1. Output-Based Aid:
Introduction, Lessons and Challenges
Yogita Mumssen
Senior Infrastructure Economist
Global Partnership on Output-Based Aid, The World Bank
African International Water Congress, Kampala, March 15 -18, 2010

2. Outline
 What is OBA?
 How does OBA work?
 What are the lessons and best
practices emerging from application of
OBA in the water sector?

3. Defining OBA
 OBA = Performance-based grants to help cover gap
between what user can afford and the actual cost of
providing service.
 OBA “subsidies” (or “payments” to service providers)
channeled most often as supply-side subsidies after
agreed outputs have been delivered.
 OBA mostly “one-off” capital subsidies to help defray
costs of initial access for the poor.
 OBA part of a broader results framework: other results-
based mechanisms (e.g. CCT, COD etc)

4. OBA in the Context of
Development Assistance
OBA “Outputs”
Independently verified
Inputs
(Intermediate) Development
Outputs
Design Outcomes Impacts
Build, Operate
•Output specification OBA “Outputs” include
•Service provider selection •Water connection made & service provided
•Solar Home System installed & maintained
•Medical treatment provided

5. Output-based vs. Input-based
Traditional Government purchases specific Output-Based
Approach “inputs”, builds assets and contracts Approach
out or provides services itself
Inputs Inputs
(such as materials) (such as materials)
Commercially
Structured
Finance
Service Service
Provider Provider
Public
Finance
Outputs Outputs
(Services for End Users) OBA reimburses the service provider after (Services for End Users)
the delivery of outputs.

6. Typical OBA Structure
State/Municipality Donor or Government
(contracting
authority)
Financial
Subsidy Fund
Intermediary
Subsidy Independent
Service (4) Verification
Provider Agent
(3)
Pre-finance
(1) Output Delivered =
Connections installed,
service delivered
(2)
Targeted poor communities
not yet connected

7. OBA Core Concepts
 Targeting of subsidies
 Accountability
 Innovation and efficiency
 Using incentives to serve the poor
 Output verification and monitoring
 Sustainability

8. OBA Portfolio
WBG OBA Portfolio by Region
WBG OBA Portfolio by Sector
(Total = US$ 3.5 billion)
SAR
(Total = US$ 3.5 billion)
9%
MENA
Education
1% Water & 5%
AFR Sanitation
33% Energy
5%
6%
Health
24%
EAP
3%
LCR
ECA Transport
52%
2% 58% Telecom
2%
Includes 51 GPOBA projects, mainly in water, health and energy, of
US$153 m value (committed).

9. OBA Project Examples - 1
Kampala Water
Connections for the
Poor, NWSC Uganda
• Objective: Access to piped water services to poor HHs. Initial target of ~400,000 people
• Project implementation: Urban Pro-poor Branch, NWSC Kampala
• Total cost : US$ 4million, of which US$ 2.5 million provided by GPOBA to help defray
cost for user and incentivize NWSC to serve poorest, many who consume at social tariff
• HHs in OBA project areas contribute equivalent of $25 towards connection cost (compared to
$50 in non-OBA areas); GPOBA provides a subsidy of $104; NWSC covers remainder
• Pro-poor solutions: focus on poor slum and peri-urban areas; subsidize yard taps and
PWPs; pilot pre-paid meters in some cases. But targeting still a challenge. Demand
creation through social mobilization is a critical component and takes time. More effort
required
• Output-based: 90% disbursed after connection verified; 10% after 12 months of service
• 1,679 Yard taps benefiting ~30,000 people have been verified as of Oct 09; therefore roll-
out underway, but slower than expected

10. OBA Project Examples - 2
Manila Water
Supply Project,
The Philippines
• Objective: increase access to water services through individual HH connections
for low-income communities in the Manila Metro region; 100,000 beneficiaries.
• Total cost: US$15.5 million, of which US$1 million provided by GPOBA.
• Project administered by Manila Water Company.
• Subsidy paid in installments after independent verification of outputs and three
months of operational water service.
• At the time of the GPOBA pilot, households contributed $36 towards the $167
user connection fee and GPOBA provided a $131 subsidy for the remainder
• 10,642 connections benefiting 50,024 people have been verified as of Oct 09
10

11. Output-Based Aid:
Lessons Learned
and Best Practices
World Bank
Publication
Coming soon!

12. Lessons Learned
Benefits of an OBA Approach
 Explicit identification of outputs promotes targeting (e.g. indoor
connections vs. stand-posts). Targeting criteria part of verification
 OBA shifts performance risk (construction, operational & demand)
to providers and helps ensure “you get what you pay for”. But, how
much risk is shifted to the provider depends on context…
 Efficiency gains through competitive processes, e.g. lowest-subsidy
required auctions => 20-30% reduction of subsidy needed. Focus on
output delivery => innovative behavior, such as pro-poor products,
sensitization campaigns (but, also a challenge…)
 So far $2 of private finance leveraged for $1 of subsidy; varies by
sector and region
 “Internalizing monitoring” by paying on outputs.
 Too early to judge performance on sustainability, but, encourages
careful subsidy design

13. Lessons Learned
Challenges of an OBA Approach
 Access to finance determines how “output-based”.
 Capacity to implement and monitor can be an issue; may be
difficult to find qualified and independent verification agents.
 Demand risk requires more “soft” up-front investment by service
provider to ensure uptake, especially in relation to poor
consumers (e.g. less “familiar” services, payment schemes, etc).
 OBA one component of a wider set of policy instruments, and
requires a supportive enabling environment for sustainability.
 Development partner/donor co-ordination: incentives for line
ministry to undertake a new accountability instrument.

14. About GPOBA
 GPOBA is a partnership of donors and international organizations
working together to support OBA approaches to improving service
delivery for the poor.
 GPOBA was established in 2003 by the UK (DFID) and World Bank.
Its donors are the World Bank, the UK (DFID), the Netherlands
(DGIS), Australia (AusAID), Sweden (Sida) and the IFC
 GPOBA provides three types of support: technical assistance of
OBA schemes, dissemination of experiences and best practices in
OBA, and less so, grants for OBA subsidy funding
 The program’s focus sectors are water and sanitation, energy,
telecommunication, transport, health and education

15. For more information on OBA or
GPOBA, visit the GPOBA website:
www.gpoba.org