Beyond Ideology: “Public or Private” is Not the Question Recommendations for Policy Makers for Choosing Institutional Arrangements for Improving Urban Water Provision Kate Neville Master’s of Environmental Science Candidate Yale University School of Forestry and Environmental Studies (FES) Neville – 2007 1 Beyond Ideology: “Public or Private” Is Not the Question Table of Contents Abstract Section 1: Terms and Abbreviations Section 2: Introduction 2.1 Scope and Strategy 2.2 Methodology Section 3: Moving Beyond Ideology 3.1 Beyond the Public-Private Debate 3.2 Policy-Making Tools and Frameworks 3.21 Robust Institutional Structures 3.22 Processes, Structures, and Stability 3.23 Implementation 3.3 Portrayals of the Public and Private Sectors 3.4 Results-Based Approaches: Demand-Side Management and Output-Based Aid 3.5 Summary Section 4: Philippines Case Studies 4.1 Case Study Approach 4.2 The Philippines Water Context 4.3 The Manila Experience 4.31 The Difficulties Faced by Maynilad 4.311 Management 4.312 Contract Structure 4.313 External Shocks 4.314 Financing 4.315 Regulatory and Political Troubles 4.32 Contrast with Manila Water 4.33 Independent and Subcontracted Water Systems 4.34 Summary 4.4 Urban Experiences Outside Manila 4.41 Tagbilaran 4.42 Baguio 4.43 Laoag and the Ilocos Norte Water District 4.44 Summary Section 5: Water Sector Reform Strategies 5.1 Context-Specific Reform 5.2 Considerations for Designing Water and Sanitation Services 5.21 Technical Feasibility of the System and Quality and Location of Source Water 5.22 Community Size 5.23 Political Will 5.24 Financial Resources 5.25 Regulatory Systems 5.26 Community Voice and Participation 5.3 Unbundling the Water Sector 5.4 Robust Institutional Structures: Planning for a Dynamic System 5.5 Governance and Management Considerations 5.6 Summary Section 6: Conclusions 6.1 Further Research and Policy Development Section 7: Acknowledgements Section 8: References Neville – 2007 2 Beyond Ideology: “Public or Private” Is Not the Question Abstract Urban water management has specific institutional challenges that must be addressed in order to improve freshwater access in developing countries. This paper uses case studies from the Philippines to address the political and regulatory barriers that hinder improvements to water services. The central aim is to move past the typical public versus private debate that has dominated international discussions about investment and management of water utilities over the last two decades. The paper describes the scope of the water access problems, examines the need to move past ideology in water management decisions, provides case study examples to illustrate relevant issues, suggests context-specific factors that must be considered, and develops suggestions for policy approaches to reform. The main conclusions are that decision makers need to consult with a broader spectrum of stakeholders when undertaking water sector reform, better understand the local context and existing water provision systems before enacting new regulations and structures, draw on theories and experiences of institutional organization to find context-appropriate systems for water resources, and increase transparency, accountability, and flexibility in governance. Neville – 2007 3 Beyond Ideology: “Public or Private” Is Not the Question Section 1: Terms and Abbreviations ADB Asian Development Bank CEP City Environmental Profile DENR Department of Environment and Natural Resources EIA Environmental Impact Assessment FBWC Fort Bonifacio Water Corporation IFC International Finance Corporation INWD Ilocos Norte Water District IWRM Integrated Water Resource Management LGU Local Government Unit LWUA Local Water Utilities Authority Manila Water The Manila Water Company, Inc. Maynilad Maynilad Water Services, Inc. MDGs Millennium Development Goals MWSS Metropolitan Waterworks and Sewerage System NGO Non-Governmental Organization NRW Non-revenue water NWRB National Water Resources Board OECD Organisation for Economic Co-operation and Development PPP Public-Private Partnership PSP Private Sector Participation PSR Public Sector Reform SIA Social Impact Assessment SSIP Small Scale Independent Provider UNDP United Nations Development Program WD Water District Neville – 2007 4 Beyond Ideology: “Public or Private” Is Not the Question Section 2: Introduction 2.1 Scope & Strategy Water management in urban environments needs improvement: too many people lack access to adequate quantities of safe water, especially in urban poor communities (World Bank, 2006). Governments and international agencies have undertaken some reform efforts for water provision, but these efforts have had mixed success (Wood, 2004). Many of these reforms seem to have been driven in large part by ideology, rather than taking into account context-specific features of the municipality and tailoring a management structure to that specific place. Institutional design has a substantial impact on the success of a project, but the structure itself does not guarantee success or failure. The interplay of social, political, ecological, and economic factors with an institutional structure determines the outcomes of a water provision system. The literature on water management, governance, and public policy now includes numerous case studies of water sector reform processes, and these are a valuable resource for cities that are contemplating changes to their own systems (see Brocklehurst and Janssens, 2004; Caplan et al., 2001; Fernholz and Morales Fernholz, 2005; Hukka and Katko, 2003). However, they will only be useful if local managers and decision-makers can identify the relevant features of their communities that facilitate the adoption of a given strategy, and know which lessons to look at from the case studies to inform their choices and approaches. Water access troubles have been described by some as problems of governance rather than resource availability (IFAD, 2006), thus tools that facilitate the creation of appropriate, functional water policy are needed. The focus of this paper is, therefore, how to develop a context-appropriate management structure for urban water provision. The study has been limited to urban and peri-urban areas, which tend to face different challenges than those in rural areas (Robinson, 2003). However, some lessons learned from successful rural water systems are valuable in an urban context (Robinson, 2003), particularly as the distinction between rural and urban becomes blurred (Cohen, 2004). The chapters in this paper aim to move the discussion of water provision beyond the typical public-private debate and to look at the potential role of different stakeholders in water and sanitation systems. This will contribute to the growing literature on the importance of context specificity in resource management and service provision (Wolff and Palaniappan, 2004; Frans and Soussan, 2003). The paper draws on the experiences of the Philippines to shape recommendations for creating management systems, particularly in light of the varied results of public-private partnerships (PPPs) for water provision in Metro Manila, and sets out next steps for research and policy formulation. The approach that will be taken has three major sections: the first is a discussion of the Neville – 2007 5 Beyond Ideology: “Public or Private” Is Not the Question rationale for moving beyond the ideological debates of public versus private sector water provision; the second is an examination of the Philippines’ urban water management experiences and lessons learned from public-private partnerships in Manila; and the third proposes strategies for moving towards better water management systems, including recommendations of policy approaches that should be adopted in water sector reform. 2.2 Methodology The paper utilizes a case-based approach to study the successes and failures of institutions governing water access. The analyses are qualitative; although quantitative analyses can provide valuable insight into the economic trade-offs of policy choices and how these influence political processes, this paper instead focuses on the underlying human behaviors and organizational forms that affect governance. Drawing on academic literature, practitioners’ reports, and civil society publications, this paper examines the range of social, political, and economic factors that contribute to the functionality of a water provision system in a given context. Section 3: Moving Beyond Ideology 3.1 Beyond the Public-Private Debate Current discussions about water provision become entangled in ideological debates about public and private involvement in water. It is imperative that we stop dichotomizing the sectors, since it hinders our ability to develop more creative solutions to institutional arrangements for water provision (Wolff and Palaniappan, 2004). We must instead engage in more productive discussions of locally appropriate water provision systems. This section first explores the rationale for encouraging diverse solutions to the challenges of improving water access; it discusses the factors that must be considered in institutional design for resource management; and it draws on ecosystem analogies to examine the need for flexible structures and processes. 3.2 Policy-Making Tools and Frameworks: Why A Rule-Book Is Not Possible This paper outlines the key features that must be identified within a community in order to determine an appropriate water management structure for that area; however, it deliberately stops short of providing