UNDP-World BankWater and SanitationProgram

Toward a StrategicSanitation Approach:Improving the Sustainability of Urban Sanitation in

Developing Countries

Albert M. Wright

AcknowledgmentsThis document reflects the collective experience and learning of many water and sanita-

tion professionals at local, national, and international levels. It is based on operational experi-ence and on the learning that took place in the Informal Institutions Group within the Waterand Sanitation Division of the World Bank (TWUWS) and the UNDP-World Bank Water andSanitation Program.

Many people have contributed to this document. Mike Garn was largely responsible forthe adoption of a demand orientation and for the institutional economics underpinnings in thepaper. The field work of Ato Brown, Vijay Jagannathan, John Briscoe, Luiz-Claudio Tavares,Aldo Baietti, Andrew Macoun, and of nongovernmental organizations like the Orangi PilotProject helped in fine-tuning the concepts in the paper. Inputs were also made by AlainLocussol, Letitia Obeng, and Robert Roche. John Kalbermatten, Richard Middleton, DaleWhittington, Donald Lauria, Vijay Jagannathan, and Alexander E. Bakalian made significantcontributions to the approach in this paper through portions of earlier versions of the paperwhich they wrote.

Earlier drafts of the paper benefited from comments from numerous World Bank staff,including Carl Bartone. Comments on the final version were provided by Robert Boydell, JohnBriscoe, Mike Garn, Brian Grover, Alain Mathys, Mike Seager, Tova Solo, and Luiz-ClaudioTavares. Special thanks are due to Brian Appleton, technical writer, for preparing the draft ofthe current document; Bonnie Bradford, who developed the outline for this document andhelped to finalize the publication; and Suzanne Tesh for editing.

©International Bank for Reconstruction and Development/The World Bank1818 H Street NWWashington, DC 20433November 1997

This document is an internal working document published informally by the UNDP-WorldBank Water and Sanitation Program. Copies are available from the Program, telephone:202-473-3970, fax: 202- 522-3228, e-mail: wsp@worldbank.org or www.wsp.org

The World Bank does not accept responsibility for the views expressed herein, which arethose of the author and should not be attributed to the World Bank or its affiliated organiza-tions. The findings, interpretations and conclusions are the results of research supported bythe World Bank. The designations employed and the presentation of the material are solelyfor the convenience of the reader and do not imply the expression of any legal opinion what-soever on the part of the World Bank or its affiliates concerning the legal status of any coun-try, territory, city, area, or of its authorities, or concerning the delimitations of its boundariesor national affiliation.

Contents

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Foreword..........................................................................................................................................................1

Part 1: Past Approaches and Future Directions.....................................................................2Inadequate Urban Sanitation.................................................................................................................................2

The growing gap....................................................................................................................................2

Disease and environmental pollution....................................................................................................3

Investment shortfalls................................................................................................................................4Lessons from the Past..............................................................................................................................................5

The supply-driven approach..................................................................................................................5

Central or local management................................................................................................................6Macro versus micro projects..................................................................................................................6Poor system performance.......................................................................................................................6

Unsustainable investments and illusory benefits...................................................................................7The Way Forward...................................................................................................................................................7

Rethinking the approach........................................................................................................................7

Goals of a strategic sanitation approach.............................................................................................8

Underlying principles..............................................................................................................................8Expected benefits....................................................................................................................................8Applicability to rural areas....................................................................................................................9

Part 2: Toward a Strategic Sanitation Approach........................................................10Goals: Sustainability and Efficiency....................................................................................................................10

Distinctive Features................................................................................................................................................10

Stakeholder participation.....................................................................................................................10

Incentives and the three Rs...................................................................................................................11

Lessons of Perverse Incentives..............................................................................................................................12

Operational Implications......................................................................................................................................13

Providing technical support..................................................................................................................13

Widening technological options..........................................................................................................15

Assessing sanitation demand..............................................................................................................19

Unbundling sanitation investments......................................................................................................21

Financing and cost recovery................................................................................................................22

Adopting a Strategic Sanitation Approach........................................................................................................27

Formulating a demand-based policy..................................................................................................27

Institutional frameworks........................................................................................................................29

Strategies for institutional design.........................................................................................................32

Separation of institutional functions....................................................................................................34

Conclusion.....................................................................................................................................................37

Notes................................................................................................................................................................38

1

Foreword

Providing poor urban dwellers with adequatesanitation facilities is a challenge of enormousimportance—over half a billion people in urbanareas have no services, and much larger num-bers have services that provide little protectionand degrade the environment. The consequencesin terms of health and environmental degrada-tion are enormous with the poor, as always, suffering most severely.

The traditional approach to addressing thisproblem has been one in which planners andengineers assess the needs of the poor, and thendecide what type of service will be provided.This supply-driven approach has seldom beensuccessful.

In recent decades many different approach-es have been taken to address the problems ofsanitation for the poor. Most approaches callingfor radically different technologies have failed.There have, however, been some successes suchas the Orangi Pilot Project in Karachi, and fieldexperiences with condominial sewers in Brazil.Surprisingly these have, to a large degree, notinvolved major departures from traditional tech-nologies. They have been radical in terms ofrelating to people as consumers, and payinggreater attention to the importance of processand institutions.

As documented in this book, these successeshave the following common elements:● paying attention to users’ preferences and pro-viding users with the services that they want andfor which they are willing to pay;● unbundling sanitation services into discreteparts (such as household services and trunk services) and providing these components in the

sequence that the users prefer (typically startingfrom the household level);● involving the creative use of both non-formalinstitutions (such as neighborhood associationsand nongovernmental organizations) and formalinstitutions (such as municipalities and utilities) inco-producing services, with each institution pro-viding that part of the service for which it has acomparative advantage (typically feeder servicesmanaged by informal institutions, and trunkinfrastructure by formal institutions).

The strategic sanitation approach describedin this document draws on the experiences andinspiration of a number of "activist technicians"—individuals whose technical training enablesthem to deliver services, whose creative mindsenable them to make projects work in the realworld, and whose human commitment makesthem the servants of those they serve. Prominentamong these are Arif Hasan from Pakistan, JoséCarlos de Melo from Brazil, and Albert Wright,author of the innovative approaches in Kumasi,Ghana. This document by Albert Wright is anattempt to draw out some of the lessons from thesuccessful sanitation experiences of these andother pioneers, and to make them understand-able and, hopefully, replicable by those of uswho follow in their footsteps. I hope that we areup to the task.

John BriscoeSenior Water AdvisorThe World Bank

Inadequate Urban Sanitation

During the past several decades, effective strate-gies have been developed for delivering afford-able sanitation services to people living in urbanareas in developing countries. In developingcountries worldwide, it is becoming increasinglyurgent that these strategies be put into practice toclose the growing gap between those who havesanitation services and those who do not. Theurban poor, the largest group lacking sanitationservices, make up more than half the populationin many cities of the developing world. Theunhealthy conditions of those lacking sanitationcannot be ignored because sanitation-related dis-eases and polluted water sources often have dev-astating social, economic, and environmentaleffects on all urban residents.

The growing gap Developing country governments and city author-ities face a sanitation crisis that is becomingmore critical every year. Despite a spotlight onthe plight of the urban poor and on provision ofclean water for over a decade, both the numberand the percentage of people without access tosanitation services continue to increase. In 1990,at the end of the International Drinking WaterSupply and Sanitation Decade, 453 millionurban people—33 percent of the urban popula-tion in developing countries—had no sanitationservices. During the next four years investmentprograms brought new or improved sanitation to70 million city dwellers, or 48,000 people a day.But in the same four years the urban populationin developing countries rose from nearly 1.4 bil-lion to nearly 1.6 billion people. By 1994 thenumber of unserved people had risen to 589 mil-

lion, or 37 percent of the urban population (seeBox 1).1

While overall urban sanitation coverage (63percent) may appear high and strides have beenmade in the past two decades, coverage ratesare much lower for the urban poor. Inadequatesanitation is one of the key indicators of urbanpoverty, and overcrowded and unhealthy livingconditions of the urban poor in developing coun-tries are made even more degrading and life-threatening by the lack of adequate systems todispose of human wastes (see Box 2).

Other characteristics of life in areas wherethe urban poor live—also known as peri-urbanareas, informal settlements, squatter areas, slums,and shantytowns—make the provision of sanita-tion services particularly difficult. In many casesthe poor live in neighborhoods without legaltenure on land that authorities have deemed unfitfor habitation. Thus peri-urban neighborhoodsoften remain officially invisible. Their illegal sta-tus means that many of the urban poor areexcluded from census counts and live with thedaily threat of eviction or slum clearance. Theurban poor often are not taken into account inmunicipal programs to improve or extend ser-vices such as water, sanitation, garbage collec-tion, roads, flood protection, fire fighting, healthcare, and education.

Cramped and precariously constructed housingalso creates physical problems in infrastructuredevelopment. For example, construction of latrinesor conventional sewers is much more difficult in thecongested narrow streets and alleys of many peri-urban settlements. Often the land is flood-prone orthreatened by landslides, adding to the constructionrisks.

PART 1: PAST APPROACHES ANDFUTURE DIRECTIONS

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3

1990 (POPULATION IN MILLIONS) 1994 (POPULATION IN MILLIONS)Total Pop. Pop. % Total Pop. Pop. %Pop. Served Unserved Coverage Pop. Served Unserved Coverage

URBANSANITATION 1389 936 453 67 1594 1005 589 63RURAL SANITATION 2682 536 2146 20 2789 505 2284 18TOTAL 4071 1472 2599 36 4383 1510 2873 34

Source: World Health Organization, Water Supply and Sanitation Collaborative Council, and United Nations Children’s Fund, Water Supply andSanitation Sector Monitoring Report 1996: Sector Status as of 31 December 1994 (Geneva: World Health Organization, 1996).

Disease and environmental pollutionLiving conditions in most peri-urban areas putpeople's health at much higher risk than peopleliving in middle- and upper-class urban neigh-borhoods. Coping strategies adopted by poorpeople excluded from public services canincrease the health risks and the spread of dis-ease. More than 50 communicable diseases areassociated with poor sanitation, resulting in dis-ease and premature death to millions of people,especially children, every year. With no facilitiesfor disposing of garbage and excreta, and limit-ed access to water for basic hygiene, the urbanpoor are especially vulnerable to epidemics ofwater-related and vector-borne diseases.

Death rates in urban slums are substantiallyhigher than in wealthier city suburbs or evenamong the rural poor. Wherever they have beenmeasured separately, health indicators such asinfant mortality and the incidence of diarrheahave been shown to be much worse in crowdedtenements and squatter settlements than in otherurban areas. For example, statistics fromBangladesh suggest twice as many infant deathsper 1,000 live births in urban slums than inurban areas as a whole.2

But the effects of unsanitary conditions inperi-urban areas are not confined to people liv-ing in peri-urban neighborhoods. Middle- andhigh-income residents also have been excluded

from public services and have taken matters intotheir own hands (see Box 3).

Human and domestic waste from any areahas the potential to contaminate not just the localenvironment, but also groundwater, lakes, andrivers used by many others for supplies of fresh-water. Thus the sanitary crisis can take its toll onall city residents, and on the national freshwaterresources of developing countries.

Pollution of the urban environment is nowseen as one of the major obstacles to sustainedeconomic growth. As agricultural and industrialdemand for water continues to grow, the pro-gressive degradation of water resources and theinability to treat and recycle water mean thatdemand is outpacing supply at an acceleratingrate. In industrial countries where treatment is rou-tine, river water may well be reused many timeson its journey from the source to the ocean. Inmost developing countries treatment is minimal ornonexistent and polluted wastewater can renderrivers unusable once they have passed through thefirst city.

Most inland cities have some sewer net-works, but few have functioning treatment plants.In Latin America, for example, only about 2 per-cent of collected sewage receives any treatment.In Mexico more than 90 percent of wastewatertreatment plants are nonfunctional, and in citieslike Bogota, Buenos Aires, Mexico City, andSantiago some 50 to 60 million cubic meters of

BOX 1 GLOBAL SANITATION COVERAGE 1990-1994

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mostly untreated sewage is discharged every dayinto nearby bodies of water.3 Wastewater dispos-al and sanitation projects for peri-urban popula-tions are often given low priority (see Box 4).

In China, inadequate sewerage and a mea-ger 4.5 percent coverage of municipal waste-water plants have resulted in widespread waterquality deterioration. In Jinzhou, LiaoningProvince, pollution rendered water from the exist-ing wells undrinkable, necessitating the construc-tion of new well fields at a cost of $18 million.4

Shanghai had to move its water supply intake 40kilometers upstream at a cost of US$300 millionbecause of degradation of river water qualityaround the city.5 In Mexico City and Amman(Jordan) new water supply sources have beenlocated far from service areas because nearbysources are polluted.

Investment shortfallsWhile the costs of sewerage systems and treat-ment plants are high, not investing in basic sani-tation and wastewater treatment can be extreme-ly expensive. Inadequate sanitation can greatlyimpact industries like tourism and seafood. Alongwith overfishing, pollution of coastal waters innorthern China is thought to be responsible for a

sharp drop in prawn and shellfish harvests.Contamination of seafood by sewage has beenimplicated in a serious outbreak of hepatitis A inShanghai and in the 1991 outbreak of cholera inPeru. In just ten weeks following this outbreak ofcholera, Peru lost US$1 billion from reducedagricultural exports to the United States and fromthe collapse of tourism. This loss was more thanthree times what Peru invested in water supplyand sanitation during the 1980s.6

The challenge is to invest in programs thatbring maximum benefits in health, productivity,and sustainability. In Chile the principal justifica-tion for an investment in sewerage in Santiagowas to reduce the city’s extraordinarily high inci-dence of typhoid fever in the city and to maintainaccess to the markets of industrial countries forChile’s increasingly important exports of fruitsand vegetables. This paid off. By the time choleraarrived in nearby Peru, Santiago had 95 percentcoverage with sewerage and was able to avoidthe epidemic.

Access to a convenient source of safe wateris often one of the top priorities for the urbanpoor, and demand for improved sanitation oftenfollows soon afterwards, including ways to dis-pose of wastewater. Willingness to pay for basic

The impact of inadequate sanitation on health is illustrated by the findings from a study by theWater and Sanitation for Health Project (now the Environmental Health Project) of the U.S. Agencyfor International Development. Six diseases were examined that are either widespread in developingcountries or are serious problems where they exist.

The results showed that each year there are: ● 875 million cases of diarrhea diseases, of which 4.6 million end in death, mostly among children.● 900 million cases of ascariasis, of which 20,000 end in death.● 500 million cases per year of trachoma, of which 8 million end in blindness.

In addition, each year there are 800 million cases of hookworm, 200 million cases of schistosomia-sis (bilharzia), and 4 million cases of Guinea worm.

Source: Steven A. Esrey, James B. Potash, Leslie Roberts, and Clive Shiff, Health Benefits from Improvements in Water Supply andSanitation: Survey and Analysis of the Literature on Selected Diseases. WASH Technical Report 66. (Arlington, Virginia: Water andSanitation for Health Project, July 1990).

BOX 2 MEASURING THE SANITATION TOLL

water and sanitation services is often high inperi-urban neighborhoods, provided that theservices are appropriate, effective, and afford-able. However, in many developing countries,poorly run urban water utilities have invested insewerage schemes that do not have any of thesecharacteristics and are unable to operate andmaintain services with the inadequate revenuesgenerated.

Lessons from the Past

While past efforts to solve urban sanitation prob-lems have had mixed results, both positive andnegative experiences have been used to developa strategic sanitation approach that is demand-based and incentive-driven.

The supply-driven approachThe most common failing of urban sanitation pro-grams in the past has been failure to take intoaccount the expressed needs of the users (seeBox 4). Traditionally, utility planners developeddemand projections based on demographic andeconomic progress indicators. Sector profession-als then translated these projections into hypo-

thetical demand for new services and convertedthis hypothetical demand into project designsbased on sewerage and treatment technologiescommonly used in industrial cities of Europe andthe United States.

Reliance on this supply-driven approach hastoo often led to investments by governments anddonor agencies that suffer from several criticaldefects:● The investments are costly both in absoluteterms and in relation to the number of peopleserved.● The main beneficiaries are the richer neighbor-hoods that can afford the high connectioncharges, sometimes with the help of subsidies;poorer communities tend to be excluded for bothcost and technical reasons.● The environmental and water resources impli-cations of planned investments are not comparedwith those of other options, and this can lead tounsustainable projects or projects that are notenvironmentally sound.● Investment costs are not recovered, with theresult that operations and maintenance, andexpansion of services to meet future needs,become impractical.

5

Manila (Philippines) and Jakarta (Indonesia) both have populations of about 10 million. Faced withan inadequate supply of public sewers, middle-income households in both cities have been puttingin their own septic tanks. Building regulations require that septic tanks have soil adsorption systems,but this regulation is not enforced. Septic tank owners discharge their effluent into inland waterwaysthrough storm drainage systems.

About 1 million septic tanks serve about 6 million people in each city. The capital costs of these sys-tems are high: assuming that each tank costs US$100, an estimated US$200 million is invested inthese alternatives to public services. The environmental costs are also high. Overflows from septictanks have polluted the waterways in both cities. In Jakarta, where many industries rely on ground-water supply, there is an increasing risk of groundwater pollution.

While self-provision has addressed private sanitation needs, it has also created costly environmentalpollution. Both cities are struggling to find cost-effective solutions to their sanitation problems.

Sources: (Manila) The World Bank, “Manila Second Sewerage Project,” Draft Staff Appraisal Report (Washington, DC: The World Bank,February 20, 1996); (Jakarta) Vijay Jagannathan, World Bank, personal communication, 1994.

BOX 3 DAMAGING IMPACT OF SELF-SERVICE

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Central or local managementInstitutional approaches have also been dominat-ed by inappropriate models from industrial coun-tries. City water and sewerage utilities in devel-oping countries generally suffer from lack offinancial or managerial autonomy, are oftenoverstaffed and underskilled, show unacceptablefinancial performance, and have little contactwith their customers. Budgets are often restrictedby central or city governments and agencies maynot have the freedom to make use of their ownrevenues.

Emerging alternatives involve much greaterparticipation of users and other stakeholders inthe planning and implementation of water andsanitation projects. For the urban poor, formal orinformal partnerships among service providers,nongovernmental organizations (NGOs), com-munity groups, and private sector enterprisesoffer other ways to develop more realistic andmore sustainable programs. The Orangi PilotProject in Karachi, Pakistan, and experienceswith service provision in the favelas of Brazildemonstrate the potential for adequately support-ed communities to introduce, sustain, andexpand effective sanitation improvements.

Macro versus micro projectsA major handicap hindering progress in meetingsanitation needs, especially those of the urbanpoor, has been the scale of projects addressingurban sanitation problems. The high initial cost ofsuch large-scale projects restricts competition forconstruction contracts to large-scale operatorsand may inhibit private sector participation.

Costs for connections, sewers, and treatmenttend to be bundled together, with cost recoverydepending on cost-sharing across many differentcategories of beneficiaries. The result of bundlingtogether all the elements of sewage collection,treatment, and disposal is that only a small pro-portion of the investment is used to meet theimmediate needs of the unserved. The bulk of theinvestment is used for trunk sewers or treatmentplants that are often underutilized. To recoverthese costs, charges are high or unsustainable

subsidies are sometimes used to stimulate addi-tional requests for connections. The peri-urbanpoor are often omitted from such schemes sincethey cannot afford the high charges.

Urban sanitation programs can be “unbun-dled” so that smaller-scale projects can bringbenefits at an affordable cost to those in greatestneed. Investments in expensive trunk sewers canthen be financed more equitably through generaltaxation, sometimes in conjunction with usercharges. In addition to benefits in expanded cov-erage, smaller projects tend to open up competi-tion to more contractors and therefore encouragelower prices.

This does not mean that the macro pictureshould not be considered. On the contrary, theunbundling should take place after an adaptablestrategic macro framework has been defined tosketch out the overall direction for sanitation ser-vice provision in the project area. It is importantthat the strategic plan be done within the contextof overall development in order to safeguard thesustainability of vital environmental and socioe-conomic resources. It is within such an overallflexible sketch of the future that the unbundlingshould take place, with sequencing and details ofinvestments in different service zones driven bydemand.

Poor system performance An inevitable result of past approaches to projectdesign and investment patterns has been poorsanitation system performance. Central govern-ments have not had the outreach capacity tohandle local operations and maintenance ofinstalled systems. Municipal water and sewerageagencies lack the power and the resources tomanage systems effectively on their own. Localusers, having been excluded from the planningprocess, have no vested interest in looking afterthe systems. Thus well-intentioned projects fallinto disrepair and disuse. Through neglect ofmaintenance, blockages, and breakdowns makeservices unreliable. Customer complaints cannotbe properly handled because of lack ofresources, so payments are hard to recover. The

end result is a downward spiral in service quali-ty, cost recovery, and attention to maintenance,which makes many schemes practically worthlessonly a short time after completion

Unsustainable investments andillusory benefitsIn most urban sanitation programs the combinationof inappropriate designs, neglect of user require-ments, inadequate maintenance, and ill-equippedoperating agencies create a continuous drain on gov-ernment resources and a disincentive to governmentsand donors contemplating further sector investment.Users become disillusioned when promised improve-ments fail to materialize. Malfunctioning or inappro-priate systems are unlikely to yield optimum results;disenchanted users who revert back to unhygienicpractices because improvements are unreliable willnot enjoy optimum health benefits; and projects thatcontinue to drain national resources long after com-pletion will not contribute to economic growth.

But there are some urban sanitation improve-ment programs that have provided dependable ser-vices to a satisfied group of beneficiaries and thathave proven sustainable and self-financing.Successful programs have generally relied on exten-sive user involvement in planning, choice of servicelevels, scale of investments, charges, and cost recov-ery structures. These experiences show the way todeveloping a new agenda. Sustained communityinvolvement should begin at the initial planning phaseand should continue through implementation, moni-

toring, and evaluation. Lessons should be fed backinto ongoing projects so that corrective changes andadjustments can be made. Women need to be includ-ed in all discussions about water, sanitation, andhygiene in order to have an impact at the mostimportant level of all—the household.

The Way Forward

The urgency of the urban sanitation crisis, past fail-ures to respond to the crisis, and the emergence ofsome successes in the water and sanitation sectorhave prompted the United Nations DevelopmentProgramme (UNDP)-World Bank Water andSanitation Program to consider how to addressurban sanitation problems in the future.

Rethinking the approachThe strategic sanitation approach promoted by theWater and Sanitation Program is meant to be flexibleand adaptive so it can incorporate lessons from newexperiences and innovations in the sanitation sectorworldwide. This strategic sanitation approach involves: ● a wider choice of technology options;● recognition and analysis of consumers’ willingnessto pay for perceived benefits;● methods of matching service levels to affordabilityso as to achieve optimum coverage with economicefficiency;● innovative financing mechanisms and institutionalframeworks, including unbundling of investments intoaffordable parts; and

7

The supply-driven approach of the traditional sanitation agenda means that investments are wastedbecause intended consumers simply ignore the resulting systems. For example in Accra, Ghana, after20 years, only 130 connections were made to a sewerage system designed for 2,000 connections;in Howrah, India, no one was connected to a sewerage system built for workers; in Ma’an, Jordan,there have been only 690 connections to a system designed for 6,000 connections; and in AddisAbaba, Ethiopia, after 10 years, only 10 percent of the expected connections have been made to thenew sewerage system.

Sources: Vijay Jagannathan, World Bank, personal communication, 1995; and E.K.V. Dovlo, Managing Director, Ghana Water andSewerage Corporation, personal communication, 1995.

BOX 4 WHOSE SCHEME IS IT?

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● capacity-building initiatives to enable all levels ofgovernment and other stakeholders to implementresponsive and sustainable programs.

Adoption of strategic sanitation principles hasalready been seen to deliver results. The exampleshighlighted in this publication demonstrate that adop-tion of strategic sanitation principles can generatebetter projects. As well as enhancing communities’capacities for self-help, the successes achieved havehelped build capacity within implementing agencies.Development of skills in participatory approachesequips these agencies to mobilize support in morecommunities, motivates staff and community members,enhances job satisfaction for agency staff, and helpspeople to obtain sustainable sanitation services.

Goals of a strategic sanitationapproachThe primary goal of a strategic sanitation approachis the sustainable expansion of sanitation coverage.Expansion of coverage has been a major goal ofsector investments from the start of the water and san-itation decade in 1981. By adding the word sustain-able, strategic sanitation draws immediate attentionto a major problem of past approaches—the pursuitof rapid improvements in coverage statistics with littleregard for how facilities would be operated andmaintained in the long term.

To achieve sustainability, a strategic sanitationapproach adds two objectives to sanitation coverage:investment efficiency and operational efficiency. Bydemonstrating investment efficiency, implementingagencies are more likely to be successful in seekinginvestments from governments, donors, and privatesector financing institutions. To improve investmentefficiency, agencies need to transform their proce-dures to be responsive to customer needs. The start-ing point is often to recognize that the users ofimproved sanitation systems are indeed customers.Operational efficiency also requires substantialreform in order to meet targets for cost recovery andproduce expected benefits. With operational efficien-cy, resources can go farther and coverage can beextended.

Underlying principlesStrategic sanitation differs from past approachesin that it is demand-based and incentive-driven.These two key principles reflect experiences inthe World Bank and elsewhere that the old sup-ply-driven agenda followed by governments anddonors cannot meet the challenges created byrapid urbanization, population growth, industrialdevelopment, and concern for the environment.A demand-based approach requires implement-ing agencies to find out what potential userswant and what resources they have to financeand manage installed systems, and to design sys-tems, financing mechanisms, and support struc-tures that are best suited to their needs.

Users may be motivated to select a particu-lar level of service because they are aware ofperceived benefits in terms of health, conve-nience, or environmental improvement; they mayalso be encouraged through local credit systems,grants, or cross-subsidies. Incentives for opera-tors include a range of rewards and penaltieslinked to system performance. These may includefinancial, institutional, or regulatory measuresdesigned to bring success and operator satisfactionand to motivate performance improvements.

Expected benefitsAdoption of demand and incentive principlesimproves the prospects for enhanced and sustain-able coverage, mobilizing previously untappedresources and stimulating productive partnershipsamong a wide range of stakeholders. By relatingproject investments to users’ expressed needs,implementing agencies can expect better returns.Users who have been involved in making decisionsand choosing service levels will contribute theirown resources to projects and will pay for reliableservices. Subsidies can then be directed at thosewho need them most, rather than benefiting therich at the expense of the poor. Greater cost recov-ery improves the sustainability of the investmentsand makes it easier to justify further investments forupgrading or expansion.

User involvement also helps foster behavioralchanges such as increased hygiene awareness and

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better sanitation practices that lead to greaterhealth benefits. Local environmental, social, andeconomic benefits are more likely to result whenthe intended beneficiaries use the facilities respon-sibly and ensure that they are properly maintained(see Box 5).

Applicability to rural areasDo these strategic sanitation principles, developedby analyzing experience with urban sanitation,also apply to rural areas? The answer is a quali-fied yes. Differences may arise in the applicationof the approach to rural areas, but in the detailsrather than the principles themselves. For example,in small villages, the use of sophisticated tech-niques such as contingent valuation methods forascertaining demand may not be necessary. Theuse of other techniques such as focus groups mightbe used instead. Potential beneficiaries ofimproved sanitation should still be given an oppor-tunity to decide whether to participate in an

improved sanitation project, and they should beoffered a range of feasible technologies with pricetags so that they can express their preferences andtheir willingness to pay.

User participation in design, implementation, and management of water and sanitation programs isseen by the World Bank as a way of increasing efficiency, equity, and cost recovery and of facilitat-ing extension of service coverage to poor communities. The Bank’s rationale for user participation issummarized as follows:● User participation makes services and service providers more responsive and accountable to beneficiaries. ● Cost recovery and the sustainability of services improve when technology choices and servicescorrespond with what users want and are willing to pay for.● Management of services is more effective when institutional arrangements are tailored to local practices.A Water Supply and Sanitation Collaborative Council Working Group on Services for the UrbanPoor highlights other positive aspects, including:● Creation of new citizens organizations may lead to further independent self-help projects.● Involvement of nongovernmental organizations can be an effective way of reaching and providingcredit to the urban poor.● Intermediaries can establish links between local stakeholders and water utilities or municipalities,whose function is to manage projects and secure user consensus.

Sources: Gabrielle Watson and Vijay Jagannathan, “Participation in the Water and Sanitation Sector,” Environment DepartmentDissemination Notes, Number 15 (Washington DC: The World Bank, June 1995); Water Supply and Sanitation Collaborative CouncilWorking Group on Urbanization “Citizen’s Participation,” Working Document No. 2 (Geneva: Water Supply and Sanitation CollaborativeCouncil, March 1993).

BOX 5 THE CASE FOR USER PARTICIPATION

PART 2: TOWARD A STRATEGIC SANITATION APPROACH

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A strategic sanitation approach provides a pack-age of measures that help implementors and fun-ders of urban sanitation programs get the bestresults from their investments. Such an approachprovides guidelines on how to assess the truedemand for services—what people want and arewilling to pay for. It also stresses the importance ofincentives to motivate and direct consumers, ser-vice providers, and regulators to act in ways thatlead to more effective and efficient investments.Adoption of a demand-based, incentive-drivenapproach changes the design of finance, technolo-gy, and institutional arrangements for sustainableurban sanitation programs.

Goals: Sustainability andEfficiency

The main goal of a strategic sanitation approach isthe sustainable expansion of sanitation coverage.The prerequisites for attaining this goal are invest-ment efficiency and operational efficiency.Investment efficiency is a powerful argument forgaining funding support, while operational effi-ciency helps ensure that available resources areused to expand coverage as widely as possible.

The strategic measures for achieving invest-ment efficiency are:● Unbundling sanitation investments such asproperty connections, feeder sewers, trunk sew-ers, and treatment. ● Utilizing a demand orientation based on whatusers want and the resources they are willing touse to finance and manage installed systems. ● Designing and installing facilities so that theyfunction according to the designs and cost-shar-ing arrangements agreed upon with users.

The strategic measures for achieving opera-

tional efficiency are:● Helping to ensure that the installed facilities areused as they were intended so that beneficiariesgain optimum health and other benefits. This mayrequire awareness raising and hygiene educationto modify behaviors and to encourage properusage. ● Providing for long-term and effective manage-ment of the facilities. This includes ensuring thatsufficient resources will be available to coveroperations and maintenance during the active lifeof the physical infrastructure.

The driving force for the strategic measures isthe incentive structure defined through the institution-al arrangements and the overall enabling environ-ment. When all these measures are in place thenbenefits should match expectations and the expan-sion of coverage is most likely to be sustainable. Inother words, sanitation projects should have theexpected health, social, environmental, and economicimpacts both for the community and for the publicgood. Even with optimum cost recovery, benefits shouldcontinue to be felt, justifying the cost of sanitation invest-ments and ensuring that they have positive impacts forusers and for the environment in which they live.

Distinctive Features

The two key principles of a strategic sanitationapproach are that it is demand-based and incentive-driven. In operational terms, the demand-basedapproach requires stakeholder participation, and theincentive-driven approach requires rules, referees,and rewards.

Stakeholder participationA demand-based approach is responsive ratherthan prescriptive. In successful urban sanitationprograms, the users and the service agency have

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common goals, developed through a consultativeprocess involving all stakeholders. Stakeholdersmay include local, regional, or national govern-ment, public utilities, private service providers,NGOs, local community associations, industrial-ists, special interest groups, and users of differenttypes of sanitation services. The challenge forgovernments and donor agencies is to motivateand build the capacity of the different stakehold-ers to participate in appropriate and productiveways.

For example, peri-urban residents knowthe problems of inadequate sanitation since theylive with them daily, but they may need interme-diaries to work with municipal authorities inorder to develop trust in other stakeholders andto overcome the fear that formal recognition willlead to sanctions or other institutional interfer-ence. With clear guidance on technologicaloptions, and freedom to make arrangements forpayments and local management of facilities,residents are usually able to help develop afford-able and effective solutions.

Women, in particular, need to be involved.They are the principal users and managers ofhousehold water and sanitation services. Their

nearly universal responsibility for family healthand hygiene makes women critical changeagents, but only if they are fully involved in thedecisionmaking process. If women are excluded,or involved only indirectly, programs are usuallynot sustainable and the installed facilities will notbe used or maintained in the intended way. Thusgender considerations need to be thoughtthrough carefully (see Box 6).

There is growing field experience with suc-cessful projects emerging from such participatoryapproaches. The Orangi Pilot Project in Pakistan(see Box 7) was an early example. The history ofthe favelas of São Paulo, Brazil, also providesevidence that there is a strong intrinsic demandfor water and sanitation services among the poorand that with the right financing and institutionalarrangements, sustainable services can be pro-vided at affordable costs. The World Bank hasprovided funding for a growing number of otherrelevant case studies from countries in Africa,Asia, and Latin America.

Incentives and the three RsThe second underlying principle of the strategicapproach is that incentives can stimulate the

Considerable work has been done during the last ten years on gender issues in water and sanita-tion. Guidelines from the Promotion of the Role of Women in Water and Sanitation Services(PROWWESS), the United Nations International Research and Training Institute for theAdvancement of Women (INSTRAW), and others emphasize that full benefits only accrue whenwomen have more influential roles in management committees, financial arrangements, and main-tenance of installed facilities, and men are encouraged to become more involved in activities suchas hygiene education and sanitation. A key point here is that extending women’s influence shouldnot also increase their burden. Project contributions in time, labor, and money need to be sharedfairly and not expected just of women.

Because it is the potential scope of women’s involvement and influence that has been neglected inthe past, programs need to concentrate on ways of stimulating and facilitating greater participa-tion by women in decisionmaking, planning, and management. At the same time, the appropriateroles of men need to be taken into account.

Source: Water Supply and Sanitation Collaborative Council, People and Water: Partners for Life, Meeting Report, Third Global Forum,Barbados: 30 October - 3 November 1995 (Geneva: Water Supply and Sanitation Collaborative Council, March 1996).

BOX 6 NEW ROLES FOR WOMEN AND FOR MEN

behaviors required from key actors—includingusers, suppliers, service providers, and govern-ment staff—to achieve sustainable expansion ofsanitation coverage. Incentives work becausethey shape the reasons why individuals behavethe way they do. Behavior is driven by a percep-tion that the benefits obtained from an actionexceed the costs of the resources required to per-form it or that the risk of suffering from thebehavior is negligible compared to the benefits,so the risk is worth taking.

Incentives can involve the promise of finan-cial rewards or the threat of penalties. They canalso involve delivery of new information tochange people's perceptions about the benefits ofinvesting in sanitation improvements or about thecosts and benefits of breaking rules and regula-tions. In some instances, they may include oppor-tunities for an individual or community to gaindistinction, prestige, or power.

By putting together an incentives packagethat helps ensure investment and operational effi-ciency, governments or municipal agencies createan enabling environment for the primary goal:sustainability. The tools used to do this are thethree Rs:● Rules governing the interactions within andbetween enterprises;● Referees who monitor and enforce compliancewith the rules; and ● Reward and sanctions systems for rewardingcompliance and penalizing infringement of therules.

All three are part of the institutional frame-work. The challenge of developing a suitableframework for managing investments in urbansanitation improvements is to make sure that eachof the three Rs is adequately reflected in the insti-tutional framework and that the combined effect ofall three is consistent with the goals of strategicsanitation. Through the three Rs, incentives need tobe developed to encourage:● participation of users at all stages;● involvement of all stakeholders in appropriateways;● competition and private sector participation;

● optimum cost recovery through a sense of ownership;● management at the lowest appropriate level; and● transparency and accountability.

Demand-based eligibility criteria for commu-nities include rules that create incentives to par-ticipate in government-sponsored projects, as dorequired commitments by governments, users,communities, and regulations governing the for-mation of non-formal institutions and access ofprivate and public service providers to sanitationmarkets. Removing barriers to participation bysmall private sector enterprises increases compe-tition and creates a financial incentive to reducecomplacency and the lack of responsiveness oftenfound with monopolies. This also lowers costs.

Favorable risk-sharing arrangementsbetween government and private enterprises maybe seen as a helpful incentive to keeping downcosts, but need to be accompanied by appropri-ate sanctions to maintain the accountability ofsuppliers to users. Regular reporting of achieve-ments, perhaps accompanied by annual awardsor other types of rewards, should not be underes-timated as an incentive. The achievement indica-tors need to be carefully chosen, to avoid thepursuit of coverage at the expense of sustainability.

Lessons of PerverseIncentives

Since the right three Rs package with its incen-tives depends on local conditions and culture,strategic sanitation does not try to produce ablueprint for universal use. Institutional arrange-ments, career structures, eligibility criteria, andmanagement approaches should be checkedindividually and as a whole to ensure that theyfoster sustainability and economic and opera-tional efficiency. Some guidance may be found inpast failures, many of which can be attributed tobehaviors driven by perverse incentives.

Incentives are said to be perverse when theyare incompatible with the goals of an enterpriseor program, and they include misdirected subsi-dies, unrealistic coverage targets, career struc-

12

tures based on high-technology designs, creditrestrictions on the poor, and bureaucratic andinstitutional barriers to stakeholder participation.They cease to be perverse once they are correct-ed, as the following examples show.● Misdirected subsidies: Well-intentioned subsi-dized tariffs, meant to make it easier for low-income groups to obtain access to improved ser-vices, often end up favoring higher-income peoplewho are better equipped to take advantage ofthem. Corrective action: If subsidies are consid-ered necessary, they should be closely targeted,demand-based, and temporary. There will some-times be a role for subsidies in sanitation pro-grams, for example, if one community’s improvedservices would yield secondary benefits to othercommunities or contribute to wider goals of healthor environmental improvements.● Free riders: Individuals who benefit from publicor shared facilities may avoid contributing theirfair share to the costs of those facilities, especiallywhen it is difficult or costly to prevent non-payersfrom gaining access. Corrective action: User feesmay be charged to the beneficiaries of trunk sew-ers or treatment plants. If individuals cannot bedenied the service when their neighborhood sew-ers are connected, other sanctions are needed fornon-payment. Where sanctions are impractical orcostly, the upkeep of common services may bebetter financed through general taxation than userfees.● Shirking: Similar in its effect to free riding,shirking occurs when some individuals do notcontribute their fair share of effort or resources.The result is underinvestment, or, in the case ofoperations and maintenance activities, a threat tosustainability. Corrective action: The shirkingproblem may be curtailed by creating small workteams and an element of competition. Regularmonitoring can encourage careful record keep-ing and penalties in the form of fines that areassessed at public meetings.● Bureaucratic inflexibility: Public monopoliesoften have little incentive to improve perfor-mance. The result can be poor economic efficien-cy and lack of responsiveness to consumer needs.

Corrective action: By applying commercial princi-ples, broadening competition, and involving theformal or informal private sector, governmentshave the opportunity to reduce costs, improveproductivity and generate a demand-drivenexpansion of service capacity. However, the busi-ness approach needs to be tempered withaccountability, regulation, and regular reassess-ment of service quality and price.

Operational Implications

In using strategic sanitation as an approach forurban sanitation investments, central and munici-pal governments need to review the way thatthey work with urban communities in five areas:● providing technical support;● widening technological options;● assessing sanitation demand;● unbundling sanitation investments; and ● financing and cost recovery.

Providing technical supportTo participate fully in a demand-oriented commu-nity-based approach, communities need informa-tion, guidance, organizational support, andcapacity building. Communities need a clearexplanation of the scope of proposed programs,the eligibility criteria, the technical options, theachievable benefits, the financial implications,and the maintenance commitments expected fromsanitation system users. Technical support to com-munities should include organization of commu-nity meetings to discuss sanitation problems,allowing residents to reach their own conclusionsabout the importance of those problems, whatthey want to do about them, and how the pro-posed project can help them.

Support agencies also need to explain therange of technology options and the implicationsof each option in terms of what benefits users willget from each option, the financial and organi-zational costs, and how their decisions mayaffect wider environmental improvements on adistrict- or city-wide basis. Criteria for supportmust be clear, as must the conditions and period

13

14

The Orangi Pilot Project (OPP) in Pakistan has become a famous example of people empowerment.With the help of an innovative community organizer, Akhtar Hameed Khan, the OPP has built uplocal organizations able to plan and finance their own latrines and house drains and also to bringpressure on the Karachi municipality to provide funds for secondary and primary sewers.

Initially, the project focused on developing low-cost solutions to the people’s strongly expressed wishto rid their environment of excreta and wastewater. Aided by committed OPP architects and engi-neers, and by providing their own labor, the communities installed in-house sanitary latrines, housedrains, and shallow sewers in the lanes and streets at an average cost of about US$25 per house-hold. Householders contribute their share of the costs, participate in construction, and elect a “lanemanager” to represent about 20 to 30 households.

The OPP has led to the provision of sewerage for over 90 percent of the households in Orangi, thelargest squatter settlement (900,000 people) in Karachi. It has also and demonstrated how peo-ple’s demands for improvements grow incrementally as the benefits of each step are realized.

Source: Arif Hasan, Working with Government: The story of OPP’s collaboration with state agencies for replicating its Low Cost SanitationProgramme. (Karachi: City Press:, 1997). Copies available from the UNDP-World Bank Water and Sanitation Program, Regional Waterand Sanitation Group-South Asia (RWSG-SA), Pakistan Office (P.O. Box No. 1025, Islamabad, Pakistan), or RWSG-SA Regional Office(c/o The World Bank, P.O. Box 416, New Delhi 10003, India).

of any incentives or subsidies. Then it is up to thecommunity, using its own decisionmakingprocesses, to decide whether to participate andhow.

A key message to be communicated to thecommunity at this stage is that incrementalimprovement is often the most reasonable andrealistic option. A choice of a latrine or septictank is not necessarily a permanent decision. Forexample, while individual connections into aneighborhood sewer system may not be afford-able to community members initially, residentsmay be interested in and willing to pay for thisoption in the future.

The importance of understanding operationsand maintenance needs is illustrated by the prob-lems experienced by the acclaimed low-cost sani-tation project in the Baldia settlement nearKarachi. Residents found that the open drainsprovided to dispose of sullage water were also aconvenient outlet for the contents of the vaults oftheir pour-flush latrines. By discharging these foulwastes into the open drains, households saved on

emptying costs, but created an odoriferous publichealth nuisance—a high cost to pay.

Once communities understand the optionsavailable and the upkeep commitments expectedfrom them, the support team will normally needto help build the capacity for users to look afterthe installed facilities. This may include helpingwith the organizational arrangements for localmanagement committees, training local artisansin latrine construction and basic plumbing, sensi-tizing health workers to the operational needs ofhousehold sanitation systems and the behavioralchanges needed to obtain optimum health bene-fits, and providing guidance on financial manage-ment to ensure accountability and transparency.

In many cases, government agencies maynot be equipped to provide the type of supportcommunities need throughout this process.Experience is needed in community development,low-cost technologies, innovative financing, andparticipatory approaches. Those skills are morelikely to be found in intermediaries such asNGOs or specialist consultants. Many NGOs are

BOX 7 PAKISTAN: ORANGI'S PEOPLE POWER

15

used to working in a participatory way. They canplay a useful role in bringing together agencystaff, private sector representatives, funding insti-tutions, and community members in focus groupsand other community-based fora. The potential ofNGOs as supporters of community action hasbeen well demonstrated in the Orangi PilotProject (see Box 7). The Dominican Institute ofIntegral Development’s neighborhood improve-ment program in La Zurza, Santo Domingo isanother example of the pivotal role of NGOs(see Box 8).

There is a growing and welcome trend forgovernments and donors to collaborate withNGOs on peri-urban improvement programsand to be willing to adjust their own proceduresto accommodate a partnership approach. TheWorld Bank increasingly views NGOs as effec-tive intermediaries on projects that depend onparticipation and capacity building at the com-munity level. The intermediary functions include:● facilitating communication between projectbeneficiaries and government; ● helping to identify and voice community needs;● supporting participation and group formation;● training and building the capacity of communi-ty groups; and● helping to channel resources to the communitylevel.

Box 9 lists criteria that can be used to helpdetermine whether a particular NGO is likely tobe a suitable intermediary for governments anddonors seeking to implement sanitation programs.

Widening technological optionsIt was once thought that if lower-cost alternativesto conventional sewerage could be found, theproblems of sanitation would be solved. One ofthe lessons from the last two decades is that alower-cost technology by itself is not sufficient forsustainable investments in sanitation services.There are examples of successful sanitation pro-jects involving high-cost technologies like conven-tional sewerage, intermediate-cost technologiessuch as simplified sewerage, and low-cost tech-

nologies such as ventilated improved pit (VIP) andpour-flush latrines. There are also unsuccessfulsanitation projects covering the same range oftechnologies.

Strategic sanitation's emphasis on demandrequires consideration not only of lower-cost tech-nologies, but also a wider choice of technologicaloptions across the full cost range than was gener-ally the case in the past. A wide range of tech-nologies is already available. The World Bank,bilateral agencies, national governments in indus-trial and developing countries, and research orga-nizations have done considerable work on innova-tive technologies, leading to options spanning abroad cost range and with recognized merits anddisadvantages depending on local conditions. Thecomparative cost implications of the three levels ofsanitation infrastructure (in-house, feeder, andtrunk) and the levels at which demand needs to beassessed and investment decisions taken areshown in Box 10.

Within these categories are some innovativetechnologies, like the condominial system ofsmall, shallow neighborhood sewers that arebeing replicated on a large scale in Brazil, andthe solids-free sewerage systems used in a num-ber of developing countries, and in countriessuch as Australia and the United States to reducesewer diameters, gradients, and consequent costs.

Low-cost options include on-site systems suchas VIP latrines, pour-flush latrines, and septictanks. Communal latrines reduce the land arearequired and can be sighted where geology ismost favorable. Pay-per-use communal latrinesdo operate successfully in some places, thoughthey generally require a subsidy and can presentmaintenance problems unless responsibilities areclearly defined. In addition to being compara-tively inexpensive in capital and running costs,these technologies are well-suited to communitymanagement. Latrines remain a popular optionwhere land is available and there is no risk ofcontaminating groundwater.

However, the congested nature of manyperi-urban settlements restricts the space avail-able for pits and soakaways. Geological condi-

16

La Zurza (population 50,000) is a low-income settlement built along the river banks of SantoDomingo, the capital of the Dominican Republic. As in many other low-income neighborhoods, itsresidents suffer from poor water quality, lack of sanitation, and inadequate food supplies. In addi-tion, a ravine in La Zurza is used as the dumping ground for chemical wastes by 54 industries.

The residents have migrated into the city from all over the Dominican Republic, presenting a realchallenge in terms of collective action and community organization. That challenge has been takenup by the Dominican Institute of Integral Development (IDDI), the largest NGO working in urbandevelopment in the country. With IDDI’s help, the La Zurza residents created their own organizationfor integrated development of the neighborhood, SODIZUR. A democratically elected non-profitorganization, SODIZUR has become a channel for support to self-help activities. It undertakestraining and institution building and manages revolving funds on behalf of income-generatingmicro-enterprises.

IDDI and SODIZUR have mobilized and supported La Zurza residents in a three-stage program toimprove their basic services and infrastructure. Based on the residents’ own priorities, the programbegan by consolidating the physical environment, stabilizing slopes, improving pedestrian walk-ways and storm sewers, and cleaning the ravines. The second stage was physical improvements,including water supply, drainage, waste disposal, housing, and latrines. In the current third stage,new sanitary services are being provided, including communal latrines, showers, clothes washingfacilities and public taps.

SODIZUR is coordinating sewer construction and the government has agreed to increase the num-ber of hook-ups for water services and to improve garbage collection. The joint activities of IDDIand SODIZUR have led to the first serious attempt in the Dominican Republic to control and treatindustrial wastes. Pressure from the La Zurza collective has resulted in the government agreeing tobuild a large-scale waste treatment plant near the neighborhood. Industrialists will be forced by anew law to treat their wastes before discharging them into the rivers, under threat of closure fornon-compliance.

Alongside the construction program, SODIZUR has its own health program built around the effortsof 86 health promoters from the community. Its objectives include improving environmental sanita-tion conditions and preventive health care which includes education on personal hygiene.

Source: David Scott Luther, “IDDI: Integral Urban Development in the Dominican Republic,” Voices from the City, (Arlington, Virginia:Environmental Health Project March 1993).

BOX 8 DOMINICAN REPUBLIC: NGO DRIVES LA ZURZA IMPROVEMENTS

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Partnerships involving NGOs, governments, and donors depend on several preconditions. NGOsare often called upon to help implement participatory approaches. Indicators that a particularNGO meets this precondition include:

● a flat management structure with decentralized authority;● organizational structures at the community level for decisionmaking; ● use of iterative planning, involving consultations with local communities;● contributions of cash, labor, raw materials, or local facilities by community members and orga-nizations, making them clients rather than beneficiaries of the NGO;● staff recruitment criteria, incentives, and training that support participation;● strong field presence outside metropolitan areas with a high proportion of staff of local origin;● positive perceptions of the NGO by community leaders and members; and● turnover of client groups as they “graduate” over time and intensive field attention is turned tonew groups.

In some cases the qualities that make NGOs suitable as intermediaries are incompatible with gov-ernment and/or donor requirements. In the Zambia Squatter Upgrading Project, for example, itwas agreed in principle to pursue long-term community development goals by promoting activebeneficiary participation. However, a stipulation was included that if the collective self-helpapproach to be used by the two intermediary NGOs interfered with the predetermined projectschedule, then contractors would be employed to carry out the work.

Unless procedures are made more flexible and both the government and its donors are committedto supporting participatory processes, the NGO is pressed into a service delivery rather than acapacity-building role. Project priorities need to be changed to provide greater flexibility in thetiming and scale of implementation and alternative procurement procedures which allow NGOsto design and implement their own programs.

Source: Thomas Carroll, Mary Schmidt, and Tony Bebbington, “Participation and Intermediary NGOs,” The World Bank, Environment DepartmentDissemination Notes, Number 22 (Washington, DC: The World Bank, June 1995).

BOX 9 NGOS AS INTERMEDIARIES

tions such as rocky ground, steep slopes, toomuch clay, or a high water table, may also meanthat on-site household systems are inappropriate.In some cases, it may be possible to organize aneffective system of latrine emptying and wastedisposal (see Box 11). However latrine emptyingtechnologies are generally not appropriate forperi-urban areas and the handling and transportof fresh excreta can be a public health hazard.

In crowded low-income areas, conventionalsewer construction is difficult and costly. Fewperi-urban communities can afford it, and there

are many examples of well-intentioned sewerschemes that have proven ineffective. Alternative,intermediate cost sewers are increasingly seen asthe most appropriate choice for carrying awaythe effluent from household systems such as pour-flush toilets or septic tanks.

Innovative technologies include the condo-minial systems (see Box 12) that have provenhighly successful in northeast Brazil and arebeing replicated on a large scale. Other innova-tive options include simplified sewerage in whichmodified design parameters allow the use of

18

In-house Feeder Trunk Infrastructure Infrastructure Infrastructure

Examples In-house plumbing Public sanitation Trunk sewersfacilities Interceptor sewersPour-flush toiletsStreet sewers Multi-neighborhoodSeptic tank systems(lateral or sewage treatment House sewersfeeder sewers) plants

Single neighborhoodtreatment plants

Ownership Households Public or Publicneighborhood

Beneficiaries Households Households Neighborhoodserved or served orconnected connected

Neighborhood Local government, city, served or municipality

Trans- Low Medium Highaction costs

Economies Low Medium Highof scale

Relative Low Medium Highlevel of sunk costs

Level for Household, Neighborhood, City-wide, by demand independently collectively local governmentassessment

Level for Household, Neighborhood, Local governmentinvestment independently collectively; or decisions local government

BOX 10 TYPES OF URBAN SANITATION INFRASTRUCTURE

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The Kenyan Water for Health Organization (KWAHO) helped poor residents in a Nairobi informalsettlement to establish a latrine emptying service for which they were willing to pay in advance.

Kibera is Nairobi’s largest peri-urban settlement, with a population of 400,000 located on 110hectares of high-density rental housing. With KWAHO’s help, residents built ventilated improvedpit (VIP) latrines and needed a way to dispose of the resulting waste. The Norwegian Agency forDevelopment Cooperation (NORAD) provided support for a special suction truck able to maneuverits way through the narrow streets and empty the pit latrines regularly. A 13-member communitymanagement team oversees the operation. During the first half of 1991, more than 6,000 house-holds paid the US$9 advance fee to have their home latrines emptied.

Source: David Kinley, “KWAHO’s Urban Challenge.” Source, (New York: United Nations Development Programme, July 1992).

smaller, shallower pipes, and buried boxes toreplace manholes, as well as solids-free sewer-age in which an interceptor tank, designed like aseptic tank, discharges only liquid waste intopipes that can therefore be small and use shallowgradients. Regular upkeep of these systems is ascritical as for low-cost options. Simplified sewersystems do become blocked and need periodicclearing out; solids-free sewerage involves regu-lar emptying of the interceptor tanks.

Assessing sanitation demandA demand-based approach to planning isresponsive rather than prescriptive. Stakeholdersmust be drawn into all stages of the decisionmak-ing process, starting with the assessment of sani-tation demand. Instead of governments or serviceutilities deciding which peri-urban communitiesshould be provided with what type and level ofservice, the decision is made jointly. The initiativemay come from the communities, the utilities, orthe government; but, as a rule, the decisions oninvestment choices are best reached through con-sultations and negotiations among all interestedbeneficiaries. Even where the investment costsare entirely borne by a private entity or by users,local government consent is imperative to ensurethat vital public interests are safeguarded byensuring that adequate downstream structuresare installed to avoid environmental pollution.

The desired end result of the participatoryplanning phase is that all stakeholders agree ona package of investments that they are convincedwill be sustainable. The Kumasi Sanitation Project(see Box 13) and many other programs haveshown that users are willing to make significantcontributions to programs that they have helpedto design and that meet their needs.

In one scenario, implementing agencies setdemand-based eligibility criteria. For example,communities may be required to contribute toproject costs and to finance or manage opera-tions and maintenance. Other need-based crite-ria such as health and poverty indicators or dis-tance to water sources may be used to prioritizeregions, but only for communities that have indi-cated a willingness to meet the demand-basedcriteria. Incentives may also be used to stimulatedemand in less enthusiastic communities if thereis a wider public interest in improving sanitationservices.

To gain fully from the participatory process,all participants have to understand the implica-tions of the options open to them. The implement-ing agency should be the one responsible formaking clear what technology options are feasi-ble, at what costs, the financing packages thatmay be appropriate, and the kinds of institutionalarrangements needed to manage the differentoptions. The first step is to identify which tech-

BOX 11 KENYA: LATRINE EMPTYING IN NAIROBI

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Developed by the Brazilian engineer José Carlos de Melo, the condominial system saves on bothhousehold and trunk sewer costs. It replaces the conventional house connections into deep mainsewers with shallow feeder sewers running through the backyards of neighborhoods.Because thefeeder sewers are shallow and there is only one main sewer connection per block, the main sewerscan also be much more shallow, saving on time and costs.

In northeast Brazil, families are being offered choices to continue their present system (usually aholding tank discharging into an open street drain) or to connect to the conventional waterbornesewerage system, or to connect to the condominial system. Charges for the conventional system areabout three times those for the condominial system. The business-as-usual option tends to becomeunworkable as more and more residents join the condominial system, because once connected, theresidents fill in their sections of the open drain and the outlet for holding tank waste is no longeravailable.

A big attraction of the system is that it has a self-motivating element in terms of system operationsand maintenance. If one household drain blocks, neighbors quickly bring it to the attention of theuser and the blockage is quickly cleared. In fact, actions such as putting solid waste down the toi-lets become much less frequent as users get used to the system. The formal sewerage agencyremains responsible for looking after the trunk sewers, but in northeast Brazil, where the condo-minial system is being widely replicated, users are well able to look after the plot systems. Thatbrings the agencies’ operational costs down substantially.

Source: The World Bank, World Development Report 1992: Development and the Environment (New York: Oxford University Press, 1992).

nologies are technically feasible and what eachfeasible option would cost. Fortified with detailsof each possible technology package, the imple-menting agency needs to guide and motivate tar-get communities through participatory consulta-tions. The question of how the costs may beshared is also critical. Circumstances often varywidely across a project area and judgments onthe affordability of the project depend on howmuch intended beneficiaries are thought to bewilling to pay for various potential levels of service.

Well-designed willingness-to-pay (WTP) sur-veys in representative communities can helpanswer these questions, although they do requireconsiderable expertise. People are asked to com-pare and put values on services of which theymay have little or no experience; views may varywidely between and within areas of cities.Researchers have to be sure that they are obtain-

ing realistic responses rather than optimistic aspi-rations. Care is needed in sampling and inextrapolating the results to the city beyond thecommunities surveyed. As experience with WTPsurveys grows in sanitation and other sectors, itis becoming more clear that a range of methodscan be used to produce dependable results. Forsmall homogeneous communities, a formal WTPsurvey may not be needed. Other communityconsultation methods such as focus groups, keyinformant interviews, and participatory evalua-tions may be used to obtain this type of informa-tion more economically.

From the WTP data, stakeholders can devel-op an overall sanitation plan covering householdservices, neighborhood services (feeder sewers),and city-wide services (trunk sewers). Within thatplan, proposals for individual communities canbe based on cost options for discussion with

BOX 12 CONDOMINIAL SEWERAGE

21

intended users. The next part of the process is toenable the users to determine for themselveswhich options they want to see implemented,accepting the financial and institutional implica-tions of that choice. It is not enough to discussinvestment options with local civic leaders. Allmembers of the community need to have inputinto the discussions.

Unbundling sanitation investmentsOne major constraint hindering expansion ofconventional sewerage services is the “lumpi-ness” of the necessary investments—propertyconnections, feeder sewers, trunk sewers, andtreatment. Big projects incorporating all elementsof the process also restrict competition to large-scale operators and may inhibit private sectorparticipation. Unbundling is a way of dividinginvestments into more realistic and more man-ageable components. A balance is neededbetween achieving economies of scale and bene-fiting from increased competition, but the evi-dence is that unbundling can lead to progress ondifferent elements of a city-wide sanitation pro-gram that would likely have been stalled iffinanced and implemented as a single package.

There are two forms of unbundling: horizon-tal and vertical. In horizontal unbundling, ser-vices are subdivided geographically. A large citymay be divided into two or more zones, eachwith its own self-contained sanitation services.Unbundled systems may also be linked, forexample, at a treatment works or long outfall.Decentralized sewerage is an example of hori-zontal unbundling that is particularly appropriatein areas with flat terrain and high groundwatertables. Dividing such areas into self-containedzones eliminates the need for expensive pumpingstations and interceptor sewers required to servethe whole area with a conventional seweragesystem.

An example of horizontal unbundling occursin the Philippines. In the course of privatizingwater supply and sewerage services for the capi-tal city of Manila, the metropolitan area has

recently been horizontally unbundled into twoparts for the supply of both water and sewerageservices. The bid documents stipulated that bid-ders were free to submit bids for both servicezones; however, only one of the two serviceareas would be awarded to any one bidder.Accordingly, the concessions have been awardedto two different companies. In another WorldBank-financed sanitation project in thePhilippines, it has been stipulated that the sewer-age systems should be horizontally unbundled inorder to reduce the number of pumping stationsand pumping costs (see Box 19).

In other sectors, the principal benefit ofunbundling is creating more competition in a freemarket. In the sanitation sector, there is anotherbig advantage of horizontal unbundling: divisioninto zones reduces the average diameters andaverage depths of sewers when compared with asingle centralized system. As these are the twomajor cost elements (along with the length ofsewers), it follows that horizontal unbundling islikely to be sound economically wherever it istechnically feasible. The example of sanitationdistricts in Los Angeles County in the UnitedStates demonstrates both horizontal and verticalunbundling (see Box 14).

In vertical unbundling, programs are dividedaccording to the scale and cost of the compo-nents. Vertical unbundling has been used suc-cessfully in other types of infrastructure such aselectricity supply and telecommunications. In thesanitation sector, a good example is the condo-minial sewerage schemes in Brazil (see Box 12).Items such as trunk sewers, which have high sunkcosts, are financed separately from lower-costneighborhood feeder sewers. The division mayapply both to the design and construction phaseand to the operations and maintenance of thesystems. There may be further subdividing to per-mit community-managed schemes to connect intopublicly or privately operated sewerage systems.This type of unbundling can add considerableflexibility to the methods of financing urban sani-tation, and make connection affordable for poorcommunities through an equitable form of cross-

22

subsidy. Residents of low-income peri-urbancommunities need not share in the costs of atrunk sewer system when their immediate priorityis the privacy, convenience, and amenity value ofhousehold sanitation.

In strategic sanitation, vertical unbundling isparticularly useful in reaching the urban poorwith affordable sanitation services in an incre-mental way. By separating decisions on in-houseimprovements from those on neighborhood feed-er systems and on city-wide trunk systems,unbundling allows a clear link to be madebetween immediate benefits and costs. Investmentcan be made one step at a time, starting with the

home. Three vertical technology levels exist in anurban sanitation project (see Box 15).

Financing and cost recoveryUser charges are at the core of strategic sanita-tion finance. That does not necessarily mean thatuser charges provide the bulk of the financing. Itmeans that users are encouraged to contributeaccording to their willingness and ability to payfor the services that they have chosen as bestmeeting their needs.

In contrast, past approaches to urban sani-tation improvements have usually been based oncity-wide, donor-financed megaprojects that

Since 1991, the Kumasi Sanitation Project in Ghana has applied a strategic sanitation approachto develop a flexible strategy for urban sanitation in a city of 770,000 people in which 75 per-cent lack adequate sanitation services. With assistance from the regional UNDP-World BankWater and Sanitation Program office in Abidjan, the Kumasi Metropolitan Assembly has adopteda demand-oriented approach that differs from previous agency-led initiatives by: ● tailoring recommendations on technical options to each type of housing in the city;● considering user preferences and willingness to pay;● using a relatively short planning horizon (10-15 years), emphasizing actions that can be takennow; and● breaking the overall plan into projects that can be implemented separately but incrementallyproviding total coverage.

The starting point was a pioneering survey on willingness to pay for improved sanitation services.The survey showed that most Kumasi households were willing to pay more for improved services,but that potential revenues were not large. Massive subsidies would be needed for conventionalsewerage, but relatively large coverage could be achieved with modest subsidies by installingKVIPs (Kumasi Ventilated Improved Pit latrines). The survey also revealed that the poorest people,who used public latrines, were paying more for sanitation than those with household systems.They were willing to pay even more to have improved home sanitation.

The resulting US$28 million sanitation plan (1991-2000) includes US$15 million for homelatrines (10 percent financed by users), US$9 million for sewers in tenement areas (no userfinance), US$3 million each for school and public facilities, and US$1 million for support to theWaste Management Department. Unit costs are US$31 per capita in the lower density housingarea (population 470,000) and US$53 per capita in the tenement housing area (population170,000). Public latrines are to be under private sector management franchises.

Source: Dale Whittington, Donald T. Lauria, Albert M. Wright, Kyeongae Choe, Jeffrey A. Hughes, and Venkateswarlu Swarna,Household Demand for Improved Sanitation Services: A Case Study of Kumasi, Ghana, UNDP-World Bank Water and SanitationProgram (Washington, DC: The World Bank, May 1992).

BOX 13 GHANA: STRATEGIC SANITATION IN ACTION

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attempt to address all the problems at once withlittle recognition of true priorities or userdemands. In such projects the assumption thatusers do not have the means to pay for the fullcosts has generally gone untested and wide-spread subsidies have been provided in order toget projects off the ground. The result has beenunsustainable programs achieving only minimalincreases in coverage. When users werecharged, expected levels of user payment wereoften based on rules of thumb, for example, thathouseholds could afford to pay up to 5 percentof their income for water and sanitation servicescombined. Experience and research have shownthat such rules of thumb are unreliable and donot provide a sound basis for estimating rev-enues or residual financial requirements.

The demand-driven approach of strategicsanitation provides a way to think through howthe costs of sanitation can best be shared. It alsoprovides reliable information on the value thatusers place on sanitation improvements and ontheir willingness to pay for those benefits. Thisinformation generally shows that individualhouseholds place a relatively high value on sani-tation services that provide them with a private,convenient, and odor-free facility that removesexcreta and wastewater from the property orconfines it conveniently within the property.Because of this, many peri-urban residents arewilling to pay to cover the costs of on-site systemsor a combination of private sanitary facilities andconnection to a sewer close to the dwelling.There is also frequently sufficient value attachedto removing the waste from blocks and neighbor-hoods for groups to justify organizing collectivepayments for these improvements or even fortreatment to render the wastes innocuous. Similarreasoning applies at the city and water basinlevel.

This way of thinking about cost recoveryleads to a model for financing sanitationimprovements.● Households pay the bulk of the costs incurredin providing on-site facilities such as bathrooms,toilets, septic tanks, and on-site sewer connections.

● Residents of a block collectively pay the addi-tional cost incurred in collecting the wastes fromindividual houses and transporting these to theboundary of the block.● Residents of a neighborhood collectively paythe additional cost incurred in collecting thewastes from blocks and transporting these to theboundary of the neighborhood (or in treating theneighborhood wastes).● Residents of a city collectively pay the addition-al cost incurred in collecting the wastes fromblocks and neighborhoods and transportingthese to the boundary of the city (or in treatingthe city wastes).● The stakeholders in a river basin or groundwa-ter source—cities, farmers, industries, and envi-ronmentalists—collectively assess the value of dif-ferent levels of water quality they wish to pay for,and agree on the assignment of financial respon-sibility for treatment and water quality manage-ment costs.

These financing principles are now beingclosely followed and selectively implemented in anumber of countries. Most frequently, the financ-ing challenge is to identify appropriate cost-shar-ing arrangements for strategic sanitation plansfor some neighborhoods in a city. Examples ofsuch investment programs for service provisionand for broader river basin management ofwater quality are in place in Brazil, Ghana,Pakistan, the Ruhr River Basin in Germany, andin all major river basins in France.

Direct user payments. Are users willingto pay for sanitation improvements? Experienceand research give a qualified yes to this question.The major qualification is that user willingness topay extends to those benefits that users perceiveand are able to internalize. User willingness to paymay not be sufficient to pay the full costs of systems,including trunk sewers and treatment. In thesecases, complementary finance will be required toensure the sustainability of services.

In urban areas where users have played asignificant role in the determination of coststhrough their own choice of levels of service—

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such as the Orangi project in Pakistan, theKumasi project in Ghana, and the PROSANEARproject in Brazil—user willingness to pay hasgenerally been sufficient to cover the coststhrough direct payments and complementarypayments through block and neighborhoodgroups. These experiences point to one majorconclusion regarding user payment: user willing-ness to pay should be tested before consideringcross-subsidies from other user groups or exter-nal provision of funds.

Is it necessary that all direct user paymentsbe in cash? The answer is a qualified no. Thequalification is necessary because in-kind pay-ments need to meet two additional conditions tobe as good as cash. First, the provision of in-kindservices must be voluntary to count as a validindicator of willingness to pay. In practice it is

sometimes difficult to determine whether or notthis condition is met. Second, the provision of in-kind services must tangibly reduce the real finan-cial cost of providing the service. The value to beassigned to in-kind contributions is the cost-reduction achieved. There are numerous exam-ples of the willingness of users to provide in-kindservices during construction of facilities and theirsubsequent operation. The willingness tends to begreater during the construction phase andbecomes more difficult to sustain in the operationsphase.

Is household borrowing to finance user pay-ments acceptable? Yes, and in fact the most effec-tive systems for ensuring appropriate user pay-ments for sanitation improvements have beenthose that insist on front-end payments for con-struction and access to the service. Availability of

The Sanitation Districts of Los Angeles County (SDLAC) is an alliance of 27 special districts underone administration. The basis of the special districts is the county Sanitation Districts Act of 1923,which provides that geographic drainage areas, rather than political boundaries, should be thedetermining factor delineating sanitation districts. A sanitation district may include single or multi-ple municipalities and unincorporated areas, or combinations of both. The sewer service area ofthe SDLAC is about 770 square miles (1970 sq. km) and encompasses 79 cities and unincorpo-rated areas. It has a population of five million and wastewater flows ranging from 0.1 mgd (mil-lion gallons per day) to 365 mgd.

Community-level sewer systems (laterals) are the responsibility of individual communities that maytake care of the systems themselves or enter into a contract with the LAC Department of PublicWorks. There are 11 satellite sewage treatment facilities treating sewage from some of the com-munities. The treated wastes are used for such things as irrigation of highway landscaping andgolf courses.

Most of the effluent flows to a sewer network that has about 1,000 miles (1,600 km) of trunksewers and 48 pumping stations. Wastes are treated in a joint wastewater treatment plant andfive water reclamation plants. This is an example of vertical unbundling. In the same area, hori-zontal unbundling also takes place. Two separate agencies operate trunk sewer systems. The Cityof Los Angeles takes care of wastes from communities within the city boundaries; the SDLAClooks after the area outside the city and a number of smaller communities surrounding the city.

Source: Office of Information Services, Sanitation Districts of Los Angeles, “Joint Outfall Systems, Master Facilities Plan,” Volume 1,Issue 1, March 1994.

BOX 14 UNITED STATES: UNBUNDLING

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● In-house infrastructure involves household level systems such as latrines, toilets, septic tanks, andhouse drains. The facilities are located at the point where the waste is generated and the benefit isto the individual householder. There are many separate installations scattered throughout the com-munity. In comparison with other levels of investment, in-house systems have the lowest sunk costs.Householders’ value judgments are straightforward, because benefits are direct. Market forcesapply and there is great scope for privatization of service provision, with competition bringingcost savings. In some peri-urban settlements, lack of secure property rights may be an importantissue inhibiting individuals from making investments.

● Feeder infrastructure relates to the neighborhood sewers or collection systems shared amongoccupants of a street or block of houses. The users have common interests in ensuring that the sys-tems function properly. Decisionmaking and payment for feeder systems needs to be sharedamong the beneficiaries. Sometimes this may come about through a local agency responding tocollective demands from groups of users. Incentives may be relevant as a means of stimulatingdemand, particularly if there is a need to spread the costs of trunk sewerage at a later date.Economies of scale begin to emerge, but sewer systems have higher costs than household sanita-tion. Market forces and private sector involvement help to keep down costs. Peer pressure encour-ages reluctant neighbors.

● Trunk infrastructure includes mains sewerage and treatment works serving an entire city orregion. The large scale of the operation means high costs and appropriate economies of scale,but savings can be offset by restricted competition. Trunk systems are remote from users, who maynot readily appreciate the benefits. Accordingly, user charges may not be the best way to recoverinvestments. Decisions generally need to be made at the city government level, and operationsand maintenance may be best funded through general city taxation. Privatization or other formsof private sector involvement are possible, with a need for regulatory safeguards.

BOX 15 VERTICAL TECHNOLOGY LEVELS

credit to spread the front-end costs over timecontributes to the willingness to pay for improve-ments or to seek access to existing improved sys-tems. Though it relates principally to rural watersupply, the Grameen Bank in Bangladesh is anexample of such a system working to everyone’sadvantage (see Box 16).

One very successful example in the sanita-tion sector is the credit system in Lesotho’s low-cost urban sanitation scheme (see Box 17). Thatsystem is based on treating a VIP latrine as aconsumer item to be purchased through commer-cial credit. It is operated by the parastatalLesotho Bank, which borrowers recognize as anefficient commercial institution. Poor repaymentrates on other credit schemes were attributed to

borrowers recognizing the government’s ineffi-ciency in pursuing defaulters.

Unfortunately, borrowing does not work wellin all cases. Credit is not available at a reason-able cost to many of the people who need itmost. Where credit is available, repayment expe-rience may be sufficiently poor that the capital baseof the lending organization becomes depleted andneeds periodic replenishment. The risk premiummay be so high that the cost of the funds outweighsthe advantage of borrowing.

Collective payments from block andneighborhood groups. Either traditional,non-formal kinship groups or non-governmentalcivic organizations may be effective in providing

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communal services and organizing collectivepayments. Some institutional researchers point todifficulties in exercising group decisionmakingand in interpreting group decisions. For example,how representative are the decisions of groupconsensus, and how strong is the commitment ofindividual members of the group to the group’sdecisions?

In the Orangi case, neighborhood groupshelped provide finance for neighborhood collec-tion systems. They also became strong enough toencourage additional government financing fortrunk sewers to supplement the neighborhoodsystems. In both Orangi and PROSANEAR, thegroups were able to persuade more individualresidents to sign on to the less costly neighbor-hood schemes, and to keep them clean, than theexisting sanitation organizations had been ableto do. Neighborhood groups were also instru-mental in convincing the technical staff of theseorganizations that cheaper systems could workwell, at costs that households were willing to pay.

Collective payments from local andnational governments. Directly or indirectly,the government participates in the financing ofsanitation services in virtually all countries.Governments supplement user payments for sani-

tation through direct and indirect financial sup-port to users and through allocations of funds forinvestments and operations. They mobilize finan-cial resources for this support predominantlythrough taxes and by controlling credit alloca-tions from financial institutions, internal andexternal borrowing, and external grant sources.

On average during the last half of the1980s, governments allocated finances amount-ing to about half of one percent of GDP to thewater and sanitation sector in developing coun-tries, with less than half this amount going tofinance sanitation.7 Whether this aggregateamount is the correct one will not be addressedhere. What will be discussed are the rules underwhich government finances are utilized, how theyare allocated, and their impact on achievement ofsector objectives and sector performance.

The financial premise of the strategic sanita-tion approach is to base financial requirementson what is worthwhile to finance, rather thanassuming that if something can be financed, it isworthwhile. Government finance has been exten-sively used in the past as a substitute for usercharges and has benefited those who alreadyhave access to services, rather than compensat-ing service providers for the external benefits ofextending services to users who are not willing or

The Grameen Bank is well known as a provider of credit to more than 2 million poor and landlesspeople in Bangladesh. A large proportion of the clients are women. The bank’s great innovation hasbeen to find an alternative to traditional forms of collatoral. The key principle is that if any borrowerdefaults, the group to which that borrower belongs is no longer considered creditworthy and is nolonger eligible for loans.

In recent years, the lending of the Grameen Bank for rural water supplies has risen dramatically.Since early 1992. The bank has provided loans for about 70,000 tubewells. In 1993, it lent aboutUS$16 million. The interest rate charged on loans for tubewells is 20 percent, repayable over twoyears in weekly installments. The handpumps are procured locally by the borrowers, either from thePublic Health Engineering Department or from local private manufacturers.

Source: UNICEF data as cited in: Ismail Serageldin, Water Supply, Sanitation, and Environmental Sustainability: The Financing Challenge.Directions in Development. (Washington, DC: The World Bank, 1994).

BOX 16 BANGLADESH: GRAMEEN BANK'S CREDIT FOR THE POOR

able to pay the full cost. One outcome of thispolicy has been a continuing reluctance to extendservice coverage to the poor. Somewhat para-doxically, this policy has also resulted in relative-ly little expansion of treatment facilities to protectwater sources and insufficient maintenance ofexisting facilities for those with connections.

In most countries, more financial support hascome from central government than from localgovernment. This may be partly justified if centralgovernment tax collection is more efficient and ifcentral government can mobilize greater externalfinancial resources. On the other hand, whenurban areas with waterborne sewerage systemsdo not pay the costs of the trunk networks thatremove the liquid waste from the immediateurban environment, this benefit is being paid forby others who do not generally benefit from it.Local urban governments generally do not objectto this arrangement because, if they are luckyenough or powerful enough to get these facilitiespaid for by others, they do not have to raise theirown direct taxes, such as property taxes. Thiscontributes to the inefficiency in sanitationfinance, since such local direct taxes would moreefficiently link payment to benefits received.

A further irony of this arrangement is thaturban governments (since they do not generallyrepay the central government for the assets pro-vided) consider any income from users in excessof operations and maintenance expenditures asnet revenue, even though sanitation charges donot come close to full cost recovery. Since this net

revenue is often a discretionary fund for localgovernment, it can be used to finance shortfallsin other local expenditures rather than being rein-vested in the improvement of sanitation services.

Adopting a StrategicSanitation Approach

Two sets of actions are required in adoptingstrategic sanitation: formulation of a demand-based policy, and development of an institutionalframework to provide the incentive structure toinduce the key players in the sector to implementthe policy. The sectoral and project-level institu-tional framework should be in place beforeattempting to implement the demand-basedapproach. It should be adaptable and able torespond to new developments and lessons fromexperience. See Box 18 on the adaptiveapproach being used in the PROSANEAR project.

Formulating a demand-based policyNational and municipal governments and serviceutilities work within agreed-upon budgets. Theyneed rolling programs and priority criteria toforecast investment needs and to assign funds.Some elements of the demand-based approachmay appear to inhibit accurate planning: ifinvestment is to be demand-driven, how canagencies know in advance where and to whatextent investments should occur? The answer isthat dynamic financial planning modeling (for

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The low-cost urban sanitation program in Lesotho has achieved a remarkable degree of sustainabilityby recovering all the costs of VIP latrine construction from users. It does so by promoting the latrinesas valuable consumer items and by providing commercial loans through the parastatal Lesotho Bank.

Loans are arranged by the project team, which also helps users to find a qualified builder. Normalinterest rates apply and loans are repaid in 20 installments over 24 months, leaving out Decemberand January, when Christmas expenses and school fees often deplete household budgets.

Source: Isabel C. Blackett, Low-Cost Urban Sanitation in Lesotho. UNDP-World Bank Water and Sanitation Program, Discussion PaperSeries, Number 10, (Washington, DC:The World Bank 1994).

BOX 17 LESOTHO: CREDIT FOR VIP'S

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The Water and Sanitation Program for Low-Income Urban Populations (PROSANEAR) project inBrazil is investing US$100 million to provide water and sanitation infrastructure to about 800,000people in low-income areas in eleven cities in different regions.

Participation should be tailored to the population. The PROSANEAR project has taken a variety ofapproaches to involve beneficiaries in the design of subprojects. In one approach, leaders of com-munity organizations are consulted on basic choices, and the details are then worked out withactual beneficiaries. In another approach, agreement is reached between design engineers andbeneficiaries directly, in consultation with community leaders and organizations. In both approach-es, conflicts of interest between the water company and community-based organizations areresolved through negotiation, with the project design consultant as facilitator. Preliminary dataindicate that these two approaches have dramatically lowered per capita investment costs andincreased the sense of project ownership among communities.

Engineers need to adapt. In PROSANEAR, the participatory process has directly affected the kindof engineering advice used. For example, water companies were required to award projectdesign consultancies to a consortium of engineering firms or firms working with nongovernmentalorganizations that specialize in community participation. The supervision team at the national levelencouraged project design consultants and water company engineers to discuss plans with benefi-ciaries before agreeing on final proposals.

Donors need to adjust their practices. The Brazilian project was approved by the World Bank with-out blueprints of targeted service levels or delivery systems. Instead, the appraisal reports providedbroad principles for project execution and indicative targets for benefits and costs, leaving much ofthe design to be developed during implementation. The external donor must provide intensivesupervision to work out details of the subprojects as chosen by the communities and to monitorand evaluate implementation. Experience so far shows that these learning-intensive, participatoryprojects can reduce capital costs, although they also entail increased investment of staff time fromthe donor.

Adapted from: The World Bank, World Development Report 1994: Infrastructure for Development, (New York: Oxford University Press,1994).

BOX 18 BRAZIL: APPLYING PLANNING INNOVATIONS IN PROSANEAR

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local government demand), consumer demandstudies (for demand at the household and neigh-borhood levels), and eligibility criteria linked tothe strategic use of incentives not only overcomethis apparent problem but in fact lead to moredependable forecasting of resource needs.

Willingness-to-pay consumer surveys pro-vide planners with the type of demand-baseddata needed to assess likely user choices withoutprescribing solutions for individual communities.When the sample includes households from allincome levels, planners can extrapolate with con-fidence. From the aggregated data, analysts canpredict the take-up rate for different optionsaccurately enough for preliminary budgeting andprocurement planning, while still allowing indi-vidual communities to make their own decisionslater. This helps planners to rule out inappropri-ate investment options and help avoid wasterinvestments in expensive sewer networks forwhich cost recovery cannot be achieved.

The take-up rate for household systems,feeder networks, and trunk sewers is also a use-ful basis for unbundling proposed investmentsinto affordable packages and for developing alter-native financing methods for different services.

Though need-based criteria such as healthand poverty indicators, water scarcity, and envi-ronmental degradation may still guide plannersto selections of regions to be served first, thesimultaneous occurrence of both user and localgovernment demands in the same geographicalarea should be the main criterion for determininginvestment priorities within cities. Demand-basedcriteria may include commitments to pay a highproportion of costs, to undertake maintenancecommitments, and to institute self-help hygieneimprovement programs. This criteria helps plan-ners to avoid risky investments and to forecastcost recovery and support needs.

Institutional frameworksThe key functions of agencies in the sanitationsector are policy formulation, regulation, invest-ment, operations and maintenance of sanitationfacilities, and the commercial activity of supply-

ing customers with desired sanitation services.Traditionally, these functions have been carriedout in many developing countries in a supply-drivenway with a high degree of centralized control, littlelocal accountability, and little involvement of con-sumers. The consequence has been failure to copewith the growing problems of urban sanitation.

Until recently, capacity building andimprovements in administrative procedures wereconsidered the most important elements neededto boost institutional performance. Experiences atthe World Bank and elsewhere suggest that suchefforts may have little or no long-term effects onperformance, unless they are accompanied bychanges in the internal and external incentivesand constraints that staff face. People need to bemotivated to use their improved skills andimproved administrative procedures.

A demand-driven approach requires newtypes of institutional arrangements. Roles andresponsibilities need to be shared differentlyamong the many stakeholders and with differentregulatory and enforcement needs. The goal ofthe institutional framework in strategic sanitationis to create incentives that are compatible withthe goals of investment and operational efficien-cies. Incentives are needed for participation ofusers at all stages, for transparency and account-ability, for management at the lowest appropriatelevel, for use of a step-by-step approach, and forcompetition and private sector participation.When institutional goals and incentives are wellmatched, individuals make decisions that pro-duce outcomes that are both personally and institu-tionally rewarding, generating net benefits for all.

Minimizing transactions costs. Indeveloping an appropriate institutional frame-work, one of the prime considerations has to betransactions costs, the operating costs of the insti-tutions. Transactions costs are unavoidable; theaim is to keep them as low as possible consistentwith operational goals. They include coordinationcosts, strategic costs, and information search costs.

Coordination costs arise from the time andeffort used to negotiate, monitor, and enforce

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Project planners have built strategic sanitation features into the design of the Water DevelopmentDistrict Project (WDDP) in the Philippines:

Demand orientation. The WDDP is designed to be demand-driven by consumers and by local andnational government. Local government demand has been used to make final decisions about whichcities to include in the project. The selection of communities and service areas within cities is based onlocal demand. The only exception is that connection to the sewer system is mandatory in the centralbusiness district.

Demand assessment. Household demand is assessed through use of the contingent valuationmethod and user consultations in neighborhoods. Local government demand was expressed throughvoting and resolutions by local government assemblies. The voting followed a number of presenta-tions by project staff to the assemblies and to local government officials. Four of the six cities forwhich pre-appraisals were conducted decided to participate in the project.

Financing. The capital works in the project are to be financed from a loan from the World Bank. Thesefunds will be channeled through a local financial intermediary, the Land Bank of the Philippines.Operations and maintenance costs will be financed by local water companies. These companies willenter into a concession arrangement for operations and maintenance of the installed systems.

Cost recovery and financial sustainability. The project is designed for full cost recovery of both thecapital and operations and maintenance costs. Capital costs will be recovered partly from projectedcity revenues from local taxes and partly from an annual allocation of funds (IRA) from the centralgovernment to local governments. Operations and maintenance costs are to be recovered through asewer tariff that is to be integrated with the water tariff.

Rules. The project is guided by a national policy and strategy that states that investments in sanita-tion should be demand driven. Sewer systems are horizontally unbundled whenever feasible toreduce the number of pumping stations needed and to reduce pumping costs. Decentralized treat-ment systems are to be used to prevent environmental pollution.

Referees. A national level agency, the National Economic Development Agency serves as the refer-ree to ensure compliance with demand by local governments. The Land Bank of the Philippines isthe referee for debt repayment of capital costs. Within cities, the Local Water UtilitiesAdministration, through its Central Program Support Office for Sewerage and Sanitation is respon-sible for helping cities follow the demand-based aproach in selecting neighborhoods and serviceareas for inclusion in city projects. The local water companies are empowered to enforce paymentof sewer charges.

Rewards and sanctions. The Land Bank of the Philippines has the power to intercept the flow of IRAsto local governments that default in their debt servicing. Payments of the sewer tariff will not be sep-arated from the water bill. This is intended to empower local water companies to cut off the supplyof water to customers who default in paying the integrated water and sewer bills.

Source: The World Bank, “Staff Appraisal Report. Republic of the Philippines: Water Districts Development Project,” Report No. 16526-PH, The World Bank, East Asia and Pacific Region, Urban Development Unit, Washington, DC, July 29, 1997.

BOX 19 PHILIPPINES: DESIGNING PROJECTS FOR STRATEGIC SANITATION

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contractual agreements among various partners.Coordination costs also include time and otherresources spent in gathering information aboutlocal conditions, aggregating willingness-to-paydata, holding community meetings, publicizingthe project, and seeking user feedback.

Strategic costs arise from the opportunisticbehavior of individuals when refereeing is expen-sive and verification costs high. Free-rider andshirking problems are included in this category,as are problems that arise when stakeholderinterests differ. For example in the GhanaCommunity Water and Sanitation Projectfinanced by the World Bank, participating com-munities are to be given new equipment by cen-tral authorities on the condition that it will not bereplaced if it has not been maintained. Sincehigher-level authorities are unlikely to have fullinformation about local maintenance efforts,local leaders have little incentive to maintain theirequipment. Strategic cost problems tend to leadto under-investment and faster rates of deteriora-tion of sanitation infrastructure and so contributeto unsustainable facilities. They are more likely tooccur with centralized institutional arrangements;decentralized arrangements with accountabilityto local authorities and consumers can help toreduce strategic costs.

Information search costs arise from the needto collect, aggregate, and analyze dispersedinformation on user preferences and technicalaspects of the project, and to make this informa-tion available to relevant stakeholders.Monitoring and evaluation costs are also includ-ed in this category.

In seeking to keep transactions costs down,it is important to realize that trade-offs existamong the different forms of transactions costs.The more information that parties to a transac-tion have about one another, the lower the strate-gic and coordination costs. For example, in com-munities with good social networking, shirkingand free-rider problems tend to be less common.Coordination costs are also likely to be lowbecause members get to know and trust oneanother. Conversely, savings in information

search costs may lead to higher coordinationand strategic costs. Inadequate coordination alsocreates incentives for strategic behavior and canlead to increased strategic costs.

Sector-and project-level frameworks.The sector-level institutional and legislative frame-work provides the ground rules for all sanitationinvestments. It should define the roles of localgovernments and higher tier governments, bene-ficiaries, non-formal institutions, government utili-ties, private sector enterprises, NGOs, and exter-nal support agencies, taking care to includewomen’s groups and women beneficiaries. Theframework should address the implications of ademand-based approach for resource allocation,technology choice, and choice of financingarrangements.

This sector-level framework needs to be con-sistent with financing and cost recovery policies,which includes sources of finance for capitalworks—users, private sources, government, andexternal support agencies. It should also involvesources of finance for operations and mainte-nance of physical infrastructure. The frameworkneeds to set out policies on fiscal equivalence,poverty alleviation, and local decisionmaking.Policies on the use of cash and in-kind contribu-tions should be defined. In accordance with thepolicies on accountability and fiscal equivalence,the institutional framework should give users theauthority to question investment choices and toexamine financial statements of the provision andproduction entities.

Low-cost provisions are needed for monitor-ing compliance with sector rules and for reward-ing compliance and penalizing those who violatethe rules. The final step in the design for the insti-tutional framework is a check to find out if theresulting incentive structure is consistent with thegoals of investment and operational efficiencyand to make necessary corrections if it is not.

Project-specific institutional frameworks arealso needed to enable service providers to adaptthe ground rules to local circumstances. The pro-ject-specific institutional framework should define

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specific project goals and set policy on howboundaries of service areas are to be fixed. Itshould also define a mechanism for resolving dis-putes. At the project level, planners and design-ers need criteria for determining benefits, serviceareas, and technologies. The range of possiblebenefits includes coverage, health, economic pro-ductivity, and safeguarding environmental ameni-ties. The project framework should specify inadvance policies on technology choice, servicezone selection, and cost recovery. Provisionshould be made for the application of graduatedsanctions against free-riders and other breachesof the rules.

Strategies for institutional designThe challenge in developing an institutionalframework for the sanitation sector is to achieveinvestment and operational efficiency with low transaction costs. The World Bank’s 1994World Development Report identified three strate-gies for addressing this challenge:● applying commercial principles; ● broadening competition; and ● involving non-formal institutions.8

Applying commercial principles. Thebasis of this strategy is that sanitation is anindustry producing services to meet the demandsof users and should therefore be operated with abusiness orientation.

Performance objectives should be limited,well-focused, and defined to include quantitativetargets such as coverage, capacity expansion,profitability, and productivity, and qualitative tar-gets such as improvements in the management ofinformation and internal control systems. A highdegree of managerial autonomy with hard bud-get constraints should be maintained and anincentive system should ensure clear accountabili-ty to customers and the providers of capital.Sound financial and accounting systems shouldprovide managers with clear objectives.Commercial principles call for good customer rela-tions, demand-driven investment choices and tariffstructures, and tariffs designed to cover at least the

costs of operations and maintenance. They also callfor effective cost accounting and attention tostaffing problems, particularly overstaffing.

One way of introducing commercial prac-tices in public sanitation utilities is through per-formance agreements. A key element is a built-inincentive system that relates to the duration of theagreement. Experience in Korea and Mexicoshows that short duration agreements—a year,for example—to be more effective because theyallow for more frequent assessments. Under per-formance agreements, manager and worker per-formance is evaluated and ranked using such cri-teria as service quality, productivity, and adminis-trative and financial efficiency.

Other key elements of such agreements areincreased managerial autonomy and rewards forthe manager and workers when agreed-upontargets are achieved. Rewards may include publi-cation of performance-based ranking of man-agers and enterprises; monetary rewards andprizes for the best managers and the best enter-prises; or annual bonuses and career prospectsfor managers linked to the ranking of their com-panies. Some agreements in India and Mexicohave included bonuses of up to 35 percent oftotal wages.

Another mechanism for creating commercialoperations is through corporatization or givingthe enterprise the same independent legal statusas a private firm. Corporatization insulates utili-ties from government constraints and pressureswhile allowing the government to continue to setbasic goals. This is best done through explicitcontracts.

Broadening competition. Competition is apowerful instrument for promoting investmentand operational efficiency, providing users withoptions in service and suppliers, and improvingthe accountability of service suppliers to users.Competition may be enhanced by creating equalaccess to production activities by a number ofpublic and private enterprises as well as privatevoluntary bodies. This should be supported byequal access to an independent arbitration or

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dispute resolution service. A number of instru-ments can also serve as competition surrogates.An example is transparency brought aboutthrough open decisionmaking processes, or bygiving special interest and user groups theopportunity to voice their preferences and holdprovision and production units accountable forthe quality of their services. Decentralization andlocal decisionmaking are effective instruments forimproving transparency and accountability. Moreexplicit ways of introducing competition in thesanitation sector include service contracts, man-agement contracts, lease contracts, and concessions.

Service contracts transfer to private enter-prises the responsibility for delivering specificservices for a period of a few years. They mayalso be used to obtain specific skills lacking in alocal authority or a public utility, such as engi-neering skills needed to develop a new sanitationproject for public or private funding. Contractsshould be awarded through competitive tender-ing. They may also be awarded by auctioning offthe service to the company that offers to deliverthe desired service at the lowest price to con-sumers. In this case, the auctions may be repeat-ed at short intervals to ensure that consumersobtain the best possible terms. The local authorityor public provider sets performance criteria, eval-uates bidders, supervises contractors, and paysfees that may be lump sum, unit costs, or basedon some other contractual basis.

Service contracts offer a versatile means ofcarrying out many tasks. They have been usedfor meter reading and fee collection in the watersupply and sewerage sectors in Chile since the1970s. The Santiago public water company evenencourages employees to leave their jobs tobecome independent and compete for servicecontracts. Service contracts may also be used foroperations and maintenance of parts of a sanita-tion system, such as a neighborhood feedersewer systems or a decentralized sewage treat-ment plant. When they are used for mainte-nance, consideration should be given to creatingservice contracts of sufficient duration and scope

to justify acquisition and capitalization of specialequipment by the contractor.

Management contracts transfer the responsi-bility for a broad range of operations and main-tenance to private contractors. Management con-tracts may be used for operation of an entiresanitation system or for major parts of it. Multiplesuppliers may compete for contracts that may berenewed every one to three years. This can be auseful interim arrangement pending preparationof more comprehensive contracts for leasing orconcessions while reform of the regulatory frame-work for the sector is underway.

In some cases, contractors receive a set feefor services rendered. If contractors cannot con-trol key functions like staffing, procurement, andworking capital, they should not be held fullyaccountable for overall results. Alternatively,when compensation is linked to performance,contractors take commercial risks and should begiven autonomy in day-to-day management deci-sions. Management contracts work better whencompensation involves incentive payments forsuch factors as increased connections and effluent quality.

In a lease contract, the government or alocal authority develops and installs the physicalfacilities required to produce services and a pri-vate contractor pays for the exclusive right tooperate them and generate a flow of servicesover an extended period of time. This right issometimes called a franchise or a license. Thecontractor is generally awarded the lease for aperiod of six to ten years, and bears most of thecommercial risks, but not the financial risk associ-ated with large investments in physical plants. Asuccessful small-scale example can be found inKumasi, Ghana. Public toilet facilities in Kumasibelong to the Kumasi Metropolitan Assembly(KMA) but are leased to private operators whopay the KMA an agreed-upon monthly fee.

Concessions incorporate all the elements ofleases, plus the contractor also assumes responsi-bility for capital investment. The contract isbetween the private contractor and a publicauthority; the public authority delegates its

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authority to the successful contractor; and thecontractor provides the service at its own riskand is paid by users. The assets revert to thepublic authority at the end of the concessionperiod, which may be as long as 30 years. Threepossible solutions may be considered at the endof the concession: extension of the contract, rebid-ding, or takeover by the public authority.

Concessions involve four parties: the conces-sionaire, the public authority, users, and a regula-tor to balance the interests of the other three par-ties. The system works well when consumers arewilling to pay required tariffs, where there is com-mitment to protect the interest of the concession-aire, and where there is sufficient regulatorycapacity. A national institutional capacity isrequired to design the appropriate incentive struc-ture, prepare and implement bidding and re-bid-ding processes, and to monitor the concession-aire’s performance.

Experience suggests that contractors shouldbe allowed to construct and operate systems theway they want. Strong performance incentivesare important. Incentives for concessionaires tomaintain and expand physical infrastructure caninclude asking them to sign a performance bondand hiring an independent party to check compli-ance. This can have repercussions on the pricingof services—the higher the bond, the higher thepricing—but the problem may be reduced byincluding a clause that allows the private operatorto recoup some of the bond money in return forgood performance. Another option is to allow forcompensation to be paid to the operator if theassets are found to be in good condition. If thepossibility of rebidding is made clear at the out-set, it may create an incentive for good mainte-nance of the assets.

Concessions are flexible but they mayrequire lengthy negotiations. It is important to dis-courage early negotiations and identify strongoperators. It is good practice for interested gov-ernments to start concessions with pilot operationsso that they can learn from experience and estab-lish successful precedents. This helps in buildingup trust and makes future negotiations easier.

Involving non-formal institutions. Theapplication of commercial principles and thebroadening of competition are important tools forimproving the performance of formal institutionsin the development and supply of sanitation ser-vices. But formal institutions often do not serveresidents of peri-urban areas, and non-formalinstitutions step in even when the services theyprovide are more expensive or of poorer quality.Non-formal institutions make significant contribu-tions by filling gaps in service in urban areasand in supplying services to rural areas.

Experience has shown that where such non-formal institutions exist, their involvement in thedevelopment and implementation of sanitationprojects helps to enhance the chances of success.Non-formal institutions have several roles. Asneighborhood or residents’ representatives, theyhelp to aggregate consumer demand and serveas intermediaries between consumers and serviceproviders. In this capacity, they help to reducethe transactions costs incurred in negotiation andcoordination because their involvement bringsdown information search costs and improvesresponsiveness to user preferences. In particular,non-formal organizations can help to minimizefree-rider problems. By forming large pools ofbuyers with stronger bargaining powers, they canfrequently negotiate better service prices for theirmembers.

To be credible, non-formal institutions shouldhave sufficient clout to be able to ensure that thecommunities they represent fulfill their commit-ments, particularly for in-kind contributions. Theyshould also be seen as the true representatives oftheir consumers. Non-formal institutions mayneed support from NGOs or other intermediariesto organize themselves for effective action and todevelop the skills they need for their assignedroles, as was the case in the Orangi Pilot Project.

Separation of institutional functionsAn important aspect of the institutional frame-work for strategic sanitation is how the marketfor sanitation services should be structured. The

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goal should be to improve competitiveness, whichis a powerful incentive for improved perfor-mance. On the provision side, this calls for sepa-ration of services into multiple provision areas.One way to do this is through vertical and hori-zontal unbundling. Another is to separate provi-sion functions from production functions and toassign provision functions to local governments inline with the policy on local decisionmaking andmanagement at the lowest appropriate level.Water and sanitation utilities have often carriedout provision as well as production functions, butassigning provision functions to one entity andopening up production to competition allows theefficiency gains to be captured.

So that agencies can respond better to userneeds, multiple provision areas should be usedfor different types of sanitation infrastructure orfor systems with different geographical impacts,wherever this is feasible. For example, house-holds may serve as the provision areas for on-site sanitation; residents of a block or of a neigh-borhood may serve as the provision area of afeeder sewer system; residents of a city may beused as the unit for trunk sewer systems; and stilllarger jurisdictions for regional sewerage sys-tems. Such an arrangement has the same struc-ture as the financing model described earlier,and it widens the choices available to users. Italso defines boundaries for demand estimationand revenue generation for cost recovery. Whatare the implications for the various tiers of government?

Role of local governments. In linewith the principles of local decisionmaking andmanagement at the lowest appropriate level,responsibility for provision functions should beassigned to local authorities. When appropriate,lower tiers of local government or user-basednon-formal institutions may be assigned thisresponsibility. This arrangement enhancesresponsiveness to user preferences, improvesaccountability, and lowers transactions costs,especially those associated with strategic costsand shirking. It is sometimes argued that local

governments may not have the capacity to per-form these functions, ignoring the fact thatcapacity can readily be increased if necessary byhiring consultants or through capacity buildingprograms.

As a rule, local governments will beassigned responsibilities for provision of serviceswhose impacts are confined to their jurisdictions.When a spillover of benefits or impacts occurs,the service boundaries need to be expandedaccordingly. The costs of designing, building,operating, and maintaining facilities for such ser-vices should be borne by the residents of the pro-vision areas through appropriate financinginstruments. These may include user charges,local taxes, or other levies as appropriate.

A number of independent production entitiesmay be invited to compete for each productionfunction in a provision area. This may includeproduction units from other parts of the localgovernment, other local government units, high-er-tier government units, and private sector units.Adoption of this new approach should raisequestions about the role of public water and san-itation utilities.

Role of national government. A keyrole for national government is formulation ofpolicies that will capture the benefits of strategicsanitation principles. This may include policies onthe division of sanitation functions into provisionand production, and the structuring of sanitationmarkets. Central governments need to introduceappropriate legislation to assign authority to localgovernments to serve as provision units for sani-tation services. This should be accompanied bymeasures providing local governments with suffi-cient fiscal and budgetary discretion to raiseenough revenue to perform the service provisionroles assigned to them.

Legislation may also be needed to authorizelocal authorities to borrow from private financialmarkets. Central governments will generally alsobe involved in allocation of central resources forsanitation services among local governments.This means formulating eligibility criteria for

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communities desiring government project financ-ing. Central governments are also the ones to setout regulations governing private sector partici-pation in the sector, and to decide what kinds ofrisks government will assume in dealing withdonors, for example, foreign exchange transferrisk. Other central functions may include conflictresolution through the regular court system orthrough other mediation mechanisms.

Role of external support agencies. The external support agencies (ESAs) active inthe sanitation sector include bilateral agenciesand multilateral agencies like the United NationsChildren’s Fund (UNICEF), United NationsDevelopment Program (UNDP), World HealthOrganization (WHO), regional developmentbanks, and the World Bank. ESAs have tradition-ally provided two major types of inputs into thesanitation sector in developing countries: financ-ing and technical assistance. Financial supportfrom the development banks has been in theform of loans, sometimes soft loans for the poor-est countries, and funding from bilateral agencieshas been mostly in the form of grants. It is hopedthat future policies of ESAs can be structured toencourage incentives, including policies on costrecovery, conducive to improved investment andoperational efficiency and to sustainable invest-ments in sanitation.

The urban environmental sanitation crisis indeveloping countries is becoming increasingly morecritical each year as rapid urban populationgrowth continues to outpace investments in new orimproved sanitation. The sanitary crisis is taking alarge health, economic, and environmental toll onall city residents.

Access to convenient and safe water is oftenone of the top priorities for the urban poor, anddemand for improved sanitation often follows soonafterwards, including ways to dispose of waste-water. Willingness to pay for basic water and sani-tation services is often high in peri-urban neighbor-hoods, provided that services are appropriate,effective, and affordable. However, in many devel-oping countries, poorly run water utilities haveinvested in sewerage schemes that have not beenable to operate and maintain services.

The positive and negative experiences of awide range of organizations and institutions world-wide have been assessed and analyzed in develop-ing a strategic sanitation approach that is demand-

based and incentive-driven. This approach, pro-moted by the UNDP-World Bank Water andSanitation Program, is meant to be flexible andadaptive so that it can incorporate lessons fromnew experiences and innovations in the sanitationsector.

A demand-based approach requires imple-menting agencies to find out what potential userswant and what resources they have to finance andmanage installed systems, and to design systems,financing mechanisms, and support structures thatare best suited to their needs. Adoption of strategicsanitation principles has already been seen todeliver results.

The examples of the use of strategic sanitationprinciples included in this document demonstratethat such an approach can generate better projects.These successes have helped to build capacity with-in implementing agencies as well as enhancing theability of communities to make sustainable sanita-tion improvements.

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Conclusion

1 Statistics and data in this section are from:World Health Organization, Water Supply andSanitation Collaborative Council, and UnitedNations Children’s Fund, Water Supply andSanitation Sector Monitoring Report 1996:Sector Status as of 31 December 1994 (Geneva:World Health Organization, 1996).

2 Bangladesh Bureau of Statistics, BangladeshDemographic Statistics and 1991 StatisticalYearbook of Bangladesh, as cited in WorldResources Institute, United Nations EnvironmentProgramme, United Nations DevelopmentProgramme, and the World Bank, WorldResources 1996-97: The Urban Environment(New York: Oxford Press, 1996).

3 Guillermo Yepes, Infrastructure Maintenance inLAC: The Costs of Neglect and Options forImprovement, Volume 3, Water Supply andSanitation Sector, Latin America and theCaribbean Technical Department, RegionalStudies Program, Report No.17 (Washington DC:The World Bank, June 1992).

4 The World Bank, China Urban EnvironmentalService Management, World Bank Report No.13073-CHA (Washington, DC: The World Bank,December 31,1994).

5 The World Bank, World Development Report1992: Development and the Environment (NewYork: Oxford Univeristy Press, 1992).

6 The World Bank, World Development Report1992: Development and the Environment (NewYork: Oxford Univeristy Press, 1992).

7 The World Bank, World Development Report1992: Development and the Environment (NewYork: Oxford Univeristy Press, 1992).

8 The World Bank, World Development Report1994: Infrastructure for Development (New York:Oxford Univeristy Press, 1994).

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Notes