ABSTRACT
The provision of water and sanitation services has traditionally been publicly provided to ensure universal access. This has entailed affordable charges, which usually means tariff levels which cannot cover the cost of service provision, let alone service expansion, particularly in developing countries. These financial constraints have resulted in the underinvestment of water and sanitation systems, with consequences for service quality and coverage. As a result, the choice facing developing countries is usually between public provision and universal access (but at the cost of increasingly poor service delivery and coverage), or private provision with higher charges (to finance service improvements and expand coverage). Privatization will therefore depend on the ability of the private operator to charge cost-covering tariffs, or more specifically, the public’s willingness to pay higher charges. This will ultimately depend on the state’s political capacity to enforce an appropriate tariff structure. If higher charges are not politically viable, or if universal access remains a priority, then the state will have to subsidize operations to attract private participation and ensure the project is commercially viable. The success of privatization in this context will depend on the state’s institutional and political capacity to manage any subsidy regime.
