Private sector participation and the poor: Realizing the full potential of transactions in the water sector

An increasing number of national and local governments are turning to the private sector to manage and expand their networks for water and sanitation services. The trend has raised concerns about how the poor fare under such arrangements, but a growing body of evidence suggests that private firms are willing and able to serve low-income areas if given the incentives and flexibility to do so. A given contract's potential for achieving pro-poor outcomes is derived from the incentives it provides for efficiency, and particularly from the basis for remuneration. Whether or not this potential can be realized depends on the extent to which the transaction is used to place downward pressure on prices, provides incentives for a pro-poor pattern of service expansion, and allows service providers the freedom to respond to demand. Examples are described from a number of countries.