An audacious plan to deliver safe, reliable water to all of rural Benin … profitably.
Can an ambitious public-private partnership lead to successful delegation of rural water supply management to small businesses for an entire country in sub-Saharan Africa? Benin is offering the test case.
Rural Water Economics
In a 2020 article, Dr. Rob Hope and collaborators in Oxford University’s REACH programme described aspects of scale, demand, institutions, and finance that make rural water economics so fundamentally different (and more challenging) than urban water supply.
Recognition of these kinds of obstacles motivated the government of Benin to engage in a decade-long effort to test and then scale a novel policy approach to delivering rural water supply services, with support and technical assistance from the World Bank. The approach is known as regional affermage, in which the government assumes the capital costs (for water infrastructure) and formally delegates responsibility for the operation and maintenance of rural water supply services for very large, consolidated service areas to private sector contractors selected via competitive bidding. In Benin’s case, the rural areas are divided into three roughly equally-sized service areas of approximately three million inhabitants each.
To explore the potential of the Benin experiment, the REAL-Water podcast (available on Anchor, Spotify, and Apple Podcasts, among other platforms) recently featured Thierry Barbotte and Mikael Dupuis of UDUMA to drill down into the details. UDUMA is part of a consortium that was awarded two out of the three regional affermage awards for Benin.
Affermage contracts supplying large service areas were meant to address several of the challenges Hope et al. laid out above. Consolidating service areas should, in theory, increase economies of scale, pooling risks (particularly financial risk). As Hope et al. write, “the economic logic of one supplier to avoid duplicating costs (storage, treatment, delivery, waste, billing, customer services) makes it a natural monopoly, which can reduce costs and raise standards for consumers, if properly regulated. Rural water at the community level lacks scale and provides a lower-quality service due to the physical time and effort required to collect water from off-site supplies, such as handpumps or kiosks.”
The Benin regional affermages were also intended to “crowd in” commercial investment for rural water supply, using development finance strategically to attract private sector financing. UDUMA is convinced that end-user tariffs for reliable, high quality water supply can cover the costs of operating rural water supply systems (including the costs of capital maintenance) and even generate a modest return for investors. Importantly, the costs of capital are assumed by the government or by development finance via concessional loans or grants.
In our conversation, Thierry and Mikael describe what led to the creation of UDUMA – a rural water service provider – out of Vergnet Hydro, a company that manufacturers and supplies pumping and conveyance hardware. Initial pilot efforts in Burkina Faso offered evidence for the potential of private sector models for rural water supply system operation (again, conditioned on co-investment by government or development institutions). Incorporation of UDUMA as a service provider followed, with expansion first into Mali and now, Benin.
Just getting to the contracting stage represents years of legal and institutional reforms in Benin, the culmination of which was the competition for the three contracts and resulting awards. The contracts are only now being finalized, but over the coming years, the financial performance of UDUMA’s consortium (as well as another consortium led by Tunisia’s SONEDE International) and the operational performance of the hundreds of water supply systems for which they are responsible will provide an indication of if and how these regional affermages can bring reliable water supply to Benin’s rural communities.
Supported by USAID.