Social Policies and Water Sector Reform

Increasing coverage and maintaining infrastructure are two of the biggest challenges confronting the water supply sector in both industrialized and developing countries. The last two decades have witnessed reform in this sector that has resulted in increased private sector participation (PSP), and it is now time to investigate whether such reform has managed to increase access without creating additional burdens, especially on the poor. A research project carried out by the United Nations Research Institute for Social Development (UNRISD), Social Policy, Regulation and Private Sector Involvement in Water Supply, has demonstrated the shortcomings of concession-type contracts and how regulation in developing countries is faced with major challenges. Based on this research, the present paper demonstrates that, in such circumstances, regulation should be complemented by social policies when reforming the water sector.

This paper draws lessons from seven country studies: Brazil, Burkina Faso, Colombia, Great Britain, France, Hungary and Malaysia. All of these country studies show the shortcomings of PSP and how social policies are crucial in addressing the issues of access and affordability. The choice of social policies varies from country to country. In France and Great Britain, heavy public investment was used to ensure universal access to piped water. In these countries, even with high regulatory capacity, social policies in the water sector have been crucial. For example, in France, they consist mainly of ex-post assistance to those who cannot afford to pay their water bills, operating a fund for rural water supply and prohibition of disconnection. Social policies in Great Britain include income support based on property values, subsidies, a ban on disconnections, various forms of social security support and social assistance in paying water bills. In addition, there exists an effective and independent economic regulatory body.

In the case of Colombia, a subsidy helps provide the poor with access to affordable water. In addition, investment commitments prescribed to the private sector have been useful in increasing coverage. Similarly, in Brazil, the desire to make water supply universal led to heavy investment in the 1970s, and effective social policies (cross-subsidies) helped to increase coverage among the poor. However, the current impasse on whether the state or municipality has the right to grant concessions to the private sector is jeopardizing further progress. The government in Hungary provides subsidies to regions that have high production costs. In addition, industrial users cross-subsidize domestic consumption, and income transfers by central or local authorities shoulder some of the households’ burden of water expenditures. Tariffs are kept low (a “hidden” social policy) and no disconnection is allowed in the case of non-payment of bills. The private sector has increased efficiency in the system, but investment is financed by the state. In Malaysia, the social policies that are in place comprise state financing of water supply in rural areas, cross-subsidy (industrial users to domestic) and a lifeline block tariff. In addition, the private sector is contractually obliged to increase coverage in urban and rural areas. In Burkina Faso, although the efficiency of the network has substantially improved with commercialization through PSP, there is growing pressure to dismantle social policies.