Rural water services : is a private national operator a viable business model?

In Cote d'Ivoire and Senegal water service is provided by privately operated national water utilities operating under enhanced lease contracts. While the national operators have performed relatively well within their service areas, their ability to expand service to rural areas has been limited. This note focuses on the key factors shaping rural service expansion: reliance on cross-subsidies, the limited transfer of commercial risk to the private sector, and the lack of competition for serving new population centers beyond the utilities' existing areas of exclusivity. It compares the national model with those of more decentralized service provision for rural areas.

Results in Cote d'Ivoire and Senegal suggest that a private national utility can provide water service to small population centers through cross-subsidization. But the present arrangements in these countries have shown limited potential for improving service provision or ensuring its sustainability in rural areas. Transferring greater risk to the private sector would sharpen private companies' incentives to expand access and would also improve sustainability by relieving the pressure on stretched government funds. Moreover, with support by a strong, committed government, introducing competition from small local operators with targeted subsidies could help promote transparency and foster the expansion of service in rural areas.

As water service is increasingly decentralized, competition for new markets and access to subsidy funds could be taken further, to limit the de facto monopoly granted to national utilities over the management of funds from cross-subsidization.