Making Progress in Serving the Poor: Rethinking Traditional Approaches

1. Making Progress in Serving the Poor: Rethinking Traditional Approaches Penelope Brook The World Bank 1

2. “Doing Good” by Command and Control • Common features of PPI arrangements have included • exclusivity provisions • (universal) service obligations • uniform service standards • reliance on subsidies to cover “affordability” gaps • in particular, “life-line” or “social” tariffs 2

3. Implicit Assumptions • Service provision is of necessity heavily monopolistic • Monopoly protections may be traded for service obligations • Financial incentives can be trumped by binding service obligations • Government can (and should) identify acceptable service standards 3

4. In Practice... • Financial and institutional disincentives to serve the poor have slowed service expansion into low-income areas • Many of the poor receive services from “alternative” suppliers • Where formal utilities are reaching out to the poor, they are often using non-conventional means 4

5. Competition is Growing in the Infrastructure Sectors • In all the infrastructure sectors, technological and institutional change is facilitating competition • However, large-scale competition by formal utilities gets much of the attention • Relatively little attention has been paid (until recently) to small, “alternative” suppliers (often in the “black” or “gray” markets) 5

6. Increasing Potential for Entry at the Retail Level • Where networks exist • e.g., competition by alternative gas, electricity, telecoms suppliers • Where networks have yet to be built • expansion of networks by micro-entrepreneurs • e.g., aguaterros in Paraguay • alternatives to networks • e.g., tanker delivery of water; septic tanks 6

7. But is it a good idea? • Isn’t network delivery more efficient? • short-term / long-term trade-offs • option of building networks from the bottom up • service definitions • density • Aren’t local suppliers just monopolies too? • does illegality breed Mafiosi? • What about service quality? • does allowing entry mean loss of ability to effect public health and safety objectives? 7

8. Implications for Designing Transactions: • More attention needed to: • market structure (potential for entry) • identifying potential participants / partners / interlocutors • understanding pattern of demand for services in unserved areas 8

9. Are Incremental Approaches Possible? • Options for incremental approaches include: • identifying areas with potential for entry, and limiting exclusivity accordingly • explicit provisions for sale of bulk services to local retailers • piloting partnerships between traditional suppliers and community organizations / micro-entrepreneurs 9

10. The Learning Agenda • Improving understanding of economics of alternative forms of supply • Cross-sectoral learning on institutional / regulatory mechanisms for facilitating entry and competition • Development of “good practices” for project and transaction design 10