Corruption in the Water Sector

1
Corruption in the Water Sector

• Janelle Plummer
• Patrik Stålgren
• Piers Cross
• World Water Week - Stockholm
• 22 August 2006

2
The Challenge

• Inefficient use of existing water sector finances
• Lack of investment
• Millions dying from lack of clean water and basic
  sanitation Reaching the MDGs is unlikely
• Degradation of water resources and ecosystems
• Unjust distribution of water services and
  resources
• Lack of democratic influence for stakeholders
• Corruption affects who gets what water when,
  where and how. It determines how costs are
  distributed between different actors and the
  environment.

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How big is the corruption problem?

• Varies across the sector and
• national/sub-national governance
• settings
• World Bank estimates of project
• corruption in highly corrupt countries
• could be 30-40 prior to anti-corruption
• initiative
• If 30 is correct
• US20 billion could be lost in the
• next decade to meet the MDGs
• for WSS in Africa
• Much need for diagnostics!
• Based on a 6.7 US billion annual estimate for
  WSS expenditure requirements

• WSS in South Asia
• False readings 41 of customers had paid a
  bribe in last 6 months
• Illegal connections 20 of households admitted
  paying a bribe to utility staff
• Contractors 15 excess cost because of
  collusion
• Kickbacks 6-11 of contracts value
• (Davis,WSP Study, 2003)

4
What is corruption?

• Definitions
• the use of public office for private gain (WB)
• the abuse of entrusted power for private gain
  (TI)

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Corruption comes in many forms

• Bribes payments to public officials to persuade
  themto do something (quicker, smoother or more
  favorably).
• Collusion secret agreement between contractors
  to increase profit margin
• Fraud falsification of records, invoices etc.
• Extortion use of coercion or threats. E.g. a
  payment to secure / protect ongoing service
  (cf. collusive corruption where both sides
  benefit)
• Favoritism/Nepotism in allocation of public
  office
• Grand corruption high level, political
  corruption
• Petty corruption corruption in public
  administration and/or during implementation or
  continuing operation and maintenance

6
Examples of corruption in the water sector

• Falsified meter readings
• Distorted site selection of boreholes or
  abstraction points
• Collusion and favouritism in public procurement
• Bribes to cover up wastewater and pollution
  discharge
• Kickbacks to accept inflated bills in production
• Nepotism in allocation of public offices in water
  administration
• Bribes for diversion of water for irrigation
• Bribes for preferential treatment (spead, service
  level etc)

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Causes of corruption in the water sector

• Complementing perspectives
• Incentives Cost/benefit ratio of engaging in
  corruption. Economic and non-economic rewards.
• Institutions Dysfunctional institutions -
  stucture and capacity creates opportunity and
  lowers risk of getting caught.
• Norms Setting expectations and limitations for
  legitimate behaviour.

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Causes of corruption
Corruption Monopoly Discretion
Accountability
HIGH
HIGH
LOW
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Is the water sector unique?

• It combines high risk characteristics
• Monopolistic behavior
• Large flow of PUBLIC money
• High cost of sector assets
• Assymmetry of power and information
• Sector/ technical complexity

• It is similar to
• Typical civil service behavior
• The construction industry (most corrupt sector?)

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2. A Framework for Understanding Corruption in
the Water Sector
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An Interaction Framework

• Public to public
• Diversion of resources
• Appointments and transfers
• Embezzlement and fraud in planning and budgeting
• Public to private
• Procurement collusion, fraud, bribery
• Construction fraud and bribery
• Public to citizen / consumer
• Illegal connections
• Falsifying bills and meters

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An Interaction Framework

• PUBLIC
• PRIVATE
• interactions

• PUBLIC
• CONSUMER
• interactions

• PUBLIC
• PUBLIC
• interactions

Policy-making
Planning / budgeting / financing
Management
Tendering and Procurement
Construction / Operations / Services
Payment Systems
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An Interaction Framework

• PUBLIC
• PRIVATE
• interactions

• PUBLIC
• CONSUMER
• interactions

• PUBLIC
• PUBLIC
• interactions

Policy-making
Planning / budgeting / financing
Management
Tendering and Procurement
Construction / Operations Services
Payment Systems
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PUBLIC PRIVATE interactions
PUBLIC CONSUMER interactions
PUBLIC PUBLIC interactions

• Distortions and diversion of national budgets

• State Capture of policy and regulatory
  frameworks

• Bribery, fraud, collusion in tenders
• Fraud / bribes in construction

• Illegal connections
• Speed bribes
• Billing/payment bribes

• Administrative fraud
• Document falsification

• bribery / fraud in community procurement
• elite capture

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PUBLIC to PUBLIC interactions

• Early warning indicators
• Monopolies / tariff abnormalities
• Lack of clarity of regulator / provider roles
• Embezzlement in budgeting, planning, fiscal
  transfers
• Speed / complexity of budget processes
• No.of signatures
• spending on capital intensive spending
• Unqualified senior staff
• Low salaries, high perks, cf. HH assets
• Increase in price of informal water

• Anti-corruption Measures
• Policy and tariff reform
• Separation
• Transparent minimum standards
• Independent auditing
• Citizen oversight and monitoring
• Technical auditing
• Participatory planning and budgeting
• Performance based staff reforms
• Transparent, competitive appointments

• Policy-making / Regulating
• Diversion of funds
• Distortions in decision-making, policy-making

• Planning and budgeting
• Corruption in planning and management
• Bribery and kickbacks in fiscal transfers

• Management and Program Design
• Appointments, transfers
• Preferred candidates
• Selection of projects

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• PUBLIC to
• PRIVATE
• interactions

• Early warning indicators
• Same tender lists
• Bidders drop out
• Higher unit costs
• Variation orders
• Low worker payments
• Single source supply
• Change in quality and coverage

• Anti-corruption Measures
• Simplify tender documents
• Bidding transparency
• Independent tender evaluation
• Integrity pacts
• Citizen oversight and monitoring
• Technical auditing
• Citizen auditing, public hearings
• Benchmarking
• SSIP support mechs

• Procurement
• Bribery, fraud, collusion in tenders

• Construction
• Fraud / bribes in construction

• Operations
• Fraud / bribes in construction

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• PUBLIC to CONSUMER
• interactions

• Anti-corruption Measures
• Corruption assessments
• Citizen monitoring and oversight
• Report cards
• Transparency in reporting
• Citizen oversight and monitoring
• Complaint redressal
• Reform to customer interface (e.g. women cashiers)

• Early warning indicators
• Loss of materials
• Infrastructure
• failure
• Low rate of faults
• Lack of interest in connection campaigns
• Night time tanking
• Unexplained variations in revenues

• Construction
• Community based WSS theft of materials
• Fraudulent documents

• Illegal connections
• access / speed payments
• billing / payment bribery

• Operations
• Admin corruption
• (access, service, speed)

• Payment systems

• meter, billing and collection fraud and
  bribery

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Identifying anti-corruption measures

• 7 sets of anti-corruption measures
• Measuring and diagnosing
• Transparency and access to information
• Improving accountability
• Institutional and policy reform
• Enforcement and regulation
• Education and advocacy
• Integrity

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Areas to explore

• What is the viability of specific sector
  interventions?
• How can decentralization be harnessed as an
  anti-corruption strategy?
• How are these measures different from current
  reform efforts?
• How do we make anti-corruption work for the poor?

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3. Making Anti-Corruption Approaches Work for
the Poor
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Making anti-corruption work for the poor

• Why pro-poor anti-corruption approaches?
• Understanding the poors interaction with
  corruption
• Identifying hotspots in the water sector
• Developing responses to bring benefit to the poor

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Why pro-poor anti-corruption approaches?

• Why pro-poor?
• disproportionate impact regressive
• differentiated impact the affect on the poor
  varies
• unpredictable impact not much is known
• Loss of water assets and services diversion
• User pays and cost recovery principles double
  cost
• Risk of fallback tightening and shifting
  effects?
• Growth, efficiency of services, better
  governanceall these things support poverty
  reduction

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Understanding the poors interaction with
corruption

• What are the impacts of corruption on the poor?
• Short term issues access to water
• Differentiated Marginalisation or empowering
• Coping strategies
• Bribery decreases financial assets but increases
  short term water assets, health assets
• Long term issues efficiency and effectiveness
• Marginalisation
• Decrease in physical assets
• Loss of options

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Understanding the poors interaction with
corruption

• 1. Indirect (does not involve the poor in
  interaction)
• Political corruption, state capture
• Diversion and distortion in the allocation of
  funds
• Embezzlement from state, sector, local government
  budgets
• Procurement fraud, fraud in construction
• Elite capture

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Understanding the poors interaction with
corruption

• 2. Direct (the poor are involved in the
  interaction)
• Poor users offer bribes or bribes are extorted
• to access water (for irrigation, drinking water
  etc)
• for quality, maintenance
• to get a fair price
• Poor officials use their public office for
  private gain
• To provide access, quality and price
• To enable elite capture
• To defraud program / project funds
• Act in organizational chain of fraud/ bribery
• or as an individual or middleman

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Identifying hotspots

• A flow of corrupt interactions
• in which the poor are paying bribes to stay in
  the system
• and receiving bribes (as officials or de-facto
  officials)
• which ones matter most?

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Identifying hotspots in the water sector

• In the poors water context what matters
  most?
• Paying bribes at the point of service delivery
• To access assets for WSS/irrigation/drainage
  control (one-off)
• To access ongoing services for repair /
  operation (recurrent cost)
• To get the right price for legal or illegal
  aupply
• Taking and extorting bribes and defrauding
  projects either individually or as a part
  of a group
• Assets captured, controlled by officials
• Services and Payment systems controlled by
  officials
• Procurement and execution controlled by officials
  
• Embezzlement of project and community funds

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Identifying hotspots in the water sector

• In the poors water context what matters
  most?
• The sub-sector WRM, water supply, sanitation
• What characteristics make for more corruption?
• The public good finding
• The system
• Where do the poor get their water? The spectrum
  of water providers
• The location
• Opportunities for corruption at low access points
• The actors
• Relationships between poor and leaders / social
  elite

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