The Water Supply and Sanitation (WSS) infrastructure gap particularly affects low-income and marginal areas. Efficient, targeted subsidy mechanisms are needed for sustainable public financing of WSS access.

1. International Water Conference Dushanbe 2010
Roundtable on Sustainable Financing
Output Based Aid:
A Financing Tool for Access to Water Service
Pier Francesco Mantovani,
Lead Water Supply and Sanitation Specialist,
Europe and Central Asia Region, The World Bank 1

2. Sustainable .
“Need for more public expenditure in water”
• Meeting water supply & sanitation (WSS) access
goals calls for increased public expenditure.
• The WSS infrastructure gap particularly affects low-
income and marginal areas, where cost-recovery is
weak and investment subsidies are required.
• Efficient, targeted subsidy mechanisms are needed
for sustainable public financing of WSS access.
2

3. The Output-Based Aid (OBA) Approach
• An emerging public finance approach by
which disbursements are linked to the
verification of effective service delivery to
targeted beneficiaries. Armenia: Access to energy services
• Well-suited to promote access to services:
– Shifts the risk to service providers.
– Bridges gap between cost of service and
Mongolia: Access to telecom services
beneficiary’s ability to pay
– Can target poor areas or households
– Leverages commercial finance
3
Uganda: Access to health services

4. Public Financing of Services Development
Input-based vs. Output-based Aid
Traditional
OUTPUT-BASED AID
INPUT-BASED AID
Service Service
Provider Provider
Public Commercial
Finance Pre-Finance
INPUT INPUT
Materials, equipment, Materials, equipment,
infrastructure, etc. infrastructure, etc.
OBA Public
Finance
OUTPUT OUTPUTS
Services Expected to Services Effectively
Reach End Users Delivered to Targeted
End Users
OBA reimburses providers only after services are verified 4

5. OBA Core Concepts
• Targeting : Using incentives to serve
low-income communities
• Accountability : Providers must deliver
compliant service in order to be paid.
• Monitoring : Output verification is
Bangladesh: Electrification for
Poor Rural Households
systematic, ensures transparency.
• Leverage: OBA leverages beneficiary
contributions and private finance.
• Efficiency : Implicit result and cost
guarantee.
Where applicable, OBA enables better use of public funds.
5

6. Snapshot 1 : Morocco
WSS connections in poor periurban areas
• Middle-income country, with large
informal settlements around cities.
• No WSS service in periurban settlements,
due to cost and challenges of extending
networks in informal habitat areas
• No affordable option for households to
access utility service.

7. Snapshot 1 : Morocco
WSS connections in poor periurban areas
Key design features:
1. Pilots by public & private operators in
Casablanca, Meknes & Tangiers.
2. Upfront assessment of standard WSS
connection price in targeted poor areas.
3. Works pre-financed by operators with
loans or municipal funds.
4. Elegible households commit to a standard
connection fee payable over 7 years.
5. Unit OBA subsidy bridges the gap
between the standard connection price
and household connection fee (25-50%).
6. Unit subsidy paid after connection (60%)
and after 3 months of service (40%).

8. Snapshot 1 : Morocco
WSS connections in poor periurban areas
Main results:
• Pilots successful, after slow start, for
both water supply & sewerage
service.
• Strong stakeholder mobilization to
overcome implementation obstacles.
• Simplification of OBA documentation
requirements.
National scale-up strategy in preparation
8

9. Snapshot 2: Kenya
Small-scale rural water service development
• Rural communities around
Nairobi want piped water
service.
• Small water operators access
microfinance loans supported
by GPOBA and Athi Water
Services Board.
• OBA subsidy paid upon
completed development of
simplified water systems.
9

10. Snapshot 2: Kenya
Small-scale rural water service development
10

11. Growing experience with OBA Projects
WBG OBA Portfolio by Sector
In 2002: 32 projects identified, (Total = US$ 3.5 billion)
$1.5 bn of World Bank funding
Education
Water & 5%
Sanitation Energy
In 2009: 131 projects identified 5% 6%
for $3.5 bn of WB Group funding,
+$2.8 bn government funding
Health
+ 66 projects outside WBG 24%
Growing evidence base : 34 Transport
Telecom
58%
projects closed, 78 on-going, in 2%
low and middle income countries
11

12. Comparison of Performance:
OBA vs. Traditional Projects
80%
70%
60%
50%
40%
30%
20%
OBA
10%
Non-OBA
0%
Overrun
Over-achieved
Achieved
Unclear
Under run
Not (fully) achieved
In Budget
Results Budget
12

13. Lessons Learned: Benefits of OBA Approach
• Explicit identification of outputs
promotes targeting
• OBA shifts risk to providers
• Achieve efficiency gains through
competitive processes
• So far, $1 of subsidy leverages
~$2 of private finance. Vietnam: Access to simplified piped rural
water supply
• Forces accurate monitoring by
paying on outputs
• Encourages careful subsidy
13

14. Lessons Learned: Challenges of the OBA
Approach
• Access to commercial finance
or microfinance is essential.
• Capacity to implement and
monitor can be an issue.
• Demand risk requires prudent
upfront investment by Argentina: Public transportation
provider improvements
• OBA requires a supportive
regulatory environment for
sustainability
OBA remains one component of a wider set of policy instruments, does not
substitute good planning & regulation policies.
14

15. Moving Forward
• Scale-up OBA approaches where they make sense
• Fund technical assistance for new initiatives and
further analysis and evaluation of OBA projects
• Address challenges such as:
– Limited access to commercial pre-finance,
– Documentation and verification capacity
– Contractual flexibility for changed conditions
• Share lessons
15

16. Thank You
Special thanks to :
• The Global Partnership on Output-
Based Aid (GPOBA) , a partnership of
donors and international organizations
working together to support output-
based (OBA) approaches.
www.gpoba.org
Uganda: Access to Sustainable Water Services
16
for the Poor in Selected Small Towns

17. Targeting
80%
70%
60%
50%
40%
30%
20%
10%
0%
Geographic Targeting Means Testing Self Selection Targeting No Targeting Identified