WB wants greater participation of private sector, NGOs

A recent study of the bank on "Infrastructure in Bangladesh: Imperative for Reform" recommended a multi-track reform approach to focus on adjusting cost-recovery charges and exerting greater financial and commercial discipline on public bodies to face the challenges of increasing demand for potable water supply and sanitation in future.

There is no doubt that the public sector does not have the resources to maintain the existing network, improve service quality, and satisfy unmet demands, the study said.

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The Bank suggested that operational and investment costs should be recovered from the consumers, making use of the service through cost-covering charges. Moreover, additional support to the highly inefficient public bodies will not help the sector improve its performance, while scarce public resources will be misused.

It said accessing costly supplier credits, as funding from multilateral institutions dries up in the distorted policy environment, will only increase the burden of external debt payments with limited social and economic returns.

Present situation of the high operational losses and water sold to residential consumers is well below the full-cost, leaving the DWASA, CWSA and other public operators in an extremely weak financial position with insufficient funding to maintain the current distribution system.

The public operators must rely on the strained government budget, while commercial users are forced to pay for fees above marginal costs to subsidie residential consumers, the study report said.

It, however, pointed out reforms of user fees for residential consumers as particularly sensitive issue. It has been argued that cost-recovery user fees would deprive the poor of a basic social good.

This has resulted in large subsidies to public operators that primarily serve middle and upper classes, leaving the slums and fringe urban areas where the poor live unserved. As a result, the poor pay a much higher price to private vendors or suffer from health problems.

The government needs to develop a medium-term implementation plan to realign user fees for commercial and residential users and bring the latter closer to marginal costs, the study suggested.

At the same time, stronger measures should be undertaken to enhance the operational performance of public providers and reduce system losses as consumers cannot be taxed for the current high level of inefficiency.

To overcome strong political opposition to tariff increase for residential consumers, the Bank said the government might want to consider a life-line, whereby a minimal consumption level deemed 'essential' would be subject to a lower tariff.

Alternative consumption subsidies for the poor can be explored.

More rational user fees will be a prerequisite for attracting large-scale private sector participation to the urban areas, the study report said.

In conjunction with a new regime for user fees, corporatisation and management contracts may be an entry point to install greater financial discipline and improve service delivery.

The recent disappointing attempt to enhance Dhaka Water and Sewerage Authorities (DWASA's) commercial performance indicates that such arrangements will not work unless the government reduces its influence and management is both empowered and held accountable against some clear performance criteria like water quality, loss reduction, and higher collection rates.

Business plans and actual performance outcomes should be regularly published with the later being based on the assessment of independent auditors selected in a transparent manner.