Decentralization Impact: Mixed Results on the Provision of Water Services
The issue of water and sewerage is particularly important in Colombia, as it involves different levels of government and the public and private sectors.
In this regard, the central government transfers the resources to be spent on water and sewerage to the local governments, and at the same time the local service is provided by the municipality or by a public, semi-private, or a solely private entity. Thus, it emerges that there is an interplay of different actors that brings about different outcomes depending upon the local political setup, the origin of the provider—public or private—and the local institutions.
Historically, water and sewerage expansion has been affected by political and electoral interference, given the political gains as represented by the provision of such essential services. By the late 1980s the situation of service provision resembled what Spiller and Savedoff (2000) have called a “low-level equilibrium,” in which tariffs were low and did not cover the costs associated with the expansions in coverage and service quality. Additionally, the system lacked a pricing mechanism to allow the rationalization of consumption. As part of this scenario, the system was reformed within the framework of decentralization.
The reform transferred to the municipalities both the public works- related operations and the management of the service. Simultaneously, the resources transferred from the central government to the municipalities were increased as means of supporting the latter’s autonomy, and to help develop their new responsibilities. Under this new framework, the central government was responsible for the planning, regulation, oversight, and control of the services, while the provision was carried out by a provider, which could be one of the following: (1) public service companies incorporated as public limited liability companies (S.A. ESP, Empresas de Servicios Publicos), (2) municipalities as direct providers, (3) government-managed industrial and commercial companies (EICEs, Empresas Comerciales e Industriales del Estado), (4) marginal or independent producers, or (5) organizations authorized to provide services in rural areas or specific urban areas.7 Accordingly, under the new institutional framework the municipalities were autonomous although the central government continued to be the main source of financing for the sector’s investments.8 When observing the evolution of average own expenditures on the water sector, the trend was similar to that observed in the education sector: the more the national transfers, the smaller the investment of own resources in the sector. After the 2001 reform, incentives were transformed and the trend changed, increasing the average of own resources utilized.
The pace of transformation of the municipal providers into a businesslike management model in the case of water supply and sewerage services has been rather sluggish. In fact, the majority of direct providers are still the municipalities—representing nearly 35 percent of them (Silva 2007). Law 142, by incentivizing the replacement of the municipalities as direct providers by Companies of Public Utilities, intended to improve the coverage and quality of the services, which would translate into better indicators of the quality of life. Analyzing the influence of governance on the performance of water and sanitation (WS) services in developing countries, particularly the Colombian case, Krause (2007) found that low-quality governance of sub-national governments compromises the internal efficiency of service delivery and widespread access to the services. The results obtained have yielded some evidence that private sector participation (PSP) enhances the internal efficiency of service providers. When a local manager was asked about the municipal regime before it was transformed to an ESP (public sector enterprise), he replied,
Back then, all the jobs that had to do with the service delivery were political quotas. So, the “escobitas” [cleaners], you go, you go... as well as the person charging for the service were political quotas. People that had no clue of what they were doing were put in these positions in the municipality’s small company. There were no clear policies or goals, the service was, in practical terms, free. People paid 20 pesos for the water.9
However, the transformation per se has not been shown to be enough (Dominguez and Uribe 2005; Krause 2007). The evidence on the advances in provision and quality in the sector is mixed. As for coverage, census data reveal that water coverage rose from 60.5 percent to 64 percent in the municipalities that did not reform and from 78 percent to 78.5 percent in the ones that did. Granados (2008) shows that water and sewerage coverage was less in the municipalities with private provision, while the reduction in infant mortality was slower.10 In contrast, Barrera and Oliveira (2007) found positive effects on coverage and health as a result of the involvement of private parties in the provision of these services, particularly in urban areas. Prasad (2006) indicates that the studies that focused on the performance of the provider companies from a microeconomic point of view—analyzing the efficiency and productivity indicators—are not conclusive in terms of the effects of private capital involvement. Gomez-Lobo and Melendez (2007) also obtained mixed results on evaluating the PSP in the water and sewerage sectors. Concerning the affordability of the service, researchers found no statistically significant effect of PSP. Nonetheless, PSP does seem to increase the quality of service, measured as continuity of service, and sewerage connection rates.