PSD Blog - World Bank Group

A (LED) light at the end of the tunnel

Close to 75 percent of Sub-Saharan Africans, about 550 million people, do not have access to electricity. Lighting Africa, a conference in Ghana that ended today, is tackling how to mobilize the private sector to supply modern off-grid lighting such as Light Emitting Diodes (LEDs) to over more 250 million people living in Sub-Saharan Africa by 2030. This is a timely effort given surging oil prices and the fact that Africa spends about $17 billion on inefficient lighting fuels such as kerosene lamps and paraffin yearly.

A public/private partnership to the moon

The technologies are available, the savings obvious, yet consumers are slow in adopting energy efficient products. Speaking at the Bali Global Business day on the margins of the UN Climate Change conference, a Philips official wondered why two thirds of the world still uses old lighting technologies when switching to existing modern technology would represent a 40% saving in total lighting energy consumption.

The private sector is asking for a public/private partnership where governments implement stronger energy efficiency standards, including labeling, adopt greener public procurement requirements, and grant financial incentives.

In developing countries, investors' appetite for clean technology investment is also growing but private companies are facing additional obstacles: the risk perception, the lack of market research, the need to adapt technologies to the requirements of these markets. Again, a public/private partnership makes sense.

GEF and IFC launched today the Earth Fund which aims to give those businesses keen to invest in environmental technologies in developing countries that extra support they need to take the leap. The most exciting feature of the fund: a prize! The very same company that stimulated with a prize the launch of the first private rocketship in outer space, will manage the Earth Fund's prizes for innovative environmental technology.

Carbon CARMA - who's been good or bad

So there are 10 billion tons of carbon dioxide emitted into the atmosphere every year. But who's exactly producing it and in what quantities?

Carbon Monitoring for Action Database (CARMA) - a new online-database containing information from 4,000 utilities and 50,000 plants – has the answers by country, city, company or a single plant.

Coca-Cola in water: giving back

See the announcement about USAID and Coca-Cola investing directly in nine new water projects in Africa. The Global Environment & Technology Foundation (GETF) is assisting them in implementation. This type of bilateral government - business - NGO arrangement (which cuts out the World Bank Group, by the way) is the type of engagement we love to see. Why?

Well, one reason is that the gap between overseas development assistance (ODA) and developing countries' needs is huge, especially in terms of meeting the Millennium Development objectives, resulting in unprecedented opportunities for private sector to step in.

Secondly, rerouting private sector profits, as well as their local-level business expertise, into developing countries should always be encouraged.

Thirdly, I always say, "let a thousand flowers bloom" in terms of testing different approaches to development partnership. The GETF has, as an NGO, been building bridges between the private sector and development agencies for a decade now, and they may just be the pollen needed to make this (relatively small) initiative successful. Any feedback from others about innovative partnerships in water projects?

Water: what's next?

So now that World Water Day has come and gone, what is on everyone's mind?  Water supply and climate change?

It is expected that globally there will be more precipitation, and that higher temperatures will tend to reduce run-off. As the patterns of precipitation and runoff change, rain in fewer, heavier bursts will lead to more floods and dry spells. This, combined with less ground water recharge, means that water storage is being touted as a means to smooth water consumption over periods of variability.

Water storage, whether surface water dams or aquifer recharge, is never without controversy.  To complement adding storage infrastructure to counter-act water variability, managing water quality will also become more and more important: i.e. increasing water re-use will 'create' additional water supply in drier areas.

Whereas water quality has been viewed as an "environmental issue" moreso in the past, it is hitting the radar screen as a "water supply" issue more and more. So, look to water storage and water quality to be companion solutions to water in the context of climate change, even if we are all still sorting out the specifics ....

Microfinance for water

It is hard to solve the access to clean water problem through grant aid – the problem is too big. The WaterCredit Initiative has a more scaleable approach. Recognizing the creditworthiness of the poor, it has moved from one-time grants to providing small loans, successfully applying microfinance principles to cover the upfront costs of water systems.

Two reminders

March 22 is World Water Day.

Usha Rao-Monari, from the IFC Infrastructure Department, is joining in the World Bank IFC water debate on PSD Blog.  Comments are open:

• Tracy on new currents in water supply
• Corinne on thinking global and starting local
• Tracy on challenges in water treatment
• Corinne on carrots and sticks for cleaner production
• Usha on the need for investing in water
• Tracy asks "what's next?"

Water for $20 billion

The brand new report The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid quantifies the BOP market for water—3.96 billion people paying an estimated $20 billion annually.

This market is strongly segmented with the poorest - annual income below $1500 - footing over 50 percent of the BOP water bill in Burkina Faso, Cote d’Ivoire, Nigeria, Pakistan, Tajikistan and Uganda. In Nigeria, 22 million of lowest-income households spend $444 million.

Industrial waste water treatment: regulation v. cleaner production - the stick and the carrot

The under-use of existing municipal waste water treatment facilities due to high operating costs is a common problem. Sometimes incentives seem stronger to make a large up-front investment in infrastructure than to actually run that infrastructure and really reap the benefits.

There are similarities in the private sector. After IFC's engineers visit the facilities of prospective industrial clients they sometimes return with stories of well designed waste water treatment plants sitting idle. Maybe the plants fulfilled a permitting requirement when the plant was built? Maybe the plants are turned on a couple of times a year to celebrate the visit of regulatory authorities?

Whilst the optimal solution is stronger regulatory enforcement by the government...

All-or-nothing in water treatment?

During the World Bank's Water Week last month, one topic discussed was "Balancing Brown and Green Interests." Not everyone knew that the "brown interest" is sanitation, including wastewater treatment, and that the "green interest" is environmental sustainability. However, my real surprise was to discover the conflicting interests.

Wastewater infrastructure is a big business everywhere -- the U.S. Environmental Protection Agency estimates that the U.S. alone needs to invest roughly $140 billion over the next 20 years in wastewater treatment systems to meet water quality standards. And, while treatment of wastewater effluent seems a no-brainer...

Happy World Habitat Day

Today is World Habitat Day. In 2050, six billion people will live in urban areas. That's two-thirds of the projected population. In 1950, one-third of us lived in urban areas. Wow.

While slum upgrading is important, we must ramp up efforts to prevent them in the first place as the developing world prepares for ever more megacities (with more than 10 million inhabitants). The status quo in water and sanitation delivery, housing finance, public transportation and environmental standards in developing countries will not be able to withstand this exodus from the countryside.

Oxfam report blasts private sector

The title of Oxfam's press release today, Public not private - the key to ending global poverty, sums up the subject of their brand-new report on how to provide health, education and water for the world's poor. From the release:

Rich countries and the World Bank come under fire for undermining governments’ ability to deliver public services by pushing inappropriate private sector projects in water provision and health. The report acknowledges that the private sector has a role to play, along with charities and faith groups, but argues they cannot provide services on the necessary scale, geared to the needs of all citizens, including women and girls, minorities and the very poorest.

...rich countries still spend almost as much on pet food ($40billion) as the $47 billion a year it would cost to meet the Millennium Development Goals on health, education, water and sanitation.

I imagine that we'll see an official response from the World Bank at the annual meetings later this month. My personal, very unofficial response is that the report is absolutely correct - when it says the number of people living without access to these basic services is scandalous. And yes, the best case scenario is that developing country governments step up and meet the needs of all of their constituents. But I disagree with Oxfam's insistence that "meeting the MDG targets on health, education, and water and sanitation would require an extra $47 billion a year." If throwing big piles of money at development problems worked, we would have solved these problems already. Plenty of  big checks have been written that accomplished frustratingly little.

Developing country governments need to improve and become more responsive to the poor. Meeting the Millennium Development Goals will require significant financial and other commitments over an extended period of time. Private sector involvement in service delivery, when done right, can reduce waste, improve government finances and expand coverage. These are not contradictory ideas.

(via The Independent)

End-of-summer reading list

Ordered from short to long for your time-management convenience...

• Sachs for President? (and a nice bit of commentary from Gristmill)
• A would-be serious game is looking for volunteer designers: "Village is a multiplayer online real-time strategy game for the PC that immerses the player into the role of an entrepreneur building companies to bring prosperity to the villages of the third world"
• FastCompany explains how Timberland just raised the bar on Corporate Social Responsibility Reports
• A "born-again organic farmer" in Turkey helps hundreds in his poverty-stricken region
• Can good economics ever be good politics? Case study of India's power sector, a World Bank working paper on how the lack of political will often reflects rational political behavior
• Managing governments: Unilever in India and Turkey, 1950-1980, a Harvard Business School working paper on how the strategies of this global consumer products company enabled it to survive the postwar "era of confrontation" which deterred most other foreign firms from investing in India and Turkey

New reading lists

We've published two new reading lists for your learning/debating pleasure:

• Universal Service and Pro-Poor Infrastructure provides guidance on how liberalizing utility sectors can work in concert with expanding the poor's access to water, electricity and telephony.
• Market Institutions and Economic Growth starts with the literature on New Institutional Economics and goes on to examine the relationships between pro-market institutions, governance, democracy and growth.

(Yes, we know there's nothing by the immensely talented Mancur Olson on the latter list. The reading lists are collections of recent articles.)

The latest infrastructure research

Several new World Bank papers have been published in the last few weeks regarding private participation in infrastructure - for those that are interested:

• The handshake: why do governments and firms sign private sector participation deals? Evidence from the water and sanitation sector in developing countries: The authors find that rule of law and the control of corruption are significant, albeit at a lower level, while the quality of contract law and political stability are not.
• Infrastructure and public utilities privatization in developing countries: Analyzes government tradeoffs between fiscal benefits and consumer surplus in privatization reforms of noncompetitive industries in developing countries.
• The impact of privatization on the performance of the infrastructure sector - the case of electricity distribution in Latin American countries: The authors suggest that changes in ownership generate significant improvements in labor productivity, efficiency, and product and service quality, and that most of those changes occur in the transition period. Improvements in the post transition period-beyond two years after the change in ownership-are much more modest.

Energy poverty hits Macedonia hard

The latest edition of Beyond Transition: the Newsletter about Reforming Economies has a great set of articles about energy issues in transition countries. A former Russian Deputy Minister of Energy talks about why the state should leave the energy sector, and another piece discusses why some private domestic firms in Ukraine and China seem to be outperforming their foreign competitors.

Stefan Buzar reports that “A significant number of households in Macedonia and, to a lesser extent, the Czech Republic, may be living in energy poverty, an emergent form of domestic energy deprivation in the post-Soviet world.” In Macedonia, close to 70% burn biomass (wood) to heat their homes.

Former Soviet states are vulnerable to energy poverty because, well, it gets pretty cold there. More than that, rising energy prices, underinvestment in the sector and poorly managed privatizations force low-income households to choose between spending a huge chunk of income on heat or living in bitterly cold homes.

Role of non-state actors in regulation

There is growing recognition that regulation is not the exclusive domain of the state. The regulatory capacities of non-government actors are increasingly recognized and on occasions formally co-opted by the state. This paper examines the ways in which a variety of economic and civil society actors contribute to the information gathering, standard setting and behavior modification aspects of regulatory control. Particular attention is paid to the international aspects of this contribution and the limitations and advantages of different forms of non-state regulation.

That’s a new working paper by Bridget Hitter on ‘The Role of Non-State Actors in Regulation’ from LSE’s Centre for Analysis of Risk and Regulation (CARR). Also see ‘Business Risk Management Practices: The Influence of State Regulatory Agencies and Non-State Sources.’

Or if you like more provocative titles, another paper from CARR: 'Government by Elicitation: Engaging Stakeholders or Listening to the Idiots?'

Water privatization in the US

Water privatization is not just a headache in developing countries. See RWE AG’s troubles in the US:

Dreams of heady profits evaporated amid heated opposition in places such as this town of 6,500 people, south of San Francisco in California's coastal redwood forests. Today, RWE is in the midst of dismantling an international water empire that cost more than $10 billion to assemble and spanned more than 40 countries at its height.

Water turns out to be less like electricity than RWE had hoped. It's heavy and hard to transport, making it difficult for a big company to build economies of scale. Regulation is never predictable. In the United States, RWE found itself fighting in town referendums and state legislatures across the country, winning many battles but losing the war.

So where does private participation in water stand in the US?

Failures of electricity reform

In their paper Electricity reform in developing and transition countries: A reappraisal, J.H. Williams and R. Ghanadan find that the standard menu for reform of electricity markets in developing countries has been ill-suited to local conditions.

Despite fundamental differences in motivations and conditions, non-OECD reform policies were largely based on the theoretical analysis and policy recommendations of economists concerned principally with deregulation in the US and Europe.

Reforming an African utility company

Reforming an African electricity company requires tough love, persistence -- and a little luck. Just ask Jean-David Bile, a civil engineer in the central African country of Cameroon. Bile runs AES Corp.'s electricity operation in Cameroon, a national grid that is chiefly powered by two large dams and was formerly fully owned by the infamously corrupt government of Cameroon.

Bile is rooting out corruption at the electricity company, cracking down on customer theft, improving the flow of electricity -- and ending the practice of hiring people to satisfy the demands of politicians and traditional chiefs. His achievements don't always endear him to his fellow Cameroonians. Once, the chief of a village near his biggest dam implored him to hire some of his relatives. When Bile refused, the chief hurled a juju curse against him, but Bile still refused. "To implement dramatic reforms you have to be tough on your own people, or you'll never make it," he says.

Read Pascal Zachary’s whole article in EnergyBizInsider. Via Michael Giberson, who also reminds me of the movie "Power Trip". Mike describes the movie as:

The day water ran uphill

Cartagena, Colombia provides an illustrative example as to how water and sanitation services can be improved. In a city where part of the population once spent up to US$ 40/day for water, a joint initiative between the local government and a private company brought the price down to US$ 8/month and increased the rate of in-home 24hr water access to 98%.

The trick was a flexible combination of civil society activism and regulation reform that gave birth to a public-private solution to the problem. Today, Cartagena is served by a water system in which the local government “retains the control of the service’s assets and provides all the necessary investment capital” while an experienced private company “has complete control over the management of the service”. For a city where 80% of the population lived in poverty and sanitation-related diseases were so acute that they served as a background to internationally acclaimed books, the long-awaited initiative reveals that creativity, commitment and governance can pay off.

Subsidizing inefficiency

...a large part of that [Indian fiscal] deficit goes to financing the losses of the electric companies. Two and a half percent of GNP goes into power subsidies [emphasis added]; only half the electricity that's generated actually gets paid for. Some of the other half goes in unfortunate (we economists think) programs to give free power to the farmers. Unfortunately, the farmers who qualify for free power are the ones who are rich enough to be able to afford power in the first place. But having gotten free power, they let their neighbors tap into it. That's another portion of the power goes that way.

The push for nationalizing utilities

The Washington Post reports on the increasing calls for de-privatization in Latin America:

Across Latin America, a growing number of people say the privatization of public services, a movement that swept the region in the 1980s and 1990s, has failed. Protests have erupted over the issue in several countries, and some governments are beginning to reverse these policies. Last week Argentina announced it was rescinding its 30-year contract with the French company Suez and reinstating government control of the water supply.

The article details cases of poor service delivery and the protests that are occurring throughout the Andean countries and Central America. Though some would caution that these anti-privatization movements have short memories:

Connecting development

The Information & Communications for Development 2006: Global Trends and Policies report is out. All sorts of background information available online. Among the report's main findings:

• Developing country firms that use information and communication technologies (ICT) grow faster, invest more, and are more productive and profitable than those that do not.
• Between 1980 and 2005, the number of telephone subscribers in developing countries rose by over 30 times. In 1980, developing countries accounted for only 20% of the world’s telephone lines. In 2005, 60% of the world’s phones were in developing countries.
• Opening up to private competition has led to huge inflows of investment from overseas. Between 1990 and 2003, 122 of 154 developing countries received close to US$200 bn. of FDI in telecommunications. Successfully completing the transition to well-regulated and competitive service provision is key to attracting FDI.
• While mobile phone penetration and use in developing countries has been great, internet access has been less successful. While developed nations have more than 300 such servers per 1 million people, developing nations have fewer than 2.

And perhaps the most useful of all, at-a-glance summaries of the ICT situation in 144 different countries.

Update: More discussion on Truck and Barter. Also see Mobile Pundit, a blog focusing on India's mobile revolution.

Alternative forms of price regulation

The pricing mechanism that a utility uses can be the most powerful incentive for performance in a sector. It is essential to choose the appropriate pricing mechanisms for the specific conditions of a liberalized utility sector. Accordingly, this new reading list covers principles and methods of price regulation, recent country experiences, the importance of competition and the use of evaluation tools such as yardsticks.

France to privatize power

France’s conservative government has finally given the go-ahead for the partial privatisation of EDF. Some 15% of the vast company—the world’s biggest generator of nuclear power—is set to revert to private ownership in the next few days.

Well sort of, 15% is just 15%. The Economist questions whether 15% will be enough to allow the firm to compete with its European competitors (with looming EU deadlines approaching). However, they praise the government for their bravery in light of France’s strong unions and the national sentiment that EDF evokes.

If the upcoming public offering goes well, further tranches of EDF shares may be sold, but only the bravest government would pass a controlling interest into private hands. Still, if the government is serious about allowing its national champion to compete and become a European champion, that is probably what it must contemplate.

For more, see our reading lists on the impact of infrastructure privatizations and on how to manage such reforms.

Latin America needs better infrastructure

Poor performance in infrastructure is stunting the region’s ability to grow, create jobs, alleviate poverty and compete with Asia.

The region is currently spending less than 2 percent of GDP on infrastructure, down from 3.7 percent of GDP in 1980-1985. But spending would need to reach 4 to 6 percent a year for infrastructure to catch up or keep up with countries that once trailed it, such as Korea and China.

Increased private investment is key, though stronger legal, regulatory and institutional frameworks are needed, and the increasing negative public sentiment must be addressed. The challenge will be considerable, but the potential impact is great:

Improving the region's infrastructure to the level of Korea could result in annual per capita growth gains of 1.4 to 1.8 percent of GDP, as well as reducing inequality by 10 to 20 percent.

Read the fact sheet, full report or more from the BBC. Or listen to an interview with one of the authors.

Deregulating electricity markets

Nobel Laureate Vernon Smith writes in the Wall Street Journal to advocate vertical separation for the US electricity industry, to prevent the monopolistic wires business from sitting on potential competition elsewhere in the supply chain.

From Marginal Revolution. Browse World Bank resources on utility regulation.