ASi" kUCTURE FlOR DEVELOPMENT

percent to 53 percent in 1993, and in revenue coliec- Thiis effect has been demonstrated most convinction
from less than 50 percent to 91 percent of ingly for water, where the concerns for the poor are
billings.
properly strong. In the Brazilian city of Grande Vito-
One aspect of cost recovery that separates good ria, Espirito Santo state, the wilLingness to pay for
perfonners from poorer ones is that good perform- new water connections in 1993 was four times the
ers recover the costs of maintaining suffcient capac- cost of providing the service, while the willingness
ity to meet peak demand by levying a charge based to pay for. sewage collection and treatment was 2.3
on potential demand or actual consumption at peak. times its cost. Without treatment before disposal, the
This method helps avoid power outages and water willingness to pay falls to only 1A times the cost beshortages.
In other words, good performers are cause untreated sewage creates health problems and
much more careful than others in assessing de- reduces the recreational value (mostly the fishing
mand. In Colombia, India, and Korea, this capacity yield) of the waters into which it is discharged.
cost is charged only to the largest commercial and The willingness to pay for water is high for good
industrial users because they tend to be the main reason; For the poor, easier access to water can free
source of peak demand.
up time that can be used to pursue income-earning
Just as important as the incentive to meet objec- activities. In rural Pakistan, women with access to
tives negotiated with the government is the finan- improved water supply spend nearly 1.5 fewer
cial independence that allows public managers to hours a day fetching water than do women without
rely on the price system to assess users' willingness this access- Such savings are reflected in the value
to pay. Reliance on the price mechanism is in the in- users attach to the services. In Haiti a household's
terest of users because it directs provision toward willingness to pay for a new private connection inpreferences
determined by users rather than bu- creases by as much as 40 percent if the current water
reaucrats. Users are wiling or able to pay more source is at least a kilometer away
often than they are given credit for (Chapter 4).
The poor are not simply willing to pay in theory-
What keeps so many public utilities from recov- they are paying in practice During the rnid-1970s to
ering costs is political constraints Low prices are the early 1980s, people in seventeen cities surveyed
popular among those who receive a service even if were paying private water vendors an average of
they are willing to pay more. In Bangladesh, In- twenty-five times the prices charged by the utility.
donesia, Pakistan, and the Philippines, receipts from In Nouakchott, Mauritania, and Port-au-Prince,
irrigation user fees are 20 to 90 percent less than the Haiti, vendors were charging up to a hundred times
cost of operation and maintenance. This shortfall re- the public utllity price. Expanding the public utility
flects the strength of the farmers' lobbies and their network to give the poor access would mean that
ability to get political endorsement for high subsi- fthey would pay less than they are now willig and
dies. Moreover, with subsidies guaranteed, public able to pay private providers.
managers have little incentive to perform well or to
improve their responsiveness to users. Without po- Public wuorks and financial autononmy
litical support, the needed organizational changessuch
as linking managers' rewards to the financial Making public works agencies financially indepenperformance
of the department or utlity-will not dent does not mean that the public organization
suffice.
collects revenue directly from users to cover its operational
costs. For public works, it is difficult or im-
COST RECOVERY AND THE PooRi Many govern- possible to measure-and hence to price-individinents
fear that fully recovering costs will hurt the ual use. Nevertheless, a predictable and transparent
poor, yet increasing prices to enable cost recovery in flow of revenue is necessary, based on user fees and
the delivery of services may actually help the poor. standard budgetary allocations from govemnment.
They often pay much higher prices per unit for pri- To some extent, the goal is one of financial accountvately
provided water and lighting because they are ability rather than financial autonomy because the
not connected to public service networks that have main objective is to achieve predictable and adelower
unit costs, and because they do not benefit quate financing. The key to the success of Korea's
from subsidies to users of the public system-usu- highway corporation has been making the perforally
the better-off. Expansion of access benefits the mance of the organization more transparent (a
poor by allowing them to rely on less costly sources process described in Box 2.4) and lining budgetary
of water and power. (Cases in which subsidies are transfers to performance. But in many developing
needed are discussed in Chapter 4.)
countries the budgetary process does not allow for
49