REGUL ATION LEGAL AND POLIC Y FR AMEWORK WATER SUPPLY AND INTERGOVERNMENTAL CONTEX T RESILIENCE SANITATION POLICIES, INSTITUTIONS, FINANCING AND REGULATION INS TITUTIONS Adapting to a Changing World POLICY BRIEF AUGUST 2022 CONTEXT AND OBJECTIVES OF THE laws, policies, regulations, institutions, and systems that can STUDY help mobilize financial and technical solutions and enhance their impact on WSS services (Mumssen et al. 2018). Policies, institutions, and regulation (PIR) are essential to achieving the Sustainable Development Goals (SDGs) related to water and sanitation but The World Bank launched the PIR initiative in 2016 need a considerable boost to be effective. A rich body as a new approach to water sector reform. Previous of analytical work has been developed to support this global initiatives offered a range of promising technical solutions to expand water and sanitation infrastructure idea but the mainstreaming and implementation of PIR but did not have a sufficient understanding of the into concrete reforms and investment programs is still policies, institutions, and regulatory framework sporadic at best. The stakes for improving service delivery necessary to improve service delivery and to operate and advancing water reforms are higher than ever and PIR and maintain water and sanitation infrastructure in a needs to be strengthened, adjusted, and scaled up to meet sustainable manner. The initial phase of the PIR initiative the needs of a changing world. (2016–19) sought to build strong empirical and literary foundations through the seminal report “Aligning The World Bank has reviewed the experience of Institutions and Incentives” (Mumssen et al. 2018). various countries with PIR and has documented its Based on an extensive literature review that analyzed insights in a new report (World Bank 2022). This report trends and theories on public sector reform as well as the has two main objectives. The first is to reflect on the body insights gained from 10 country case studies, this report of PIR knowledge and experiences accumulated globally formulated the initial PIR Conceptual Framework. This and in selected countries to refine the PIR concept based framework posited that integrated policy, institutional, on lessons learned. The second is to advocate for greater and regulatory interventions can help align incentives for action on PIR by policy makers, development partners, more sustainable WSS service delivery. international financial institutions, and civil society by using projects and investments as implementation The objective of the second phase of the PIR initiative vehicles. A companion piece to this report, the PIR (2019–22), which was recently concluded, was to put the Framework Tool, provides more detailed guidance on concept into practice and learn from its implementation undertaking policy dialogue on PIR, identifying reform to further refine the PIR concept, draw operationally applicable lessons, and inform the development of a tool options, and applying PIR concretely in practice. In for operationalizing PIR in government and development addition, deep-dive policy briefs on some of these cases— partner programs. The review of the application of the from Bosnia and Herzegovina, Brazil, Colombia, the city PIR framework globally—summarized in this report— of Chennai in India, Mozambique, and Uzbekistan— reconfirms the importance of policies, institutional and a companion piece on how regulation can incentivize arrangements, and the regulatory context in improving green, resilient, and inclusive water supply and sanitation governance and the alignment of incentives to support (WSS) services, complement this report. more effective and sustainable WSS service delivery. In addition, the second phase identified three cross-cutting THE CASE FOR AN INTENSIFIED FOCUS areas that are key to sustainable WSS services: sector ON WATER AND SANITATION PIR funding and financing, the intergovernmental context, and the orientation of the sector toward sustaining results. Since adoption of the SDGs, there has been increasing These issues have emerged as both the biggest constraints global concern about the sustainability of attempts to progress toward SDG 6, and the areas in which to improve WSS services. The SDGs set an ambitious governments and other sector actors have expressed the agenda that includes universal access to WSS services with strongest need for reforms and technical support. the requisite quality, reliability, equity, and sustainability essential for overall human and economic development. While the financial needs and technical solutions are well There has been growing recognition that PIR—and known, there has typically been less appreciation of the water governance more generally—is the missing transformational role of sector governance—that is, the link for resolving some of the chronic challenges POLICY BRIEF | POLICIES, INSTITUTIONS, AND REGULATION 2 FIGURE 1. Challenges to Achieving Good Water Management according to Water Leaders 60 50 % weighted respondents 40 30 20 10 0 Fragmented Inadequate Conflicts Inadequate Inadequate Water issues Inadequate Public Internal water and between public water infrastructure being laws and resistance jurisdictional institutions inaccessible water user awareness relatively regulations boundaries data and groups low priority information for the government N° of countries = 86 Percentage of weighted responses ranked 1st Percentage of weighted responses ranked 2nd Percentage of weighted responses ranked 3rd Source: Water Policy Group 2021. undermining WSS services. For example, a 2021 survey COVID-19 pandemic. The interconnectedness of water and of ministers, agency heads, and other senior officials in the sanitation with other development priorities such as health, water sector found that institutional fragmentation is the environment, social, and economic goals, is putting pressure foremost challenge to achieving good water management, on the siloed approach to WSS, while new technologies and ahead of other more visible challenges such as inadequate innovations offer unprecedented opportunities to transform infrastructure (figure 1). Further, PIR aspects such as the water sector. Climate change is compelling many policy improving sector data and resolving conflicts among water makers, regulators, and other actors to change their way of users are also a top priority for decision-makers (Water developing WSS services by adapting to increasing water Policy Group 2021). At a national level, some countries are security challenges. This requires dramatic change in the realizing that PIR reforms are essential in the context of current course of action to address these growing pressures growing shocks and stresses in the water sector. In South and achieve better WSS services for all. The PIR report Africa, for example, where several provinces or cities are provides several examples of how some countries have at or close to a “tipping point” (as continuous supply is successfully undertaken PIR reforms and interventions that no longer the norm and many locations are experiencing have led to improved WSS outcomes. intermittent water supply), the National Treasury and Department of Water and Sanitation are working with local Both the challenges and opportunities facing the water governments to address PIR-related binding constraints to and sanitation sector require a focus on PIR. In addition improved water services. to the fundamental building blocks of policies, institutions, and regulation, this report proposes an expanded analytical The urgency of a renewed and updated focus on PIR framework that includes some hitherto less developed stems from several factors. Several cities increasingly face themes: intergovernmental context, financing, and “day zero” events or risk crossing a “tipping point” at which resilience. Figure 2 illustrates this expanded analytical WSS service provision starts to degrade. Water utilities and conception of PIR, with six clusters in a constant feedback other service providers, which traditionally had narrow loop. These themes were identified through the application mandates, have to increasingly tackle problems outside of an institutional diagnostic tool and through stakeholder their remit, such as the public health crisis related to the consultations, as well as lessons from other relevant POLICY BRIEF | POLICIES, INSTITUTIONS, AND REGULATION 3 FIGURE 2. The Policies, Institutions, and collaborative leadership model, where actors at all levels of Regulation Concept the sector work together for change. Despite the positive examples, this report is frank about the paucity of good practices and the need for more deliberate efforts to align policy goals with implementation incentives to achieve sustainable WSS outcomes. Key Message 2: Progress in achieving meaningful PIR reforms starts with a rigorous assessment of the root causes of WSS service bottlenecks. This report argues that part of the reason for recurrent service delivery challenges is the lack of attention paid to identifying the root causes of weak service performance. Water and sanitation governance assessments often highlight the same endemic challenges, such as fragmentation among institutions, political interference in regulation, or tensions between local and national governments on WSS roles and responsibilities. But often these assessments only skim the surface rather Source: Original to this publication. than identifying the real “pain points.” For example, assessments frequently point out that a lack of local methodologies and water, governance, and infrastructure capacity contributes to suboptimal WSS service delivery assessment tools. outcomes. However, if we probe deeper into the root causes of these challenges, it becomes clear that the SUMMARY OF THE OVERARCHING intergovernmental system itself—its design, incentives, MESSAGES OF THE REPORT and coordination structures—is often the real issue, rather than local capacity or national governments’ The report draws on case studies and advisory work by reluctance to delegate services. In the absence of a proper the World Bank in various countries. Table 1 provides a diagnostic, initiatives and projects consider the lack of summary of the key insights from the six PIR clusters, with administrative capacity or funding as the leading causes three overarching messages from the new report: of service delivery failure, whereas the reasons might run much deeper or lie elsewhere. More efforts are needed to Key Message 1: Understanding the PIR identify the stakeholders and interests that contribute to context of water and sanitation provision service delivery bottlenecks and the incentives (including is a precondition for all other efforts to resources) that could compel them to act differently. achieve meaningful and sustainable water and sanitation outcomes. Several tools and approaches exist to support a root cause analysis of PIR WSS service bottlenecks. The The design and integration of incentives into WSS World Bank’s new PIR Framework Tool offers an operations are still a work in progress that will require updated methodology for undertaking PIR diagnostic more scale-up and action to succeed. The findings from assessments and facilitating dialogue on reforms. It covers various cases show how incentives such as legislative the six themes of the PIR Conceptual Framework: policies requirements, budget allocations for implementing entities, and legislation, institutions, intergovernmental context, benchmarking of utilities and other service providers, regulation, finance, and resilience. It also incorporates performance-based grants, and career opportunities for elements of methodologies such as the problem-driven water professionals can all make a difference in the impact iterative approach encapsulated in other analytical of PIR initiatives. While the report echoes previous calls for work, including the World Bank Governance Practice’s a reform champion to spearhead reforms, it advocates for a GovEnable initiative. POLICY BRIEF | POLICIES, INSTITUTIONS, AND REGULATION 4 TABLE 1. Overview of Key Messages by Cluster Policy • Understand the historical legacies and political economy context of WSS services. • Transparent and inclusive policies and legislation, bolstered by policy dialogue, increase the probability of success. • Water laws can provide powerful incentives for the adoption of new behaviors, models, or approaches to service delivery. Institutions • The traditional understanding of water institutions needs to be expanded to reflect all service delivery models and actors, and also to “work with the grain” and make use of entry points in particular contexts, both technically, and often politically. • The role of individuals in designing, implementing, and sustaining reforms is hard to understand but crucial for the success of policies, institutions, and regulation (PIR). • The link between strong water institutions and good service delivery outcomes is evident but needs to be further explored. Intergovernmental • Multilevel aspects of water sector governance are an important part of the enabling environment for effective WSS service delivery. Context • Problems related to weak local capacity for WSS service provision cannot be resolved by technical solutions alone. • Recognizing the unique features of WSS services—and aligning them with the prevailing intergovernmental framework—is often key to successful service delivery outcomes. Financing • There is an urgent need to build institutional capacity to plan and monitor WSS funding and financing. • Performance-based financing is an emerging area that can be a game changer for service provision. • PIR is often the binding constraint, but can also provide opportunities for increasing financial flows in the water sector. Regulation • While there is strong interest in the role of regulators, it is just as important to understand how regulatory functions are mapped across various entities, and in different contexts. • Strengthening governance arrangements for regulation, as well as the technical capacity of regulatory entities, is crucial for effective regulation. • Regulators are gradually shifting from regulating monopolies toward regulation of economic, social, environmental, and health externalities. Resilience • Understanding risks and planning for stresses and shocks is crucial for maintaining momentum on reforms. • The alignment of policies, institutions, and regulation determines the sustainability of reforms to a great extent. • Mechanisms are needed to bridge the gaps between policy setting and implementation. Key Message 3: PIR reforms are long careful use and revision of regulatory cycles to reflect new term in nature and require mechanisms challenges and opportunities are among the cornerstones that foster evaluation, learning, and of the regulatory successes reviewed under this work. The adjustment. WSS sector is in flux. COVID-19 and the growing impacts of climate change, which are manifested through the water While some PIR interventions can be done in incremental cycle, are cases in point. Sector institutions need to develop steps, at heart, all PIR reforms require sustained efforts the adaptive capacities to respond accordingly. The report over time for their impacts to materialize. The report provides lessons from utility responses to COVID-19; illustrates this by documenting long-term reforms in from countries that have developed programs to address several countries. The example of WSS regulation in water resource threats, including through transboundary Colombia, for instance, illustrates how incremental but cooperation; and from the experience of central delivery intentional and well-conceived steps over a 25-year period units in driving cross-sectoral collaboration in pursuit of have positioned the Potable Water and Basic Sanitation national development goals. A focus on PIR must be tailored Regulation Commission (CRA) as a leading regulator. The toward the long term with aligned approaches that consider POLICY BRIEF | POLICIES, INSTITUTIONS, AND REGULATION 5 how laws, policies, regulations, programs, and projects can The systematic use of the PIR Framework Tool in WSS best contribute to building and sustaining momentum for operations (investment projects, performance-based WSS reforms over time. financing, technical assistance, and advisory services) can help to facilitate stakeholder dialogue, identify root CONCLUSION causes of systematic service delivery challenges, and lay the groundwork for incremental, long-term reforms. While PIR is an essential piece of the WSS puzzle, it is not the only one. The report does not assume that the six areas it covers offer the definitive response to tackling REFERENCES WSS challenges, but provides insights from a wide range of countries that show the need for a more robust focus on Mumssen, Yogita, Gustavo Saltiel, and Bill Kingdom. PIR. It also points to other tools that offer more specific 2018. “Aligning Institutions and Incentives for Sustainable resources for topics beyond the scope of this report. The PIR Water Supply and Sanitation Services.” World Bank, methodology will continue to evolve as new insights emerge Washington, DC. and lessons are learned from its application in participating Water Policy Group. 2021. “Global Water Policy Report countries. 2021: Listening to National Water Leaders.” Water Policy Group. Moving forward, the report advocates the use of the renewed PIR approach through projects, technical World Bank. 2022. “Water Supply and Sanitation Policies, assistance, and continued dialogue with key sector Institutions, and Regulation: Adapting to a Changing stakeholders in countries and around the world. World—Synthesis Report.” World Bank, Washington, DC. POLICY BRIEF | POLICIES, INSTITUTIONS, AND REGULATION 6 Connect with the Water Global Practice www.worldbank.org/water worldbankwater@worldbank.org @worldbankwater blogs.worldbank.org/water © 2022 International Bank for Reconstruction and Development / The World Bank. Some rights reserved. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. This work is subject to a CC BY 3.0 IGO license (https://creativecommons.org/licenses/by/3.0/igo). The World Bank does not necessarily own each component of the content. 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