Output-based Contracts in Small Town Water Supply in Uganda: Challenges and Opportunities

Bayliss, Kate; Watasa, Sam

Abstract

This report presents findings from a review of the role of the domestic private sector in the delivery of urban water in Uganda. It focuses on Private Operators (POs) in small towns. POs have been operating water systems in small towns under management contracts in Uganda for over a decade. in 2008, an output-based aid (OBA) scheme was piloted in selected towns.

Since the introduction of the OBA scheme, some towns have seen a relatively rapid increase in the number of connections, while using less public funding than under traditional management contracts. However, the research shows considerable diversity of outcomes. In addition, it is problematic to attribute the results directly to the output-based mode of aid delivery, since the scheme was associated with other modifications to the contractual framework. Among other things, a higher service fee and longer contract duration have provided incentives for private investment. Furthermore, the details of the sources of investment finance and destination of the subsidy are not as clear as proponents of OBA would suggest.
The delivery of water by POs in small towns in Uganda raises many of the same issues that have emerged in international debates on private sector participation in the delivery of water. Among other things, challenges include weak regulation, information asymmetries, selectivity and short-termism. Furthermore, replication elsewhere is unlikely to be successful without consideration of the underlying structural and institutional reform conditions in Uganda. In particular, strong capacity within the Ministry of Water and Environment (MWE) to adapt the modalities of private sector engagement to changing circumstances has played a critical role.

Citation

Bayliss, K., & Watasa, S. Output-based Contracts in Small Town Water Supply in Uganda: Challenges and Opportunities

• Working Paper Type: Working Paper
• Deposit Date: Dec 14, 2011
• Pages: 1-46
• Keywords: water urban uganda OBA private sector public-private partnership kampala
• Publisher URL: http://www.beta.undp.org/content/dam/undp/library/Poverty%20Reduction/Uganda_webVersion928.pdf