Partnerships, the key to unlocking tariff reforms in small urban utilities?

Partnerships, the key to unlocking tariff reforms in small urban utilities?

Senior Program Officer Declan Hearne discusses social contracts in Indonesia and their potential to improve water utility service delivery and contribute to achieving universal access to water.

Partnerships, the key to unlocking tariff reforms in small urban utilities?

IWC facilitates workshops in Indonesian during a review of social contracts

Sustainable Development Goal (SDG) 6 gives us 15 years to achieve universal access to water for all. This is a goal more ambitious than any target made during the Millennium Development Goals or any other previous development era. While the argument for further investment in infrastructure is an easy one to make, continued investment alone will not translate into better sustained services without appropriate institutions to manage and maintain them. A key question for achieving equitable access to drinking water is what will such an institution look like? and how will it interact with, and be held accountable to, the people it is intended to serve?

While there is increasing focus on the need for pro-poor services within slum areas of large cities, many middle-income countries such as Indonesia also have a number of smaller cities and towns that are creating a growing demand for services. For a large part these small cities and towns continue to make do with under-performing utilities; many of which are struggling to keep up with urban expansion in formal and informal areas.

This raises the question of how small a utility is too small? In Indonesia an emerging rule of thumb is that utilities of less than 10,000 connections typically struggle to generate sufficient revenue to maintain a workforce that can respond to the range of demands that face a water utility. The minimum set of skills required can include technical teams to maintain and repair piped networks, water quality staff, financial teams, customer services divisions, and planning and management teams.

Water utilities in Indonesia

Indonesian utilities have the capacity to negotiate for tariffs to cover operational costs. In practice however, local utilities have lacked the skills to carefully negotiate and justify why local executives and elected representatives should support increased tariffs. Traditional forms of external support to these utilities has tended to focus on supporting technical operations; supporting investment in infrastructure and piped networks. This approach has failed to unlock sustained improvement in services.

Rather than continue to pump resources into the operational side of under-performing utilities, the Indonesian government has opted to take a step back and look at the broader environment in which utilities currently operate.

The decentralisation of water services has resulted in many utilities inheriting insufficient and decaying infrastructure. These utilities have failed to communicate the range of challenges they face and explain their limited capacity to address them. Without a clear understanding of the challenges facing small utilities, customers remain dissatisfied and voice their discontent to their locally elected representatives, who logically block any requests for tariff reforms from a utility who is consistently under-performing. As one customer reported “why would I pay for a higher unit cost of water when it is mostly air that comes out of my tap.”

Using social contracts to improve delivery

With support from the Indonesian Infrastructure Initiative, the Indonesian government has taken a bold step to focus on building trust between partners in the hope that this will lead to a better understanding of the challenges facing local utilities. The aim is to create a supportive environment where utilities have an improved platform from which to negotiate for tariff reforms, if they in turn can demonstrate small but consistence service delivery improvements. This process is encapsulated in a social contract, which uses a three-stage process (initiation, formalising expectations, and implementing commitments) to build trust, deliberate, and identify and commit to actions towards a set goal; in this case improved service delivery.

Partnership, trust, and accountability are buzz words that are considered essential elements of the universal and integrated nature of the SDGs. They are also terms that are often lost when the focus shifts to debates on the economic pricing of water. Social contracts in Indonesia are an emerging example of how a partnership process can be used to place trust at the center of water pricing. This trust creates stronger accountability between the ‘golden triangle’ of urban water actors: the utility, the customers and the local government.

A vision for achieving universal access to water

In piloting social contracts, building trust and accountability has been dependent on external ‘honest brokers’ responsible for seeding the process and facilitating key steps. Pak Nugroho Tri Utomo, BAPPENAS Director for Housing and Settlement believed that the “benefits from a social contract process will only be harvested when the process has become ‘auto run’, and when local stakeholders can hold each other to account and there is little need for external facilitation in the process.” If social contracts can provide a framework for local accountability, and unlock improvements in service delivery, then they are likely to be a significant tool that contributes to achieving universal access to water in Indonesia, and possibly beyond.

More information

Read the IWC review on social contracts in Indonesia

For more information please contact:
Declan Hearne
Senior Project Officer
Tel +61 7 3028 7600
social contracts_2

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