Wednesday, March 21, 2007

How Clean Should Water be in LDC Cities?

This blog entry below argues that urban water treatment systems are expensive in terms of upfront expenditure and ongoing expenditure. While everyone would like to have clean water for bathing and drinking, such projects are expensive. This blogger seems to be arguing that "small projects" would be better for LDC cities because government politicians on the ground are more likely to be willing to budget for them relative to enormous engineering projects that sound great on paper but create local public finance havoc in terms of budget deficits for poor LDC governments.

The U.S ran into this issue 100 years ago. See the Cutler and Miller paper
Cutler, David, and Grant Miller. 2005. “Water, Water, Everywhere: Municipal Finance and Water Supply in American Cities.” Working Paper 11096. Cambridge, Mass.: NBER (January). at

A second issue this blogger should have addressed is time consistency in cities in developing countries. If Wall Street bankroll's Cairo's new water treatment system and then expects to earn back its money through charging a high price for clean water after this irreversible investment in a water treatment system is made, will the Cairo politicians allow this dynamic contract to unfold? Or expost after the system is build, will the politicans renege on the original deal? This latter possibility represents a "takings" and the anticipation of this state of the world leads Wall Stree to not invest in the first place.

Noll, Roger, Mary M. Shirley, and Simon Cowan. 2000. “Reforming Urban Water Systems in Developing Countries.” In Economic Policy Reform: The Second Stage, NBER Volume edited by Anne O. Krueger. University of Chicago Press.

You don't have to be as smart as Ed Prescott to see the costs of the inability of urban LDC politicians to commit to respect property rights in this simple time consistency model!

March 21, 2007
All-or-nothing in water treatment?
Posted by Tracy Hart

During the World Bank's Water Week last month, one topic discussed was "Balancing Brown and Green Interests." Not everyone knew that the "brown interest" is sanitation, including wastewater treatment, and that the "green interest" is environmental sustainability. However, my real surprise was to discover the conflicting interests.

Wastewater infrastructure is a big business everywhere -- the U.S. Environmental Protection Agency estimates that the U.S. alone needs to invest roughly $140 billion over the next 20 years in wastewater treatment systems to meet water quality standards. And, while treatment of wastewater effluent seems a no-brainer...

the opportunity costs of building treatment facilities in developing countries vis-à-vis investing in other poverty alleviation interventions is substantial.

So the buzz on the smart route to wastewater management in developing countries is a "phased approach." Investment in basic or primary wastewater treatment may happen now, and stepped up secondary and tertiary treatment occurs later down the road.

Sounds like a good idea? Yes, but let's not forget that wastewater treatment must meet the local environmental standards for water quality. And that these standards are often based on western models, which most middle-income countries and cities still struggle to pay for.

So even if there is a high class wastewater treatment plant, and piped water supply and (even less likely) sewerage removal, there’s a good chance the plant might be sitting around unused due its high operations and maintenance costs.

The challenge is to reconcile environmental safeguards and environmentally sustainable agendas. While safeguards call for compliance with local environmental standards, sustainability depends on an economic valuation of the cost of untreated effluent water to in-stream (fisheries, tourism) and downstream uses (uptake by communities). Even valuing the environmental damage due to untreated wastewaters is a tricky business.

Lastly, sanitation engineers tend to plan big, coming up with long-term plans for water and sewerage connections that require a ‘big-ticket’ investment to install primary, secondary and tertiary treatment systems. But this all-or-nothing approach is expensive and often leaves municipalities with no treatment at all.

The Bank is still learning on this one. One lesson is that the toolbox for increasing access to sanitation includes not only piped sewerage to treatment plants, but also on-site sanitation, and low-tech, newer, interventions, like constructed treatment wetlands and water reuse. These lower-tech solutions are appearing again and again in the Middle East and North Africa as well as for South Asia. Again, another universal lesson is look to local solutions and support these. What do you think?