to efforts

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