Tapping The Market-cambodia

Field Note

Water and Sanitation Program

Tapping the Market:

Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam

An international partnership to help the poor gain sustained access to improved water supply and sanitation services

East Asia and Pacific Region

Door-to-door Water Sales Equipment and Water Source

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inancial constraint is a major challenge in scaling up Rural Water Supply (RWS) service delivery in the developing regions of the world. To meet the Millennium Development Goal (MDG) of halving the number of people without access to clean water and sanitation, the World Commission on Water estimates the shortfall of global RWS resources at approximately 140 percent (US$ 180 billion required vs. US$ 75 billion available).1 However, there is strong evidence that the private sector, which can provide up to 100 percent of infrastructure investment costs, can help to effectively fill this gap. Vietnam and Cambodia provide instructive examples where the private sector has stepped into RWS provision investing its own funds, and leveraging funds from a fee-paying consumer base. The growth in private sector investment in RWS in the two countries has occurred in response to consumer demand that was not being met by public services. Importantly, Governments in both countries recognize and support these private sector initiatives. Water – A Priority for Responsible Growth and Poverty Reduction – An Agenda for Investment and Policy Change, The World Bank, January 2001.

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Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam

his vibrant if relatively small-scale and informal private sector supplying RWS services throughout Vietnam and Cambodia consists both of enterprises that sell water and others that install water source technologies. Operating in tandem, they provide either different services for different populations or different water to the same consumers for various end uses. However micro and small-scale, they are able to earn a reasonable profit by providing services at the market rate. Significantly, private sector providers have shown themselves to be sustainable operations that grow and tailor their businesses to the shifting demands and preferences of their consumer base.

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While it is difficult to accurately estimate the total annual investment by these enterprises or by end-users, it is likely that private and/or user investment in the sector far exceeds public investment. There is need to appreciate, capitalize on, and foster this substantial but unacknowledged investment, allowing public resources to be directed to areas where the private sector may not have comparative advantages. In view of the above, public sector players in the water sector need to rethink how best to use their resources and whether they should at all invest in infrastructure when it can be financed from noninstitutional resources. Instead, these public funds are better spent to create the demand that is required to meet the millennium’s water and health objectives, as well as fuel enduser investment in support of private sector suppliers. Of critical value also is the channeling of public funds towards promoting safe water handling and sanitation among users to optimize the health promoting potential of water.

The RWS experience of the two countries analyzed here generates a clearer appreciation of the relative opportunities and limitations to increased private sector activities in the sector. The unmistakable advantages of the private sector in RWS provision emerging from the analysis include leveraging of funds to the sector, the benefits of demand driven services, and the cost effectiveness not only of the private sector but also of the public investments made in support of the private sector. Both by virtue of its customer-oriented structure and because it is able to provide cheaper more localized services than government suppliers the private sector can provide a viable preferable alternative to public investment. While pointing to a clearly unstoppable and encouraging future for private investment in the RWS sector, the positive experience of Vietnam and Cambodia also provides an informed basis to consider how private investors in the sector can be encouraged and best served in the future by donors and governments globally.

Private Sector Presence in RWS in Vietnam and Cambodia

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he RWS market in Vietnam and Cambodia is served by a growing private sector made up of thousands of micro enterprises that fall into two categories: (i) Technology Supply Enterprises, which are primarily production/supply chains of enterprises that make, distribute, sell, and install water access, storage, and purification technologies. The technologies include tubewells, hand/ electric/diesel pumps, rainwater storage jars/tanks, and water purifiers. Except in the case of large well drilling operators these suppliers generally

Piped Water Source and Water Tower

provide household technologies that enable their purchasers to access, store or purify water for which they do not have to pay. (ii) Water Supply Enterprises, which sell water. They range from informal enterprises that collect and transport water and sell it door-to-door, to piped-water scheme operators that provide pressurized metered water directly into individual households. The latter are essentially small utility companies providing water to tens, hundreds or thousands of households.

interesting lessons about financing arrangements, experimental regulatory frameworks, user willingness to pay, and consumer water use.

The nature and size of the private sector, and the services it provides, vary from one country or place to another, and are inevitably tailored to local scenarios including water resource availability, population density, consumer income, user need and preference, extent of regulation, and others. In Cambodia these private enterprises have grown rapidly over the last decade in an increasingly investment-friendly environment. The lack of sector regulation has provided an enabling environment for the development of thousands of micro water supply enterprises. In Vietnam where markets are more fully developed, in the southern province of Tien Giang, for instance, non-state water companies are serving about 60 percent of its 1.6 million population. These include individually invested utilities generally financed with borrowed capital; cooperative invested and managed systems; and usergroup systems where the capital is raised upfront by user investors. In Central Vietnam likewise, households purchase on-site water sources (eg. handpumps) and in response a private sector supply market has developed. These entrepreneurial enterprises in both countries offer

To help devise strategies that cater to the diverse and growing volume of water needs and user preferences, a valuable body of evidence from three cases drawn from Cambodia and Vietnam is presented here.

The demand for water is such that consumers are compelled to use more than one source of water. The importance of market segmentation to the end-users is demonstrated by their willingness to pay for water at differential costs.2 In any private or public investment targeting users, it is thus imperative to consider consumer water-habits and preferences.

In the currently unregulated RWS sector in Cambodia, private sector activity is flourishing; from individual informal water collectors and sellers, to small and unregulated family-run piped schemes, to larger experimental piped schemes that supply whole villages. Collecting water from open water sources, community pumps, and open wells, water sellers in rural Cambodia transport it for sale generally on trailers equipped with 200-liter water tanks pulled by a motorcycle. These informal enterprises with low entry-level costs go into business with their own capital. Typically they sell water at around US$ 2.50/ m3. Though untreated, this water is purchased for consumption i.e. drinking and cooking. Most families usually boil this water prior to consumption, but not always. Serving an identical market and operating in tandem are very small pump-and-pipe operators that operate

2 For example in a single commune in Cambodia, metered water from a piped scheme costs from 30 to 50 US cents per cubic meter, whilst motorcycle-delivered untreated surface water costs US$ 2.5 per cubic meter. While rainwater is harvested for free, it is essentially worth US$ 2.5 per cubic meter, as it substitutes as a source of water for drinking/cooking.

Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam

The Experience of Cambodia

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Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam

in the more densely populated areas of villages. They erect small (2-6 m3) water storage tanks usually supported by wooden structures and supply untreated water drawn from rivers, drilled wells, or ponds through pipes to individual households. Depending on the available water source, and cost to develop that source for extraction, a small enterprise supplying water to 20-60 households might cost between US$ 1,000 to US$ 8,000.

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The Mini Reseaux d’Eau Potable (MIREP) program has six ongoing projects to pilot rural village-level privately invested and operated schemes. These projects are targeted to supply full access to villages that consist of 250-400 households, and their total capital investment ranges from US$ 17,000 to US$ 66,000. Three of these systems are in operation, and the rest due to become operational later this year. MIREP supplies institutional, financial, and technical support for the development of the piped water systems, which helps overcome the most critical constraints to private sector investment. The schemes in operation are working well. Investors are satisfied

with the institutional arrangements, the financing, and their ability to collect water tariffs. The connection rates attained thus far are impressive, and the water cost lower than for water supplied by either the water sellers or the informal pump-and-pipe operators that were replaced.

Piped Water Scheme Development in Tien Giang Province in Vietnam’s Mekong Delta In the Mekong Delta of Vietnam, drilled water access is prohibitively expensive for individual households in some areas. As in Cambodia, almost every household harvests rainwater as well as water from open water sources such as ponds and canals. To a lesser degree than in Cambodia users also rely on informal water-seller businesses that source water from community handpumps or other available sources, and transport it for sale door-to-door. In the early nineties, a number of small, initially unregulated privately invested piped schemes that sourced water mainly from tubewells emerged in response to an obvious demand and willingness to pay. Investment

capital was usually raised from the consumers, by charging a large upfront connection fee, typically amounting to US $60-100. For this amount, the users did not own a share of the equipment but were still willing to finance at this market connection rate. Alternate management arrangements such as informal usergroup invested systems (backed by commune level government), and cooperative managed systems also emerged. In these cases, members invested (usually US $60) in a fund that was used to build a system. A Provincial Government decree in 1998 banned private investors from raising investment capital from their target consumer base, but allowed user groups and cooperatives to do so. Some private investors continued to raise capital by providing a reduced water tariff until such time as the user investment is repaid. This is an attractive proposition for private investors, as these businesses have inherently large upfront investments, and relatively low operating expenditures (See Box 1).

Growth and Coverage The growth in private, cooperative, and user-managed systems has been staggering.3 Since the decree was issued in 1998, the number of usergroup invested systems has grown by 800 percent, cooperatives by 230 percent, and private investors by 130 percent.4 Of the total population of 1.6 million people in the province, 65 3 Of the current 415 schemes in operation, 49 are invested by state owned enterprises, 80 by private enterprises, 28 by cooperatives, and 258 by user groups. Most of these stations supply untreated groundwater, a few supply treated surface water. 4 In all cases, the government provides technical design support and has a series of pre-designed systems that are tailored for varying populations and water source conditions.

Rain Water Storage Jars

Box 1

Creating a Viable Water Supply Enterprise

Mr Nha surveyed the target households to assess whether they would be willing to pay for purified piped water at the Government ceiling-rate of 25 cents/m3 (for water extracted from open water sources). Based on market research, he invested US$ 14,000 of his own money towards the system. But he needed more capital to extend the pipeline. He proposed to the interested households that they pay him US$ 20,

and he would provide reduced rate water (60 percent of cost) until their US$ 20 was paid off. As a result of the above efforts, the number of connections grew to 480 from the original 120. Mr Nha now needed to further upgrade the system, and buy a larger pipeline to feed the station. For this final expansion, he borrowed US$ 9,000 from the bank at the rate of 0.85 percent per month. He anticipates that by the end of 2003 he will have all 600 households connected. Currently most of the consumers use the water Mr Nha supplies for drinking, cooking, and animal husbandry. But Mr Nha is confident that in the future, more of his consumers will appreciate the value of safe water and the consumption will further increase.

percent now have access to piped water, mostly through schemes developed since the mid to late nineties. The current rate of development of new schemes (70-80 per year) is so rapid that the remaining 35 percent of the population will likely be served within the next three to four years.

State Enterprises 33%

Difference Between Accessing Water and Having Safe Water

Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam

Mr Nha’s water system was built in 2000 to supply water in Long Vinh Commune, Tien Giang Province. It draws water through a pipe from a canal that is one kilometer away into an 800 m2 lined holding tank. From here it is pumped through a simple purification plant, and up to a water tower from where it is fed to the village.

With an impressive record in the development of piped water schemes,

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Mr Nha’s Water Tower

Financing

individuals, cooperatives, and user groups was respectively 27, 17, and Of the total capital invested in piped 56 percent. High user-group RWS schemes in the province, investment is on account of a social investment by private investors and water users accounts for 61 percent, structure that reaches right down to by state enterprises for 29 percent, and the hamlet level and ensures such subsidy from state budgets for 10 group investments remain relatively percent. Of the capital invested by secure; and a system of social non-state funds, the share of private incentives that ranks leaders of hamlets on attainment of social points. These are awarded for such achievements as User Groups water supply coverage, latrine use, 38% covered pathways, hamlet cleanliness, and crime rate reduction. Thus, hamlet leaders are motivated to be proactive in encouraging the development of Private Investors these types of systems. 18% Cooperatives 11%

Investment in Piped Schemes in Tien Giang Province, Vietnam

Tien Giang province is one of the most exemplary in Vietnam, but there is a downside. As in Cambodia, consumers in Vietnam supplement piped with rainwater that may be improperly stored. In the absence of social marketing strategies to foster improved domestic sanitation (especially water handling and hand washing), the impact of improved water supply systems on health is likely to be greatly compromised.

Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam

Technology Supply Chain Networks in Central Vietnam

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In large areas of Central Vietnam, along the populated coastlines, groundwater is easily accessible in shallow aquifers, of good quality, and replenished every year through run off from the inland mountain ranges. In the early nineties, with UNICEF support, the government developed provincial level capacity to drill shallow tubewells and install pumps, mostly donated for community use. At that time, rural inhabitants (comprising over 85 percent of the country’s population) collected water from uncovered wells, either in community locations or installed at their homes. An installed handpump purchased through the government network cost about US$ 100 (to either donor or purchaser), and due to their centralized (Provincial Capital) location, it took five simultaneous orders to get the pumps released to the countryside. The UNICEF program set the technological standards for both the hardware and its installation. Capacity was built at a provincial level that could be used to further train other water source developers. In 1995 International Development Enterprises

Handpump being Used for Domestic Water Supply and Garden Irrigation (IDE)5 launched a program to expand on this government-managed system by developing private sector capacity to provide hand and electric pump installations and after-sales services/ maintenance throughout three provinces of Central Vietnam. The program entailed building enterprise capacity to manufacture pumps, wholesale pumps and pipes, and drill wells and install pumps. In all, about 150 branded well drilling and pump installation enterprises were built, along with a corresponding manufacturer and supply network to feed their inventory.

Promoting Dreams, Not Handpumps The most critical intervention of IDE, however, was not capacity building but market development. Nearly 80 percent of the total program budget went to finance a targeted marketing campaign to fuel demand for the services and technologies of these supply networks, as well as promote sanitary water handling, storage, and hand washing. Key to the success of this marketing strategy was that it tapped into the emotions and aspirations of the consumer base,

separately targeting men, women, girls, and boys. It did not promote handpumps or wells. It promoted dreams. The result was a rapid growth in end-user financing of domestic handpumps and tubewells. As the project progressed, the marketing support was gradually withdrawn, and marketing tools were developed to enable the private sector to undertake their own promotional activities at a cost and level of effort appropriate for their scale of business and profitability. The user was the principal gainer. Decentralization of the handpump supply/well-drilling enterprises resulted in a decline in the pump’s cost from about US$ 100 to around US$ 30. By the end of the project a total of 64,000 pumps had been purchased through 26 districts of three provinces, providing water to an estimated 320,000 people. The user invested capital in these unsubsidized installations totaled US$ 2.3 million. Apart from sales tactics, the private sector quickly learnt their best promotion was customer satisfaction, as their greatest sales came through referrals. Thus the installers and pump sellers

International Development Enterprises is a non-profit organization which establishes for-profit enterprises that supply socially beneficial technologies and services to their consumers at an unsubsidized rate. For more information see: www.idevn.org.

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Comparative Advantages of Private Sector’s Engagement with RWS

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n the light of the cases studied, several comparative strengths of the private sector’s participation in RWS become evident. The most significant are:

Leveraging funds: It has been demonstrated that a substantial part if not 100 percent of required funds can be raised for RWS infrastructure through investing enterprises, consumer fees, and consumers paying for water source development. In the case of the MIREP projects in Cambodia, 70 percent of the funds for piped scheme development are raised jointly through investors (61 percent) and users (9 percent). In Tien Giang province in Southern Vietnam the earliest piped schemes were financed by private investment as well as upfront amounts mobilized from consumers. The majority of schemes are now financed entirely by the users while some private enterprises utilize a combination of private funds, bank loans, and user advance payments that are discounted from water bills. The handpump network and well drilling services in Central Vietnam too, demonstrate convincing private sector and user investment in the water sector. Demand-driven quality services: Innately customer focused, private enterprises are responsive and able to adapt their services to changing consumer demands. In contrast, centrally planned, subsidized programs often take decisions on behalf of their consumers and provide what they deem best for them. The service quality of private enterprises is also better.

Even though operating in a more monopolistic business environment, piped water scheme operators often provide more localized decision making, are less bureaucratic, and driven by the bottom line. This translates into better service provision such as faster connectivity or quicker responsiveness to pipe leaks and other needed repairs. Greater accountability: In the MIREP project systems in Cambodia, user groups are established with elected representatives. In Vietnam users are often investors and the operators are elected. These mechanisms drive social and financial accountability that is possibly higher than found among salaried staff in state-run enterprises. Cost effectiveness: Privately invested capital inherently is used with greater cost-consciousness than government invested resources. In the case of supply chains developed in Central Vietnam, cost reductions achieved by switching to decentralized competitive distribution networks were dramatic (falling to less than a third of the former price). Profitability equals sustainability: RWS interventions clearly are more sustainable where private entrepreneurs are making a profit and where end-users are paying for

services. With a closed loop of financial transaction between supply enterprises and end-users, there is no need for long-term external financial support.

Is There Any Downside to the Private Sector’s Presence in RWS? A key concern about the private sector is its inability to reconcile social with economic gains (See Box 2). This example demonstrates the limitation of private sector in responding to purely social needs. While the mechanism to achieve social goals is regulation, it must be cautiously balanced so that the private entrepreneur can make a profit, and is encouraged to stay in business. Another disadvantage is the limited capacity of the private sector to serve broader public health goals. RWS enterprises primarily respond to consumer water supply needs – predominantly cheaper water and more convenient access. Consumers generally are not aware of the health benefits of improved water quality. In an unregulated market and where consumers do not demand water quality from suppliers, the private sector is not focused on providing it. Critical factors such as how end-users handle, store, and treat water therefore cannot and will not be addressed

Box 2

Private Sector is Profit Driven, Not Socially Driven It is interesting to compare both regulated and unregulated market prices for water. In Phnom Penh, Cambodia’s capital, the State Company that managed water supply was privatized, but it is subject to government control on pricing. The result is a socially designed pricing structure to which the operating company must adhere – the less water one uses, the less one has to pay, and the more water one uses, the more one has to pay. In a privately invested piped scheme in Takeo province where there is no such regulatory control, to encourage greater water use the investor has designed a price structure in reverse, i.e., the less one uses the more one has to pay, and the more one uses the less one has to pay.

Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam

placed a great deal of emphasis on follow up, with efficient after-sales servicing and spot check maintenance.

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through purely private initiatives (See Box 3).

Pointers to Facilitating the Private Sector

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nder varying socio-economic conditions existing in rural Cambodia and Vietnam, significant water development is taking place without any direct public financing. Rural investment capacity is growing, and now approaching the level where village-scale piped schemes are a feasible investment. Public investments

constrain more than support it. In Vietnam for instance, in developing supply chains for handpumps, when donors gave away free or subsidized pumps they distorted the markets. The provision of a donated pump essentially killed the demand temporarily, as families that were considering buying preferred to wait and see if they would be donated a pump. Donor procedures created other negative consequences. For instance, centralized bulk purchasing rather than through and in support of local suppliers lead to higher installed

Box 3

Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam

Not All RWS Goals Can be Met Through Purely Private Sector Strategies This is amply demonstrated in Cambodia. The unregulated pump-and-pipe operators or door-to-door water sellers are not purifying water. They are providing convenient access to untreated water that consumers prefer for drinking and cooking. The regulated piped scheme operators, who are treating water, are not selling that water because it is treated. They are selling the water because it is cheaper and more convenient. Along with treated water, consumers therefore continue to purchase untreated water from alternate supply networks. in the water sector need to accelerate this growth as well as fill in for the limitations of purely private sector strategies in reaching the social goals of the sector. This section discusses some of the crosscutting issues that need to be considered in building a pro-private sector platform, and realizing optimal returns on public investments in the sector through private sector supportive strategies.

Public and Donor Investments Need to Support Rather than Constrain the Private Sector While the government and donor agencies may be aware of the benefits of using the private sector to achieve social goals, at present they probably 6

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pump costs, and less chance of the pumps being able to be repaired locally. Clearly, the commitment and longterm success of businesses has much to do with their personal investment risk. The MIREP projects in Cambodia would only choose investors that had a demonstrated business track record, and were willing to take personal investment risks with their own money. Enterprises spoon fed by the social sector are less committed and may have decided to enter the water business because of their access to public subsidies. When subsidies are provided as a sizeable portion of larger investments such as piped schemes, “ownership” is liable to be dictated by political connection rather than demonstrated willingness or capability

MIREP Presentation, Jean Pierre Mahe, January 2003.

to enter business. Where direct subsidies are considered necessary, the challenge is to find a balance between two extremes – encouraging business, but not overdoing it to the extent that it jeopardizes the likely success of the intervention. Governments and the aid community need to ensure their activities indeed support rather than compete with or emasculate private sector providers. While assisting in building infrastructure through public, supply-driven interventions does result in increased immediate RWS activity, competing against each other may cause a net reduction in coverage in the long run.

Focus on Water Safety (Not Just Availability), as well as on Demand Creation Much of the contamination of drinking water occurs between the water source and the mouths of consumers. A handpump or pipe that provides safe water has limited health impact if users subsequently contaminate the water prior to consumption. Current knowledge is low – less than 50 percent of the rural population of Cambodia is currently aware that water can bring diseases.6 Without the complementing software strategies, the goals of RWS interventions cannot be achieved through hardware improvements alone. In this context, the importance of demand creation as the most critical intervention cannot be overemphasized. If rural populations want to consume sanitized water, want to wash their hands after defecation, want to build a sanitary latrine, accomplishing the rest becomes easier. Creating demand among rural populations not only fuels growth in services to supply that demand, but also accentuates consumer willingness to pay for those services. In creating

cornerstone of a pro-private sector platform. In both Vietnam and Cambodia there is recognition that the private sector can and will play a significant role in RWS.

Water For Wealth as well as Health

Regulation is Recommended But Requires a Balancing Act

Consumers purchase water or develop water resources because they attach to it some value (convenience, improved health, taste or other). What the drinking water constituency fails to consider is that the greatest demand for water is actually for non-drinking (irrigation or animal husbandry) purposes. As in Cambodia and Vietnam, when families cultivate crops or keep animals at or near their homes, they need to have access to water both for drinking and other uses. With the two sets of needs interlinked, there is opportunity to capitalize on this and to tackle water not as an expense but as an earner. The “handpump supply chain” initiative in Central Vietnam proves sales are much higher in areas where consumers additionally use their water source for irrigation. Other examples also demonstrate that by integrating drinking water and irrigation needs 7 it is possible to achieve 100 percent cost recovery of water source development even in the poorer areas where source development is relatively expensive.

Conclusion: Critical Ingredients of Success

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everal conclusions about the critical ingredients to successful private sector participation in RWS can be inferred from the preceding discussion:

A Conducive and Supportive Climate Government support for the private sector is critical, and forms a

Seen both as an opportunity and a constraint by private investors, Government regulation has to be a balancing act between protecting the user and/or the investment and overregulation that inhibits profitability. In Cambodia there is currently no regulation and in Vietnam, only partial regulation. This has likely contributed to the development of small pumpand-pipe operators who were able to function profitably with incentive to expand and invest. Conversely, the

injection of tighter regulation in Tien Giang province, possibly favored cooperative and user-group investments over the private sector, demonstrating the impact regulation can have in determining the structure of non-state operators. Issues of water pricing seem the most critical and complex to address. Water resource development costs, dispersion of populations, and user ability to pay vary from place to place and can have a dramatic effect on

the break-even pricing of piped water schemes. Consequently pricing controls need to be as decentralized as possible to attract investors to the sector, especially in the more challenging markets where there are higher costs to doing business.

Capital Requirements Utility companies supplying piped water are inherently capital intensive, but capital borrowing costs are often prohibitive. For this reason, access to long-term credit is a critical factor in their creation and continuation. Piped water supply businesses are also sensitive to economies of scale. With the cost of borrowing high, borrowing lesser amounts for samller sacle operations is an option, but results in disproportionately higher operating costs per unit of product sold, leading to higher costs also for users. The entry cost of businesses that supply water technology, on the other hand, depending on the geology in their area of operation, is comparatively low. In the supply chain example from Vietnam, where well drillers are able to use handboring methods, investment in drilling equipment and start-up inventory is in the range of US$ 100-200. These businesses therefore do not encounter the same start-up capital constraints, but unlike the piped scheme operators, they do face much more challenging market development costs.

Technical Skills A key requirement of private sector entrepreneurs is technical knowledge. In the case of piped schemes this would include the design and operation of their systems (especially the water treatment components), and in the case of pump installation

Transforming Rural Water Access into Profitable Business Opportunities; Polak, Adhikari, Nanes, Salter, Surywanshi; International Development Enterprises, January 2002.

Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam

demand, there is a clear rationale for linking marketing of the hardware and technical services with social marketing and health promotion strategies.

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Water and Sanitation ProgramEast Asia and Pacific Region Jakarta Stock Exchange Building, Tower 2, 13th Floor Jl. Jenderal Sudirman, Kav. 52-53, SCBD Jakarta 12190 Indonesia

Tapping the Market: Private Sector Financing of Rural Water Supplies in Cambodia and Vietnam

Tel: (62-21) 5299-3003 Fax: (62-21) 5299-3004 E-mail: [email protected] Website: http://www.wsp.org

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enterprises, well drilling. While private enterprises have demonstrated they are knowledgeable, they are unlikely to meet standards that are acceptable in terms of preserving water resources or providing their consumers with adequate water quality. Undoubtedly they require support in this area, but the cost of such support services is likely to be prohibitive. In the three examples studied, there is evidence of the public sector assuming these costs. In Cambodia, the MIREP projects are providing these services for aspiring small-scale water supply enterprises; IDE underwrote the costs of these services in the Central Vietnam project; in Vietnam’s Tien Giang province, the government provides these services at no official cost to piped scheme developers and operators.

Management Structure In the prevailing pro-private sector climate, a variety of operational models or organizational structures have emerged. These include (i) Entirely privately invested and operated (ii) User group investment and operation (iii) Cooperative investment and operation (iv) User investment with third party operation. It is too early to determine the relative effectiveness of these structures as they are relatively

new and require further crystallization and assessment. Clearly there is no one model, in itself a blessing because it guarantees both flexibility and relevance to local contexts.

Government and Donor Functions In the final analysis, it is important to recall that however efficient, the private sector is not socially, but profit oriented. Samll businesses cannot afford, nor are they skilled in providing social marketing or health promotion to their consumers. Such software should be funded by the public sector to derive the desired health improvements related to improved water access and sanitation. The public sector’s effective promotion of improved health and hygiene behavior will result in an increased demand for clean water and improved sanitation facilities. Thus governments can fuel demand, and in parallel, support the private sector providers with technical backstopping to meet the demand as it emerges. The faster the appreciation in governments as well as among the donor community of the criticality of the above function, the greater the chances of the developing regions of the world to gain access to adequate water for multiple uses and benefits.

Water and Sanitation Program Cambodia Resident Office P.O. Box 877, Phnom Penh, Cambodia Tel: (855-23) 211-751 Telefax: (855-23) 211-752 Water and Sanitation Program C/o World Bank Resident Mission 63 Ly Thai To Street, Hanoi,Vietnam Tel: (84-4) 934-6600 Telefax: (84-4) 934-6597

Credits This Learning Note is drawn from a report entited “Private Sector Financing of Rural Water Supply in Vietnam and Cambodia” written by Dan Salter, with funding from the World Bank Rural Water and Sanitation Thematic Group. Published by: Vandana Mehra Special thanks to: Jean Pierre Mahe, MIREP Project, Cambodia Peter Feldman, Partners for Development, Cambodia Peoples Committee of Tien Giang Province, Vietnam Pictures by: Dan Salter

May 2003 The Water and Sanitation Program is an international partnership to help the poor gain sustained access to improved water supply and sanitation services. The program’s main funding partners are the Governments of Australia, Belgium, Canada, Denmark, Germany, Italy, Japan, Luxembourg, the Netherlands, Norway, Sweden, Switzerland, and the United Kingdom; the United Nations Development Program, and The World Bank. Created by Roots Advertising Services Pvt. Ltd. Printed by