Mainstreaming OBA in the Bank:

Urban and Energy Examples

Patricia Veevers-CarterProgram Manager Global Partnership on Output-Based Aid (GPOBA)Finance, Economics and Urban Development DepartmentWorld Bank

February 21, 2008SDN Week 2008

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ContentsContents

• Context and What is Output-Based Aid (“OBA”)?

• OBA core concepts• OBA in the WB

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ContextContext

• How to attract more investment in the infrastructure and social service sectors so that the poor have access and so MDGs can be reached by 2015?

• Total cost recovery of services through user fees difficult.

• How to ensure greater efficiency and sustainability of infrastructure and social service provision?

• How to ensure that operators are accountable, and rewarded for actually reaching the intended beneficiaries?

• How can aid be more effective?

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What is Output-Based Aid?What is Output-Based Aid?

Output-Based Aid (OBA) is one method for improving the delivery of basic services – such as water and electricity– when the inability of users to pay full cost would justify performance-based subsidies to complement or replace user fees.

Under OBA, service providers are for the most part paid after delivery of the agreed output.

Therefore the disbursement of the subsidy is linked to the delivery of a specified output.

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OBA Core ConceptsOBA Core Concepts

• Explicit subsidies: Ensures transparency -- who provides subsidies for what. Lends easily to targeting the poor.

• Payment on output delivery: Shifts performance risk to provider by making him accountable.

• Innovation and efficiency: Predetermined subsidy paid on agreed outputs instead of inputs provides incentives for innovation and efficiency; competition or bench-marking could lead to value-for-money

• Mobilizing the private sector: Encourages private sector to serve targeted (usually poor) customers; opportunity to leverage private finance and expertise for non-subsidized customers as well.

• Monitoring: Internalizes tracking of results• Sustainability: Subsidies that minimize distortions in

consumption; stresses final results and source of future funding

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Example of a typical OBA Example of a typical OBA ProjectProject

Municipality

Provider

Poor Communities not yet connected

OBA FundFinancial

Intermediary

Subsidy (4)

Output Delivered = Connections

Installed, service delivered

(2)

Greenfield or Incumbent Provider (private or public)

Water, Sanitation, Electricity, Telecoms or Transport Services

Concession contract or other form of Legal mandate

Verification Agent (3)

One-off connection subsidyConsumption Transitional subsidyConsumption subsidy

Pre-finance (1)

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OBA Experience To Date (as of Dec OBA Experience To Date (as of Dec 31, 2007)31, 2007)

OBA Projects by Sector• 88Bank projects.• About half involve GPOBA (47

out of 88)• Primarily infrastructure, some

health.• Status: 41% design, 53 % under

implementation, 6% closed• Over $2.4bn identified of which

US$ 820 million in IDA countries– Median subsidy $5.5m– Larger projects in transport,

health• Plus, many non-Bank projects:

other donors, governments, etc

Water32%

Transport14%Energy

22%

Telecom19%

Social13%

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GPOBA Grant Agreements by GPOBA Grant Agreements by SectorSector

Sector

TotalSubsidy

US$m# of

beneficiaries

Avg subsidy/

person

Health 4.3 250,000 17.2

Water 30.6 1,282,900 23.8

Energy 18.4 559,000 33.0

Telecom 0.3 22,000 11.8

TOTAL 53.6 2,113,900 21.5

Thank you.Thank you.

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