Actors, Networks, and Institutions

The institutional framework is decisive for the direction of technological change within the sector. The right changes in the socio-technical environment may create the possibilities for sustainable niche markets to become techno-logical regimes. Therefore institutions that incentivize the protection of water resources and the rationalization of water use, as for instance regulations that implement high standards for water and wastewater quality, consumption-dependent and increasing water tariffs, participation of stakeholders in de-cision making, holistic thinking and integrated water resource management, create conditions that make the development and diffusion of environmentally sustainable technologies more likely.

Figure1.2:Stepsofaninnovationsystemanalysis

We will therefore begin each case study by describing the main actors, net-works and institutions that build the SIS. In order to accommodate the model to the specificities of the water and sanitation sector, Cozzens and Catalán (2008) suggested a more generalized IS. Following this approach, we will look at three generic types of system elements in each country, when analysing the urban water and sanitation sector:

Problem-solving organizations (PSOs). These are private or public urban wa-ter infrastructure operators, suppliers of technical equipment and wawa-ter users.

Knowledge and information organizations (KIOs). These are universities and public laboratories but also social and environmental organizations.

Governance and rules of the game. Here we look at standard-setting organi-zations, regulatory agencies, public planners and project developers, cap-ital providers and financial institutions.

PSOs are the locus of experimentation and the centre of the innovation pro-cess, trying new options in technologies and approaches. In the urban water and sanitation sector the PSOs will usually be found in urban water and sani-tation utilities. KIOs are the locus of creation and exchange of different kinds of knowledge. These are generally universities, research institutes and public laboratories, but in the urban water and sanitation sector non-government or-ganizations (NGOs) or industry oror-ganizations are also included. Furthermore, standard-setting organizations, regulatory agencies and public planners pro-vide governance and institutions as participatory water councils can propro-vide a forum for communication among stakeholders and establish user-producer linkages through which market information is diffused.

In order to get an idea about the strength of linkages and the existence of networks within the IS, we asked the sector experts to assess the extent of inter-action between actor types within their country. The average results (Figures 1.3 and 1.8) are depicted using multidimensional scaling, giving an intuition about the typical structure of the IS of the urban water and sanitation sector.

The closer two actor types are positioned on the picture the more intensive is their interaction in the perception of the experts. Lines depict high- and dashed lines medium-intensity interactions.

Typically, there seem to be three clusters of actors within the urban water sector in the BICS countries: (1) the water industry composed of the infrastruc-ture operators and their financial and technical suppliers; (2) the demand side

Figure 1.3: Typical network of actor types in the BICS countries

constituted by water users together with social and environmental organiza-tions; and (3) intermediary institutions as regulators, standard-setting organi-zations and universities as a third group. Public planners and project develop-ers take a special position in the centre between the three groups, but interact more intensively with the infrastructure operators.

In conjunction with broader political and economic changes, all four coun-tries have embarked on institutional reforms towards the implementation of the new technological paradigm of sustainable water provision. Restructur-ings have been more disruptive and intense in South Africa, where institutions have changed most profoundly after the end of apartheid. Changes in China related to the general economic reforms have also been profound but more pro-gressively developed over a longer period of time, while in Brazil and India changes happened rather incrementally. Comparing the institutional frame-works of the four countries we observe diversity in the degrees to which in-stitutions that promote innovations in the sustainable urban water sector have been successfully implemented.

1.4.1 Brazil

The main features of the current sector structure in Brazil were laid during the 1970s, through the implementation of the National Basic Sanitation Plan (PLANASA) by the military regime. It consisted of an administrative cen-tralization process that effectively assigned water operation and management to the state level. Although the legal responsibility for water and sanitation services provision remained with the municipalities, the role of local govern-ments was reduced to signing long-term concession contracts to the newly es-tablished large state-owned companies. After an initial success with a rapid expansion of service coverage, the PLANASA scheme eventually failed by the end of the 1980s.

Since the 1990s, as a part of the economic liberalization policy of the Car-doso administration and as a means of overcoming fiscal restrictions and to compensate increasingly lacking public investments, Brazil opened the urban water and sanitation sector to private participation. This policy was supported by international financial organizations as the World Bank and justified by the need to foster operation efficiency (Sabbioni, 2008). The Public Concession Act of 1995 challenged the state monopoly particularly in metropolitan areas.

Henceforth, Brazilian states took many different approaches for financing wa-ter and sanitation operations, including concessions to private investors.

Since 2003 the Ministry of Cities (MC) is entrusted with the responsibility to guide and monitor the urban water supply and sanitation sector. Thereby the notion of ’water supply and sanitation’ was progressively replaced by the concept of ’basic sanitation’, which also integrates the collection, treatment and disposal of solid wastes, storm-water drainage and the control of vectors of transmittable diseases.

The 2007 National Sanitation Law has implemented fundamental principles of modern water and sanitation management, setting the universalization of access to water and sanitation, transparency and social control, security, qual-ity and regularqual-ity in service provision as ultimate policy objectives. For the first time the Law makes the adoption of national guidelines for public policy and management in the basic sanitation sector possible. It establishes criteria for municipalities and states to access federal financing and determines the con-stitution of councils with the participation of civil society. These councils have leverage to influence the municipalities’ decisions regarding tariff setting and termination of service due to lack of payment.

This participatory decision-making approach is also reflected in the con-stellation of the network analysis (see Figure 1.8). Water users take a relatively central position. Brazilian public planners seem to intensely interact with wa-ter users and social and environmental organizations, indicating that sustain-ability concerns are already raised at the stage of project design. The most central actors of the Brazilian urban water IS are the operators of the water infrastructure. They have the closest links with their financial and technical suppliers, but also hold intensive relations with regulating agencies and, most importantly, with water users, which indicates that user-producer linkages are relatively well developed.

The typical PSO in the Brazilian urban water and sanitation IS continues to be a large quasi-public company that jointly provides water and sanitation ser-vices to various municipalities within the state. For instance, the two Brazilian megacities São Paulo and Rio de Janeiro are served by SABESP and CEDAE respectively, which are mixed public-private companies with majority share of the state Government. Both companies can be considered outcomes of the PLANASA scheme. CEDAE was created in 1975 when the State of Rio de Janeiro fused with the State of Guanabara. SABESP was created in 1973 as a result of a fusion of companies and autarchies that until then had managed the water service and sewage collection in the cities of the state.

As the network analysis reveals, universities and public laboratories are

linked to water users and standard-setting organizations, but hold no intense contact with the water industry. Although in general the interaction of all actor types within the IS seems to be strong, the relatively weak university-industry link could have important consequences for the functioning of the SIS by hin-dering the industrial application of knowledge that was created in the research sector. In fact, Furtado et al. (2009) diagnosed a lack of formal mechanisms of knowledge transfer and the need to strengthen the ties between the academic and industrial spheres, when evaluating the impacts of the Brazilian Program for Research in Basic Sanitation (PROSAB).

1.4.2 China

China has a centralized political system with considerable decentralization of power across the four layers of government at the national, provincial, prefec-tural, county levels. Legislative and regulatory powers as well as planning and development responsibilities are with the national government. The provincial government has historically played an advisory and oversight role, while lo-cal governments play the dominant role in infrastructure service provision and financing of their public utilities. The Chinese fiscal system is relatively decen-tralized, with most of the tax revenues collected and spent at the local level.

The typical PSO in China is a relatively small municipally-owned water company. But, as one of the Chinese experts pointed out, the differences are large between the big cities (that is, Beijing, Shanghai, Wuhan), operated by state-owned companies, and small towns, often operated by domestic private firms with concessions by the local government. Urban water supply and san-itation is the responsibility of cities under complex arrangements that differ substantially from one city to another. Local governments are responsible for urban water services, including tariff setting, subsidies, utility management, and definition of scale and scope. Most cities independently provide water ser-vices within their boundaries regardless of their size, since inter-jurisdictional cooperation is difficult due to the high degree of decentralization.

According to Cosier and Shen (2009), certain areas of the urban water re-source management framework may benefit from greater levels of coordina-tion. There is obviously a common thread between water abstraction, wa-ter supply, wawa-ter use (including efficiency measures, quality protection and wastewater disposal), yet the management system adopted for each of these aspects are not well integrated in practice. Other than in the actor type model, water and wastewater companies are usually separate from each other, and in

larger cities services are even further unbundled. Many cities have also sepa-rated the responsibility for wastewater between government drainage depart-ments and wastewater treatment companies.

Accordingly, the Chinese experts that were surveyed identified the lack of an integrated management as the most important need for improvement of the Chinese urban water IS. The conflict between the Ministry of Water Re-sources (MWR) and the Ministry of Housing and Rural-Urban Development (MHURD) seems to be a major concern in urban water management. This problem is further amplified as the institutional division of responsibilities at the national level is reflected in equivalent line agencies at each of the lower levels of government. Each agency reports to both their political leader at the same level, as well as the agencies above them. And each agency monitors agencies below them. Many cities have established Water Affairs Bureaus that report to the MWR and are mandated to provide integrated water manage-ment and supervise urban water utilities, yet the MHURD still issues most of the policy guidance related to urban water utilities. The various water compa-nies may have the same parent bureau, which may be the construction or the water bureau, or they report to different bureaus.

The network analysis shows an extremely intense interaction of the vari-ous actor types within the IS (see Figure 1.8), but it is especially strong among universities, public planners, regulating agencies and standard-setting organi-zations, which may be explained by the high formal coordination and report-ing requirements of the public administration system. The Ministry of Health is responsible for drinking water quality and together with the Standard Ad-ministration issues the respective national standards that must be met by ur-ban suppliers. The National Development and Reform Commission (NDRC) provides overall development policy and financial supervision to the urban water and sanitation sector and administers the most important concessionary finance program.

Although the overall intensity of interaction in the system seems to be very high, the relatively isolated positions of water users and environmental and social organizations hint at their weak integration. This conjecture is supported by the comment of a Chinese expert: “Generally speaking, the stakeholders are getting more and more interactive together. However, how to integrate the concerns of the users of water needs to be improved largely.” Although basic institutions for river basin management are in place, there is no legal definition and no institutional arrangement that could guarantee the effective

participation of all stakeholders. According to Shen (2004), participation is the weakest point of the water resource management in China.

The Water Law is the most fundamental and comprehensive law of wa-ter governance in China. It was first promulgated in 1988, lawa-ter revised and amended in 2002. The 1988 Water Law marked a fundamental change both in water policy and water administration as it set up a series of new water resource management systems, such as water supply and demand planning, water use permits and water use charges. Later, the 1988 Water Law was crit-icized for its emphasis on water exploitation over water saving and on eco-nomic benefit over environmental protection, the lack of implementing river basin management, and the incomplete implementation of water rights. The amendment of the Water Law in 2002 emphasizes demand management and water quality protection and thus paved the way for a transition from a fo-cus on infrastructure development to a phase where more attention is being devoted to the management and protection of water resources.

1.4.3 India

India has a federal form of government with a strong central government. But in the water supply and sanitation sector, post-independent India adopted a state-centric approach for securing the right to drinking water. The responsi-bility for the urban water supply and sanitation sector are dispersed among government layers.

The severe drought in 1987 in conjunction with the general macroeconomic crisis of the late 1980s brought the opportunity to reform the Indian water sec-tor and led to the adoption of modern principles of water governance in the first ever National Water Policy. This policy assumed a holistic view of the wa-ter sector and advocated for the development of integrated information sys-tems, conservation of resources, emphasis on multipurpose projects and pe-riodic groundwater assessment. It also prioritized for the first time in Indian history drinking water over other water uses and stated that water rates should not only convey the value of scarcity but also cover a portion of fixed costs and the annual maintenance and operation charges.

The central Government is responsible for the regulation and development of inter-state rivers and river basins. It also establishes the policy framework for the management of water resources and provides funds for water and sani-tation projects via the budgetary routes. Both the development responsibilities and some of the legislative powers are with the state governments. In most

states however, the functions of policymaking, financing and economic regu-lation overlap or are improperly distributed. The lack of constitutional power makes the central Government too weak to coordinate institutional issues at the state and inter-state levels, and achieving country-wide consensus on na-tional policies has proven difficult. One of the Indian experts comments, “In fact, even after 60 years of independence we have not formulated an integrated water policy. Ground water has gone down, surface water is highly polluted and still no serious attempt is being made to improve the situation.”

With the Constitutional Amendment of 1992 the responsibility for urban water supply and sanitation services was clearly assigned to local bodies. The operation and management responsibility is supposed to be passed on to the local entities upon completion of the infrastructure construction works which are the responsibility of the states. However, due to lack of capacity and in-centives, municipalities often leave state-level entities to carry out operation and management functions. Most local entities have either not taken up the responsibility of the water and sanitation service or have merged it with other municipal services.

Consequently, institutional arrangements of the PSOs vary significantly from state to state: state-level Public Health Engineering Departments, spe-cialized state-level Water and Sanitation Service Boards, spespe-cialized City-level Boards, Municipal Corporations and Urban Local Bodies deal with urban wa-ter and sanitation issues. The local government institutions in charge of oper-ating and maintaining the infrastructure are generally weak and often lack the financial resources to carry out their functions.

Accordingly, the only more intense relation of the infrastructure operators that is indicated by the network analysis exists between the infrastructure op-erators and their capital providers. Indeed, the network analysis shows a very fragmented IS (see Figure 1.8), where the actors of the public administration, that is, the regulatory agencies, the standard-setting organizations and the pub-lic planners, take a peripheral role and are not connected to each other or to any other of the actor types.

Unlike in other decentralized countries, there are no autonomous regula-tory agencies for water supply and sanitation at the state or national level.

Multiple ministries are cross-functionally involved in the water sector, but no agency currently plays the role of the economic regulator. The Ministry of Ur-ban Development (MoUD) is the principal department of the central Govern-ment that coordinates urban water supply and sanitation activities, and the

Central Public Health and Environmental Engineering Organization is its tech-nical arm. The MoUD receives assistance from the Ministry of Health and Fam-ily Welfare, Ministry of Water Resources, Ministry of Environment and Forests and the Planning Commission.

Economic regulation is a relatively new concept in India which has been introduced as part of broader sector reforms and the increasing role played by the private sector. But, regulation requires accurate data, a commodity that is badly missing in the Indian water sector. Instruments to make informed decisions on proper allocation of water resources (water rights market) still have to be developed in most states.

In the 1990s, the central Government realized the need for taking water end-users into account. With this objective, the policy began to refer to the eco-nomic use of water, inculcating responsibilities in users by imposing charges, and responsibility for the operation and maintenance of the services. In recent times, the potential roles of NGOs and the private sector in urban basic services are being recognized. According to the network analysis, social and environ-mental organizations are central to the IS and interact with water users as well as with universities and public laboratories.

Not included in the actor model, the so-called informal sector has been traditionally present in Indian cities. The role of small independent water providers is often underestimated. According to estimates of Kariuki and Schwartz (2005), in Delhi they serve 6-47 per cent of the households with water.

The urban middle class have learned to live with irregular, unpredictable and often polluted public water services by developing coping strategies which in-clude investments in household storage, purchasing of bottled water for drink-ing, installation of household water purification systems or purchase of water from vendors (Briscoe and Malik, 2006).

1.4.4 South Africa

Since the end of apartheid in 1994, water policies and water legislation un-derwent a profound revision. Reorganizations and reallocation of powers and functions have shaped the structure of the water sector significantly. Several acts provide the legal framework, including the Constitution which ensures the right to clean water, the National Water Act which ensures free basic water and sets the rules for establishing and running local water authorities; and the state and local government acts.