tapping the market-cambodia

8/14/2019 Tapping the market-Cambodia

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.ield Note

Water andSanitationProgram

An internationalpartnership to helpthe poor gain sustainedaccess to improved

water supply andsanitation services

Tapping the Market:

Private Sector .inancing ofRural Water Supplies inCambodia and Vietnam

East Asia andPacific Region

1 Water A Priority for Responsible Growth and Poverty Reduction An Agenda for Investment and Policy Change,The World Bank, January 2001.

.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 MillenniumDevelopment Goal (MDG) of halving the number of people without access to clean

water and sanitation, the World Commission on Water estimates the shortfall of globalRWS resources at approximately 140 percent (US$ 180 billion required vs. US$ 75 billionavailable). 1 However, there is strong evidence that the private sector, which can provideup 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 steppedinto RWS provision investing its own funds, and leveraging funds from a fee-payingconsumer base. The growth in private sector investment in RWS in the two countries hasoccurred in response to consumer demand that was not being met by public services.Importantly, Governments in both countries recognize and support these privatesector initiatives.

Door-to-door Water Sales Equipment and Water Source


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This vibrant if relatively small-scaleand informal private sector supplying RWS servicesthroughout Vietnam and Cambodiaconsists both of enterprises that sellwater and others that install water source technologies. Operating in

tandem, they provide either differentservices for different populations or different water to the same consumersfor various end uses. However microand small-scale, they are able to earna reasonable profit by providingservices at the market rate.Significantly, private sector providershave shown themselves to besustainable operations that grow andtailor their businesses to the shifting

demands and preferences of their consumer base.

While it is difficult to accuratelyestimate the total annual investmentby these enterprises or by end-users,it is likely that private and/or user investment in the sector far exceedspublic investment. There is need toappreciate, capitalize on, and foster this substantial but unacknowledgedinvestment, allowing public resourcesto be directed to areas where theprivate sector may not havecomparative advantages.

In view of the above, publicsector players in the water sector need to rethink how best to use their resources and whether they shouldat all invest in infrastructure when itcan be f inanced from non-institutional resources. Instead, these

public funds are better spent tocreate the demand that is requiredto meet the millennium s water andhealth objectives, as well as fuel end-user investment in support of privatesector suppliers. Of critical valuealso is the channeling of publicfunds towards promoting safe water handling and sanitation amongusers to optimize the heal thpromoting potential of water.

The RWS experience of the twocountries analyzed here generates aclearer appreciation of the relativeopportunities and limitations toincreased private sector activities inthe sector. The unmistakableadvantages of the private sector in

RWS provision emerging from theanalysis include leveraging of fundsto the sector, the benefits of demanddriven services, and the costeffectiveness not only of the privatesector but also of the publicinvestments made in support of theprivate sector. Both by virtue of itscustomer-oriented structure andbecause it is able to provide cheaper more localized services than

government suppliers the privatesector can provide a viable preferablealternative to public investment.

While pointing to a clearlyunstoppable and encouraging futurefor private investment in the RWSsector, the positive experience of

Vietnam and Cambodia also providesan informed basis to consider howprivate investors in the sector can beencouraged and best served in thefuture by donors and governmentsglobally.

Private Sector Presence inRWS in Vietnam and Cambodia

The RWS market in Vietnam andCambodia is served by a growingprivate sector made up of thousandsof micro enterprises that fall into two

categories: (i) Technology SupplyEnterprises, which are primarilyproduction/supply chains of enterprises that make, distribute, sell,and install water access, storage, andpurification technologies. Thetechnologies include tubewells, hand/electric/diesel pumps, rainwater storage jars/tanks, and water purifiers.Except in the case of large well drillingoperators these suppliers generally2

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provide household technologies thatenable their purchasers to access,store or purify water for which they donot have to pay. (ii) Water SupplyEnterprises, which sell water. Theyrange from informal enterprises thatcollect and transport water and sell it

door-to-door, to piped-water schemeoperators that provide pressurizedmetered water directly into individualhouseholds. The latter are essentiallysmall utility companies providing water to tens, hundreds or thousandsof households.

The nature and size of the privatesector, and the services it provides,vary from one country or place toanother, and are inevitably tailored tolocal scenarios including water resource availability, populationdensity, consumer income, user needand preference, extent of regulation,and others. In Cambodia these privateenterprises have grown rapidly over the last decade in an increasinglyinvestment-friendly environment. Thelack of sector regulation has providedan enabling environment for thedevelopment of thousands of microwater supply enterprises. In Vietnamwhere markets are more fullydeveloped, in the southern provinceof Tien Giang, for instance, non-statewater companies are serving about 60percent of its 1.6 million population.These include individually investedutilities generally financed withborrowed capital; cooperative investedand managed systems; and user-group systems where the capital israised upfront by user investors. InCentral Vietnam likewise, householdspurchase on-site water sources (eg.handpumps) and in response aprivate sector supply market hasdeveloped. These entrepreneurialenterprises in both countries offer

interesting lessons about financingarrangements, experimental regulatoryframeworks, user willingness to pay,and consumer water use.

The demand for water is such thatconsumers are compelled to use morethan one source of water. The

importance of market segmentation tothe end-users is demonstrated by their willingness to pay for water atdifferential costs. 2 In any private or public investment targeting users, it isthus imperative to consider consumer water-habits and preferences.

To help devise strategies that cater to the diverse and growing volume of water needs and user preferences, avaluable body of evidence from threecases drawn from Cambodia and

Vietnam is presented here.

The Experience of CambodiaIn the currently unregulated RWS sector in Cambodia, private sector activity isflourishing; from individual informalwater collectors and sellers, to small andunregulated family-run piped schemes,to larger experimental piped schemes

that supply whole villages.Collecting water from open water

sources, community pumps, and openwells, water sellers in rural Cambodiatransport it for sale generally on trailersequipped with 200-liter water tankspulled by a motorcycle. These informalenterprises with low entry-level costsgo into business with their own capital.Typically they sell water at around US$2.50/ m 3. Though untreated, this water is purchased for consumption i.e.drinking and cooking. Most familiesusually boil this water prior toconsumption, but not always.

Serving an identical market andoperating in tandem are very smallpump-and-pipe operators that operate

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


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with the institutional arrangements, thefinancing, and their ability to collectwater tariffs. The connection ratesattained thus far are impressive, andthe 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 inTien Giang Province in Vietnam sMekong DeltaIn the Mekong Delta of Vietnam,drilled water access is prohibitivelyexpensive for individual householdsin some areas. As in Cambodia,almost every household harvests

rainwater as well as water from openwater sources such as ponds andcanals. To a lesser degree than inCambodia users also rely on informalwater-seller businesses that sourcewater from community handpumps or other available sources, and transportit for sale door-to-door.

In the early nineties, a number of small, initially unregulated privatelyinvested piped schemes that sourced

water mainly from tubewells emergedin response to an obvious demandand willingness to pay. Investment

capital was usually raised from theconsumers, by charging a largeupfront connection fee, typicallyamounting to US $60-100. or thisamount, the users did not own a shareof the equipment but were still willingto finance at this market connection

rate. Alternate managementarrangements such as informal user-group invested systems (backed bycommune level government), andcooperative managed systems alsoemerged. In these cases, membersinvested (usually US $60) in a fundthat was used to build a system.

A Provincial Government decreein 1998 banned private investorsfrom raising investment capital fromtheir target consumer base, butallowed user groups and cooperativesto do so. Some private investorscontinued to raise capital by providinga reduced water tariff until such timeas the user investment is repaid. Thisis an attractive proposition for privateinvestors, as these businesses haveinherently large upfront investments,and relatively low operatingexpenditures (See Box 1).

Growth and CoverageThe growth in private, cooperative, anduser-managed systems has beenstaggering. 3 Since the decree wasissued in 1998, the number of user-group invested systems has grown by800 percent, cooperatives by 230percent, and private investors by 130percent. 4 Of the total population of

1.6 million people in the province, 65

3 Of the current 415 schemes in operation, 49 areinvested by state owned enterprises, 80 by privateenterprises, 28 by cooperatives, and 258 by user groups. Most of these stations supply untreatedgroundwater, a few supply treated surface water.4 In all cases, the government provides technicaldesign support and has a series of pre-designed

systems that are tailored for varying populationsand water source conditions.

4 Rain Water Storage Jars

in the more densely populated areasof villages. They erect small (2-6 m 3)water storage tanks usually supportedby wooden structures and supplyuntreated water drawn from rivers,drilled wells, or ponds through pipesto individual households. Depending

on the available water source, andcost to develop that source for extraction, a small enterprise supplyingwater to 20-60 households might costbetween US$ 1,000 to US$ 8,000.

The Mini Reseaux d Eau Potable(MIREP) program has six ongoingprojects to pilot rural village-levelprivately invested and operatedschemes. These projects are targetedto supply full access to villages that

consist of 250-400 households, andtheir total capital investment rangesfrom US$ 17,000 to US$ 66,000.Three of these systems are inoperation, and the rest due to becomeoperational later this year. MIREPsupplies institutional, financial, andtechnical support for the developmentof the piped water systems,which helps overcome the mostcritical constraints to private

sector investment.The schemes in operation are

working well. Investors are satisfied

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percent now have access to pipedwater, mostly through schemesdeveloped since the mid to latenineties. The current rate of development of new schemes (70-80per year) is so rapid that the remaining35 percent of the population will likelybe served within the next three tofour years.

Mr Nha s water system was builtin 2000 to supply water in Long

Vinh Commune, Tien GiangProvince. It draws water through

a pipe from a canal that is onekilometer away into an 800 m 2

lined holding tank. rom here itis pumped through a simplepurification plant, and up to awater tower from where it is fed tothe village.

Mr Nha surveyed the targethouseholds to assess whether theywould be willing to pay for puri-fied piped water at the Govern-

ment ceiling-rate of 25 cents/m 3(for water extracted from openwater sources). Based on marketresearch, he invested US$14,000 of his own money towardsthe system. But he needed morecapital to extend the pipeline. Heproposed to the interested house-holds that they pay him US$ 20,

Box 1

Creating a Viable Water Supply Enterprise

and he would provide reducedrate water (60 percent of cost)until their US$ 20 was paid off.

As a result of the above efforts,

the number of connections grewto 480 from the original 120.Mr Nha now needed to further upgrade the system, and buy alarger pipeline to feed the station.

or this final expansion, heborrowed US$ 9,000 from thebank at the rate of 0.85 percentper month. He anticipates that bythe end of 2003 he will have all600 households connected.

Currently most of theconsumers use the water Mr Nhasupplies for drinking, cooking,and animal husbandry. ButMr Nha is confident that in thefuture, more of his consumerswill appreciate the value of safewater and the consumption willfurther increase.

Investment in Piped Schemes in Tien Giang Province, Vietnam

.inancingOf the total capital invested in pipedRWS schemes in the province,investment by private investors andwater users accounts for 61 percent,by state enterprises for 29 percent, andsubsidy from state budgets for 10percent. Of the capital invested bynon-state funds, the share of private

individuals, cooperatives, and user groups was respectively 27, 17, and56 percent. High user-groupinvestment is on account of a socialstructure that reaches right down tothe hamlet level and ensures suchgroup investments remain relativelysecure; and a system of socialincentives that ranks leaders of hamletson attainment of social points. Theseare awarded for such achievements aswater supply coverage, latrine use,covered pathways, hamlet cleanliness,and crime rate reduction. Thus, hamletleaders are motivated to be proactivein encouraging the development of these types of systems.

Difference Between Accessing Water Having Safe WaterWith an impressive record in thedevelopment of piped water schemes,

State Enterprises33%

User Groups

38%

Private Investors18%

Cooperatives11%

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Tien Giang province is one of the mostexemplary in Vietnam, but there isa downside. As in Cambodia,consumers in Vietnam supplementpiped with rainwater that may beimproperly stored. In the absence of social marketing strategies to foster

improved domestic sanitation(especially water handling and handwashing), the impact of improved water supply systems on health is likely to begreatly compromised.

Technology Supply Chain Networks inCentral VietnamIn large areas of Central Vietnam,along the populated coastlines,

groundwater is easily accessible inshallow aquifers, of good quality, andreplenished every year through run off from the inland mountain ranges. Inthe early nineties, with UNICEsupport, the government developedprovincial level capacity to drillshallow 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 incommunity locations or installed attheir homes. An installed handpumppurchased through the governmentnetwork cost about US$ 100 (to either donor or purchaser), and due totheir centralized (Provincial Capital)location, it took five simultaneousorders to get the pumps released tothe countryside.

The UNICE program set thetechnological standards for both thehardware and its installation. Capacitywas built at a provincial level thatcould be used to further train other water source developers. In 1995International Development Enterprises

(IDE)5 launched a program to expandon this government-managed system

by developing private sector capacityto provide hand and electric pumpinstallations and after-sales services/maintenance throughout threeprovinces of Central Vietnam. Theprogram entailed building enterprisecapacity to manufacture pumps,wholesale pumps and pipes, and drillwells and install pumps. In all, about150 branded well drilling and pumpinstallation enterprises were built,

along with a correspondingmanufacturer and supply network tofeed their inventory.

Promoting Dreams, Not HandpumpsThe most critical intervention of IDE,however, was not capacity building butmarket development. Nearly 80percent of the total program budgetwent to finance a targeted marketingcampaign to fuel demand for theservices and technologies of thesesupply networks, as well as promotesanitary water handling, storage, andhand washing. Key to the success of this marketing strategy was that ittapped into the emotions andaspirations of the consumer base,

separately targeting men, women,girls, and boys. It did not promote

handpumps or wells. It promoteddreams.

The result was a rapid growth inend-user financing of domestichandpumps and tubewells. As theproject progressed, the marketingsupport was gradually withdrawn, andmarketing tools were developed toenable the private sector to undertaketheir own promotional activities at acost and level of effort appropriate for

their scale of business and profitability.The user was the principal gainer.

Decentralization of the handpumpsupply/well-drilling enterprises resultedin a decline in the pump s cost fromabout US$ 100 to around US$ 30. Bythe end of the project a total of 64,000pumps had been purchased through26 districts of three provinces,providing water to an estimated320,000 people. The user investedcapital in these unsubsidizedinstallations totaled US$ 2.3 million.

Apart from sales tactics, the privatesector quickly learnt their best promotionwas customer satisfaction, as their greatest sales came through referrals.Thus the installers and pump sellers

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

Handpump being Used for Domestic Water Supply and Garden

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placed a great deal of emphasis onfollow up, with efficient after-salesservicing and spot check maintenance.

Comparative Advantages ofPrivate Sector s Engagementwith RWS

In the light of the cases studied,several comparative strengths of theprivate sector s participation inRWS become evident. The mostsignificant are:

Leveraging funds: It has beendemonstrated that a substantial part if not 100 percent of required funds canbe raised for RWS infrastructure

through investing enterprises,consumer fees, and consumers payingfor water source development. In thecase of the MIREP projects inCambodia, 70 percent of the fundsfor piped scheme development areraised jointly through investors (61percent) and users (9 percent). In TienGiang province in Southern Vietnamthe earliest piped schemes werefinanced by private investment as well

as upfront amounts mobilized fromconsumers. The majority of schemesare now financed entirely by the userswhile some private enterprises utilizea combination of private funds, bankloans, and user advance paymentsthat are discounted from water bills.The handpump network and welldrilling services in Central Vietnam too,demonstrate convincing private sector and user investment in the water sector.

Demand-driven quality services:Innately customer focused, privateenterprises are responsive and able toadapt their services to changingconsumer demands. In contrast,centrally planned, subsidized programsoften take decisions on behalf of their consumers and provide what theydeem best for them. The service qualityof private enterprises is also better.

Even though operating in a moremonopolistic business environment,piped water scheme operators oftenprovide more localized decisionmaking, are less bureaucratic, anddriven by the bottom line. Thistranslates into better service provision

such as faster connectivity or quicker responsiveness to pipe leaks and other needed repairs.

Greater accountability: In theMIREP project systems in Cambodia,user groups are established withelected representatives. In Vietnamusers are often investors and theoperators are elected. Thesemechanisms drive social and financialaccountability that is possibly higher than found among salaried staff instate-run enterprises.

Cost effectiveness: Privately investedcapital inherently is used with greater cost-consciousness than governmentinvested resources. In the case of supply chains developed in Central

Vietnam, cost reductions achieved byswitching to decentralized competitivedistribution networks were dramatic(falling to less than a third of theformer price).

Profitability equals sustainability:RWS interventions clearly aremore sustainable where privateentrepreneurs are making a profit andwhere end-users are paying for

services. With a closed loop of financial transaction between supplyenterprises and end-users, there is noneed for long-term external financialsupport.

Is There Any Downside to the PrivateSector s Presence in RWS?

A key concern about the private sector is its inability to reconcile social witheconomic gains (See Box 2).

This example demonstrates thelimitation of private sector inresponding to purely social needs.While the mechanism to achievesocial goals is regulation, it must becautiously balanced so that the private

entrepreneur can make a profit, andis encouraged to stay in business.

Another disadvantage is the limitedcapacity of the private sector to servebroader public health goals. RWSenterprises primarily respond toconsumer water supply needs predominantly cheaper water andmore convenient access. Consumersgenerally are not aware of the healthbenefits of improved water quality. In

an unregulated market and whereconsumers do not demand water quality from suppliers, the privatesector is not focused on providing it.Critical factors such as how end-usershandle, store, and treat water thereforecannot 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 managedwater supply was privatized, but it is subject to government control on pricing.The result is a socially designed pricing structure to which the operatingcompany must adhere the less water one uses, the less one has to pay, andthe more water one uses, the more one has to pay. In a privately investedpiped scheme in Takeo province where there is no such regulatory control, toencourage greater water use the investor has designed a price structure inreverse, i.e., the less one uses the more one has to pay, and the more oneuses the less one has to pay.


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through purely private initiatives(See Box 3).

Pointers to .acilitating thePrivate Sector

Under varying socio-economicconditions existing in rural

Cambodia and Vietnam, significantwater development is taking placewithout any direct public financing.Rural investment capacity is growing,and now approaching the level wherevillage-scale piped schemes are afeasible investment. Public investments

constrain more than support it. In Vietnam for instance, in developingsupply chains for handpumps, whendonors gave away free or subsidizedpumps they distorted the markets. Theprovision of a donated pumpessentially killed the demand

temporarily, as families that wereconsidering buying preferred to waitand see if they would be donated apump. Donor procedures createdother negative consequences. or instance, centralized bulk purchasingrather than through and in support of local suppliers lead to higher installed

to enter business. Where directsubsidies are considered necessary, thechallenge is to find a balance betweentwo extremes encouraging business,but not overdoing it to the extent thatit jeopardizes the likely success of the intervention.

Governments and the aidcommunity need to ensure their activities indeed support rather thancompete with or emasculate privatesector providers. While assisting inbuilding infrastructure through public,supply-driven interventions does resultin increased immediate RWS activity,competing against each other maycause a net reduction in coverage inthe long run.

.ocus on Water Safety (Not JustAvailability), as well as on DemCreationMuch of the contamination of drinkingwater occurs between the water sourceand the mouths of consumers. A handpump or pipe that provides safewater has limited health impact if userssubsequently contaminate the water prior to consumption. Currentknowledge is low less than 50 percentof the rural population of Cambodiais currently aware that water can bringdiseases. 6 Without the complementingsoftware strategies, the goals of RWSinterventions cannot be achievedthrough hardware improvementsalone.

In this context, the importanceof demand creation as the mostcritical intervention cannot beoveremphasized. If rural populationswant to consume sanitized water, wantto wash their hands after defecation,want to build a sanitary latrine,accomplishing the rest becomeseasier. Creating demand among ruralpopulations not only fuels growth inservices to supply that demand, butalso accentuates consumer willingnessto pay for those services. In creating

Box 3

Not All RWS Goals Can be Met Through Purely Private Sector Strategies

This is amply demonstrated in Cambodia. The unregulated pump-and-pipeoperators or door-to-door water sellers are not purifying water. They areproviding convenient access to untreated water that consumers prefer for drinking and cooking. The regulated piped scheme operators, who are treatingwater, are not selling that water because it is treated. They are selling thewater because it is cheaper and more convenient. Along with treated water,consumers therefore continue to purchase untreated water from alternatesupply networks.

in the water sector need to acceleratethis growth as well as fill in for thelimitations of purely private sector strategies in reaching the social goalsof the sector.

This section discusses some of thecrosscutting issues that need to beconsidered in building a pro-privatesector platform, and realizing optimalreturns on public investments in thesector through private sector supportive strategies.

Public and Donor Investments Needto Support Rather than Constrainthe Private SectorWhile the government and donor agencies may be aware of the benefitsof using the private sector to achievesocial goals, at present they probably

pump costs, and less chance of thepumps being able to be repairedlocally.

Clearly, the commitment and long-term success of businesses has muchto do with their personal investmentrisk. The MIREP projects in Cambodiawould only choose investors that hada demonstrated business track record,and were willing to take personalinvestment risks with their own money.Enterprises spoon fed by the socialsector are less committed and mayhave decided to enter the water business because of their access topublic subsidies. When subsidies areprovided as a sizeable portion of larger investments such as piped schemes,

ownership is liable to be dictated bypolitical connection rather thandemonstrated willingness or capability

6 MIREP Presentation, Jean Pierre Mahe, January 2003.8

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demand, there is a clear rationale for linking marketing of the hardware andtechnical services with socialmarketing and health promotionstrategies.

Water .or Wealth as well as HealthConsumers purchase water or developwater resources because they attachto it some value (convenience,improved health, taste or other). Whatthe drinking water constituency fails toconsider is that the greatest demandfor water is actually for non-drinking(irrigation or animal husbandry)purposes. As in Cambodia and

Vietnam, when families cultivate cropsor keep animals at or near their homes, they need to have access towater both for drinking and other uses.With the two sets of needs interlinked,there is opportunity to capitalize on thisand to tackle water not as an expensebut as an earner. The handpumpsupply chain initiative in Central

Vietnam proves sales are much higher in areas where consumers additionallyuse their water source for irrigation.Other examples also demonstrate thatby integrating drinking water andirrigation needs 7 it is possible toachieve 100 percent cost recovery of water source development even inthe poorer areas where sourcedevelopment is relatively expensive.

Conclusion: Critical Ingredientsof Success

Several conclusions about the criticalingredients to successful privatesector participation in RWS can beinferred from the preceding discussion:

A Conducive and Supportive ClimateGovernment support for the privatesector is critical, and forms a

cornerstone of a pro-private sector platform. In both Vietnam andCambodia there is recognition that theprivate sector can and will play asignificant role in RWS.

Regulation is Recommended ButRequires a Balancing ActSeen both as an opportunity and aconstraint by private investors,Government regulation has to be abalancing act between protecting theuser and/or the investment and over-regulation that inhibits profitability. InCambodia there is currently noregulation and in Vietnam, only partialregulation. This has likely contributedto the development of small pump-and-pipe operators who were able tofunction profitably with incentive toexpand and invest. Conversely, the

the break-even pricing of piped water schemes. Consequently pricingcontrols need to be as decentralizedas possible to attract investors to thesector, especially in the morechallenging markets where there arehigher costs to doing business.

Capital RequirementsUtility companies supplying pipedwater are inherently capital intensive,but capital borrowing costs are oftenprohibitive. or this reason, access tolong-term credit is a critical factor intheir creation and continuation. Pipedwater supply businesses are alsosensitive to economies of scale. With

the cost of borrowing high, borrowinglesser amounts for samller sacleoperations is an option, but results indisproportionately higher operatingcosts per unit of product sold, leadingto higher costs also for users.

The entry cost of businesses thatsupply water technology, on the other hand, depending on the geologyin their area of operation, iscomparatively low. In the supply chain

example from Vietnam, where welldrillers are able to use handboringmethods, investment in drillingequipment and start-up inventory isin the range of US$ 100-200. Thesebusinesses therefore do not encounter the same start-up capital constraints,but unlike the piped scheme operators,they do face much more challengingmarket development costs.

Technical Skills A key requirement of private sector entrepreneurs is technical knowledge.In the case of piped schemes thiswould include the design andoperation of their systems (especiallythe water treatment components), andin the case of pump installation

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

injection of tighter regulation in TienGiang province, possibly favoredcooperative and user-groupinvestments over the private sector,demonstrating the impact regulationcan have in determining the structureof non-state operators.

Issues of water pricing seem themost critical and complex to address.Water resource development costs,dispersion of populations, and user ability to pay vary from place to placeand can have a dramatic effect on


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May 2003

The Water and Sanitation Program is an

international partnership to help thepoor gain sustained access toimproved water supply and sanitationservices. The program s mainfunding partners are the Governmentsof Australia, Belgium, Canada, Denmark,Germany, Italy, Japan, Luxembourg,the Netherlands, Norway, Sweden,Switzerland, and the United Kingdom;the United Nations Development Programand The World Bank.

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enterprises, well drilling. While privateenterprises have demonstrated they areknowledgeable, they are unlikely tomeet standards that are acceptable interms of preserving water resources or providing their consumers withadequate water quality. Undoubtedlythey require support in this area, butthe cost of such support services is likelyto be prohibitive. In the three examplesstudied, there is evidence of the publicsector assuming these costs. InCambodia, the MIREP projects areproviding these services for aspiringsmall-scale water supply enterprises;IDE underwrote the costs of theseservices in the Central Vietnam project;in Vietnam s Tien Giang province, thegovernment provides these services atno official cost to piped schemedevelopers and operators.

Management StructureIn the prevailing pro-private sector climate, a variety of operational modelsor organizational structures haveemerged. These include (i) Entirelyprivately invested and operated (ii)User group investment and operation(iii) Cooperative investment andoperation (iv) User investment withthird party operation. It is too early todetermine the relative effectiveness of these structures as they are relatively

new and require further crystallizationand assessment. Clearly there is noone model, in itself a blessing becauseit guarantees both flexibility andrelevance to local contexts.

Government and Donor .unctionsIn the final analysis, it is important torecall that however efficient, theprivate sector is not socially, but profitoriented. Samll businesses cannotafford, nor are they skilled in providing

social marketing or health promotionto their consumers. Such softwareshould be funded by the public sector to derive the desired healthimprovements related to improvedwater access and sanitation. Thepublic sector s effective promotion of improved health and hygienebehavior will result in an increaseddemand for clean water and improvedsanitation facilities. Thus governmentscan fuel demand, and in parallel,support the private sector providerswith technical backstopping to meetthe demand as it emerges.

The faster the appreciation ingovernments as well as among thedonor community of the criticality of the above function, the greater thechances of the developing regions of the world to gain access to adequatewater for multiple uses and benefits.

Water and Sanitation Program-East Asia and Pacific Region

Jakarta Stock Exchange Building,Tower 2, 13th .loor

Jl Jenderal Sudirman, Kav 52-53,SCBD Jakarta 12190Indonesia

Tel: (62-21) 5299-3003.ax: (62-21) 5299-3004E-mail: wspeap@worldbank org

Website: http://www wsp org

CreditsThis Learning Note is drawn from a report e

Private Sector inancing of Rural Water Su Vietnam and Cambodia written by Dan Saltefunding from the World Bank Rural WateSanitation Thematic Group.

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Water and Sanitation ProgramCambodia Resident OfficeP.O. Box 877, Phnom Penh, CambodiaTel: (855-23) 211-751

Telefax: (855-23) 211-752

Water and Sanitation ProgramC/o World Bank Resident Mission63 Ly Thai To Street, Hanoi,VietnamTel: (84-4) 934-6600Telefax: (84-4) 934-6597

Published by: Vandana Mehra

Special thanks to: Jean Pierre Mahe, MIREP Project, CambodPeter eldman, Partners for Development,CambodiaPeoples Committee of Tien Giang ProvinceVietnam

Pictures by: Dan Salter

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tapping the market-cambodia

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