Videos 4 y 5 Semana 2

Video Corruption issues in the water
In this video, we are going to begin examining corruption issues in the water and sanitation sector.
Play video starting at 11 seconds and follow transcript0:11
We'll start by looking at the question of where corruption is happening.
This slide is not about corruption, it shows where innovation is happening around the world cities.
The blue spikes are IT employment. The orange spikes show the number of patents, the black
spikes show the amount of venture capital.
Now look at the Transparency International map of the extent of corruption. The dark red color
indicates where corruption is worst.
Now look again at the global map of sanitation coverage that you've already seen, comparing
these three maps, you can see that innovation is occurring in cities where corruption in water and
sanitation are not problems. Conversely, there is a strong overlap between countries with high
corruption and low coverage.
Play video starting at 1 minute 2 seconds and follow transcript1:02
This means that if you want to work on problems of water and sanitation in developing countries,
you're going to be working in places where corruption is a big problem.
This table shows Transparency International's top 20 countries, in other words the countries with
the least corruption.
Denmark, New Zealand, Sweden, Singapore, all nice places to work, but they don't have many
poor households with water and sanitation problems.
This table shows Transparency International's Bottom 23 countries. In other words, the countries
with the worst corruption. Sudan, Afghanistan, Haiti, Iraq, Somalia, these are the countries with
some of the worst corruption, and all these countries have challenging water and sanitation
problems. These are the kind of places that need your water and sanitation policy skills.
Here's a two by two table that presents a simple topology of the skill and knowledge. Level of
donors and government officials. For several years I've asked my students in my Water Policy
course, which of the four cases best describe status quo conditions in low-income countries with
serious water and sanitation problems. Which case would you pick?
Play video starting at 2 minutes 20 seconds and follow transcript2:20
Some students push back and say that there are people with different knowledge and skill levels in
both donor and government organizations. And of course they're right. But I tell them to think
about which case, on balance, do they think is most typical.
This next two by two table presents a slightly different topology of the motivation of donors and
government officials.
This topology separates both groups into self interested corrupt versus well meaning altruistic. Of
course our self interested is not quite the same as being corrupt.
But I again ask students to think about which case, on balance, is most typical in their experience.
Play video starting at 3 minutes 1 second and follow transcript3:01
I have found that I receive all kinds of answers to both questions. Student's answers typically fall
into all four cells in about equal proportions, and students are surprised by other students'
answers.
In my career I've met many altruistic donors and government officials who were trying their best
to do the right thing, but on balance I'd say it's a good working assumption to assume that most
people are by necessity looking out for their careers. They are to a large extent self-interested, and
the problems are always so challenging that knowledge and skill levels are in short supply.
Whether specific individuals are in fact corrupt is sometimes not easy to determine, but in some
cases it will be apparent.
One point I want to make about these two tables is that corruption typically takes two parties.
For example, if a bribe is paid, someone has to pay the bribe, and someone has to receive it.
So if corruption is high, donors and contractors from industrialized countries are often a party to
such transactions.
This next table shows Transparency International's Bribe Payers Index.
Officials and contractors in the Netherlands, Switzerland, Belgium and Germany are perceived to
be the least willing or least likely to pay a bribe.
On the other hand at the bottom of the table officials and contractors in Russia, China, Mexico and
Indonesia are perceived to be the most likely to pay bribes.
In this next set of slides, I want to show you how money flows in a donor-funded project and
where opportunities for corruption lie. Of course, there's no one protocol that all donors use. But
the one I will describe is fairly typical.
Suppose the international donor wanted to get involved in the water and sanitation sector and
support the construction of a new. Real water supply program in a developing country.
This figure shows five main stakeholders. The donor, the Ministry of water resources, International
government, the Ministry of finance might get involved, the Villages.
Foreign consultants and local consultants.
The first step is for representatives of the donor to make a pre-planning mission to the country
and discuss sector issues with the various ministries. The team might make a quick trip to the
villages to see local water and sanitation conditions.
In the second step, after considerable discussions and agreement to undertake a project, the
ministry of water resources issues a request for proposals to undertake a large planning study, or
perhaps a construction effort.
The foreign consultants get the RFP.
Step three, the foreign consultants team up with a team of local consultants to prepare a joint bid,
basing their proposals to the Ministry of Water Resources.
In step four the Ministry and the foreign donor evaluate the bids. And select their preferred
consulting team. At this step local consultants might attempt to influence the selection process at
the Ministry of Water Resources.
In step five, officials in the ministry and at the top rank consulting firm attempt to negotiate a
contract.
Here officials in the ministry may attempt to solicit a bribe from the contractor. Or the consultant
in order to successfully conclude the negotiations.
In step six the local consultants in collaboration with the foreign consultants conduct the study. Or
they build a project.
In step seven, the consultants submit an invoice or a series of invoices to the ministry for approval.
The consultants may pay a bribe, to the ministry to accept an inflated invoice or invoice that
includes substandard materials.
In step eight, the ministry reviews, approves and passes the invoice on to the donor for payment.
In step nine, the donor reviews the invoice and disburses funds to the foreign consultant.
Here, a representative of the donor may solicit favors from the consultant. To expedite payment.
When we look at all nine steps, and think about the opportunities for corruption. We can see that
there are possibilities everywhere. Officials at the ministry can solicit bribes from the consultants.
The consultants can bribe officials in the ministry to increase their profits. And donor
representatives can solicit favors from foreign contractors.
This picture of the flow of donor funds is not unique to the water and sanitation sector.
So we need to ask if corruption in the water and sanitation sector is any different than in other
sectors?
I think there are six reasons why corruption is especially a problem in the water and sanitation
sector. The first reason is that the construction of piped water and sewer networks are so capital
intensive. This means that there are big contracts and lots of money can be made by winning a big
contract.
The second reason is that demand for small quantities of water is price inelastic. This means that if
someone can gain monopoly control over the capital assets of supply systems, it is possible to
charge prices far above costs.
The third reason is that water and sanitation networks are complex and hidden underground. This
means that a supplier can run down the quality of the capital assets without others, for example, a
regulator, having a clear understanding of what is happening.
The fourth reason is that there is a lack of transparency in billing and pricing.
Is not difficult for service providers to send their customers water bills that are difficult to
understand in unrelated actual water use or even unrelated to the official water tarrif. Most
customers can not discern such billing discrepancies.
The fifth reason is lack of market discipline. Water vendors may face mark, market discipline but
public water utilities rarely do. Inefficiencies and production may be introduced by corrupt
practices, and employment and contracting.
But such inefficiencies do not put much pressure on public water utilities to reform.
Finally, the six reason is that there many donors and NGOs working in this sector. This means that
if one donor objects to a corrupt practice of a government. The government can often find the
funds requested from another donor, again, reducing pressure to reform corrupt practices.
There's an interesting academic literature on the effects of corruption in the water sector. I'll
mention a couple of papers you might like to read. And then econometric study of African water
utilities Antonio Estache found that corruption is negatively correlated with technical efficiency in
African water utilities.
This means as corruption goes up technical efficiency goes down.
In another paper Laszlo Lovei and I describe the water vending system that existed in Jakarta in
the early 1990s. In this paper, we show that a water supply system based on limited numbers of
public taps, relatively few house connections and water vendors can generate substantial
monopoly rents. These rents can be appropriated by either public or private stakeholders or in the
case, Jakarta, by both.
To wrap up, we often assume that water infrastructure will be designed to maximize public
benefits, but this may not be the case. If it is designed to maximize private gains, the infrastructure
may look very different by design.
Video Corruption in South Asia

In this video, we're going to examine corruption issues in the water and sanitation sector in South
Asia.
We're going to discuss the findings reported in a paper entitled Corruption in Public Service
Delivery: Experience from South Asia's Water and Sanitation Sector. By Jennifer Davis who is a
Professor of Civil Environmental Engineering at Stanford University in the United States. I have to
confess that this is one of my favorite papers about the sector. I think it represents and
extraordinary piece of field work. This fieldwork was done in India and Pakistan about 12 years
ago.
I think it's helpful to think of a chain of five types of corruption in the Water and Sanitation Sector.
At the bottom of the chain, customers make illegal payments to low level water utility personnel.
On the next step up the chain, low level water utility personnel make payments to people higher
up in the organization. On the third rung of the chain, managers and agency heads solicit
payments from people outside the organization.
Then, on the fourth rung of the linkages between the organization, and illegal activities of private
contractors and consultants. The fifth link is between the private contractors and consultants and
international donors. Professor Davis' paper examines the first four links in detail.
The first question she asks is what kinds of illegal payments could customers or households make
to low level water utility personnel? And she finds that there are four main ones. First, payment
for a connection to the water distribution system. Second, payment to falsify a water bill. Third,
payment to make a repair. And fourth, payment to ignore an illegal connection.
At the time she did her field work, Professor Davis found that 41% of customers said that they'd
made payments for falsified meter readings in the last six months. A typical payment was about
$0.45 US. 31% of the water and sanitation staff who were interviewed felt that payments from
customers to employees for faster service quote, benefit the customer and the employee without
harming anyone else.
She also found that few water and sanitation managers considered it a serious offense for their
employees to tolerate. Illegal service connections.
Professor Davis' second question was, what could low-level water utility personnel pay people
higher in the organization to do? Again, she finds four types of payment made by low-level
employees in the organization. First, payment to obtain a job or to keep a job.
Second, payment for a promotion. Third, payment for a transfer to a new post. And fourth,
payment to have someone transferred out of a post that you want.
She found that most South Asia public service bureaucracies have a policy of transferring their
professional staff every two to three years.
This policy of regular transfers has created a thriving market for desirable posts, and has allowed
elected officials to become defacto personnel managers in public service institutions.
She found that a cash market for desirable posts exists in many locations and that the prices for
different kinds of posts were well-established. For example, one of her respondents described the
market for job transfers. Quote, if I want your position, I can get help from someone to have you
transferred out.
At the time of his interview, this employee was working to amass the US $1,300 he would need to
negotiate a desirable transfer the following year. He asked, where do I get the money? Where
would you get it if you were in my position?
This clearly demonstrates the nature of the corruption chain. One form of corruption begets
another.
Professor Davis' third question was what could managers and agency heads ask people outside of
the organization for? She found that managers and agency heads received payments for awarding
contracts to firms in various types of kick-backs. Examples of common kick-backs were allowing
contractors to use sub-standard materials and accepting falsified invoices. A few contractors
admitted making payments to politicians for assistance in winning contracts. The value of these
payments ranged between 1 to 6% of the contract value. Contractors recoup these payments
through the use of sub-standard materials and over invoicing.
Professor Davis' fourth question was, what kinds of illegal activities could private contractors or
consultants engage in? And she found four main activities. First, payment for the award of
contracts. Second, contract collusion. Here, contractors would decide ex ante how they would bid
on a series of government contracts, and agree not to bid against each other.
Third, payments to government officials to monitor or manipulate a bidding process. And fourth,
the use of sub-standard materials. Professor Davis found that on large contracts, it was common
for contractors to partner with elected officials and senior bureaucrats. The few contractors who
are willing to provide such information estimated that the values of winning, bids were roughly
15% higher than they would've been in a competitive environment. The value of kick-backs paid by
contractors to Water and Sanitation Agency staff was between 6 to 11% of contract value.
Professor Davis estimated that such payments were made in over half of the contracts issued.
One contractor produced a laminated card upon which he'd written the payment schedule for
kick-backs. Professor Davis quotes him as saying, it is too hard to remember all the rules. I don't
want to make a mistake.
Looking at this entire chain of corruption, Professor Davis says that these water institutions
probably spend 20 to 35% more on construction contracts than the value of the services rendered.
This estimate is consistent with my own informal assessments of the magnitude of the effects of
corruption in the sector in several place where I've worked. Professor Davis also correctly points
out that this cost markup is not the only important consequence. Agency staff become diverted
from their primary responsibilities. Also, agency finances are undermined by hundreds of
thousands of illegally connected households.
Professor Davis ends her paper on an optimistic note. She describes some hopeful trends in the
dynamic baseline that she feels may reduce corruption in the future. And she provides a checklist
of things that water policy reformers may want to try in order to reduce corruption, such as one,
an expedited application process for a new water connection. Two, a reconfiguration of office
space to make it more open and deter corruption deals. Three, public posting of prices and
connection fees. Four, a toll-free customer hotline to report corruption. And five, a citizen's bill of
rights.
To wrap up, you should not be surprised to find systematic corruption activities in the status quo
conditions. In the Water and Sanitation Sector in south Asia or else where.
My experience, when corruption levels reach a third of contract costs or above, water agency staff
spend very little time and energy on professional water work.
One take away message from this weeks material is if you plan to work in this sector. You need to
think hard about how you will engage with entrenched systems of corruption and what your
personal strategy to address it will need to be. Good luck.

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Video Corruption issues in the water

Video Corruption in South Asia

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